Is Kickstarter selling dreams?

By Felix Salmon
July 19, 2012
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My theory, when it comes to buying lottery tickets, is that if you have disposable income to spare, then often the dreams and fantasies that accompany your lottery ticket purchase are in and of themselves worth $1. This is true not because dreams and fantasies are wonderful amazing and valuable things, although they can be; it’s more true because $1 is a very small amount of money. All too many people spend a significant percentage of their disposable income on lottery tickets, and that is a tragedy.

Now Ian Bogost has come along with a similar theory, relating to Kickstarter. Funding projects on Kickstarter is in itself “another form of entertainment”, he says:

What if Kickstarter is more about the experience of kickstarting than it is about the finished products? When you fund something like OUYA, you’re not pre-ordering a new console that will be made and marketed, you’re buying a ticket on the ride, reserving a front-row seat to the process and endorsing an idea. It’s a Like button attached to your wallet.

Bogost is proud of a pen he spent $100 on but never uses: “it’s a memento of the excitement I felt after first seeing the product”, he writes:

When faced with the reality of these products, disappointment is inevitable–not just because they’re too little too late (if at all) but for even weirder reasons. We don’t really want the stuff. We’re paying for the sensation of a hypothetical idea, not the experience of a realized product.

This is a cute conceit, and contains more than a germ of truth. At the same time, however, it starts to fall apart when Bogost compares Kickstarter to QVC, saying that what QVC is really selling is “the excitement of learning about products for the first time and getting in early on the sale”. That might indeed be part of why people are so eager to pick up the phone and order when they’re watching home shopping channels, but it’s not what QVC shoppers think that they’re paying for.

A lot of the relationship between merchants and consumers, these days, is a kind of escalating cold war: as fast as merchants’ sales techniques become increasingly sophisticated, so do consumers learn to see through them and compensate for them. If we look today at advertisements from 50 or even 20 years ago, we’re astonished that they worked at all.

And so it seems to me that Kickstarter is in some ways much like QVC was when it launched: a state-of-the-art sales and marketing platform. It’s highly social: Jeanne Pi has determined that your chances of raising $10,000 on Kickstarter are just 9% if you have 10 Facebook friends, rising to 20% if you have 100 friends, and 40% if you have 1,000 friends. And it’s done a very good job of walking the fine line between do-gooding, on the one hand (charity campaigns are specifically banned), and overt commercialism, on the other. Many projects are rejected, and Kickstarter’s Yancey Strickler is keen that everything on the site be creative, in some way, rather than just being some superficially clever gadget that you might see in the SkyMall catalogue or in a late-night infomercial. He doesn’t always succeed, but if you strip out the outliers, the big million-dollar headline-grabbers, he’s doing a better job than you might think.

Or, to put it another way, the simple “you could win a million dollars” sales pitch works for selling lottery tickets only combined with a deeply-discounted $1 ticket price. Make something cheap enough, and you can sell just about anything. Kickstarter, by contrast, with a much more sophisticated pitch, manages to deal in much higher dollar amounts per transaction.

Here’s the problem: while “I’m buying a dream” makes a certain amount of sense for a $1 lottery ticket, it makes much less sense for $100 vaporware. Just speaking for myself, if I’m spending $100, I want significantly more than just a dream. That’s more money than I’ve spent on lottery tickets in my lifetime. And I’m rich — I’m reasonably sure that I have more money, and more disposable income, than the majority of the 40,000 people — and rising fast — who are funding Ouya.

Maybe that just makes me a tightwad, and maybe America has millions of people who are happy dropping $100 on the experience of funding some exciting new project, just for the way it makes them feel. But it seems to me that one of Kickstarter’s greatest successes is the way in which it has managed to change the way we think about cost. I funded Tomorrow magazine, for instance, to the tune of $15. (On average, the magazine’s 1,548 backers paid more than $25 each.) If some as-yet nonexistent magazine had sent me a piece of direct mail, asking $15 for its launch issue, I would never have paid that. Even if an existing magazine looked really good on the newsstand, and had a cover price of $15, I would similarly never pay that. But somehow the idea that by paying the $15 up front I was helping to create that magazine — that was enough to get me to pay. That, and the fact that the founders of Tomorrow magazine are in my social graph — I’m helping out friends as much as I’m buying a product.

I think that’s the real key here: I’m not paying for the sensation of a hypothetical idea, so much as paying to support the individuals whom I like and admire. And Kickstarter neatly wraps that charitable impulse in a commercial transaction, which makes it easier to ask for — and receive — more money than either approach would yield on its own.

The question is: how sustainable is this model? It’s common in capitalist societies for local merchants to be able to charge higher prices, largely because they’re more convenient. Has Kickstarter invented a new form of online commerce, where merchants who are close to you on the social graph, rather than in terms of physical geography, can thereby charge a premium for products which would never fly in the open market? (I don’t get many catalogues in the mail offering goods which don’t yet exist, and which might not ever arrive.) Or has Kickstarter merely perfected the art of sprinkling social fairy dust on what are fundamentally commercial transactions, and eventually, as other merchants do the same thing and the public gets wise, the effectiveness of the fairy dust will diminish?

I suspect the answer is somewhere in the middle, and that Kickstarter is a bit like Groupon in its adoption profile. The early adopters tend to be the most zealous about it, and as the platform matures, the added value that it can generate per customer will necessarily diminish. At the same time, the customer base will almost certainly continue to rise pretty quickly. So the aggregate value being generated by Kickstarter is likely to continue to rise.

Over time, I think that fewer projects will be able to raise millions of dollars selling clever as-yet-nonexistent gizmos for $99 each. These projects nearly always tend to understate the risks involved, and especially the risk that the project will fail, and the funders won’t actually receive anything at all. That’s natural: the founders are in sales-pitch mode. But as consumers get wise to those risks, especially if one or two high-profie million-dollar Kickstarter successes end up producing nothing at all, then at that point we’ll realize that the funders weren’t just buying a dream after all. They really thought they were buying a product.

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