5 Questions

Innovation and Crowdfunding

November 12, 2015          

Episode Summary

On The Digital Life this week, we chat about crowdfunding and its place in the innovation ecosystem.

The creative class — knowledge workers in industries like biotech, design, gaming, and software — need new models and structures for collaborating and interacting. Crowdfunding’s open model means that nearly anyone with an entrepreneurial spirit and a good idea can start up a project and hopefully, get some money behind it. For this reason crowdfunding is great for testing markets, and launching new product categories. But for all its benefits, it also come with some high risk potential.

Recently the TechJect Robotic Dragonfly drone project — funded to the tune of $1 million in 2012 on Indiegogo — disintegrated when the company ran out of money. And it’s far from the first.

And the Glowing Plant synthetic biology project — a great example of how cutting-edge technology and innovation could receive crowdfunded backing — set off a series of events that led to genetically modified organisms (GMOs) being banned on Kickstarter.

Is crowdfunding Wild West capitalism for the digital age? The new face of funding for innovation? Or just a flash in the pan?

Resources
Kickstarter
Indiegogo
Another 1 Million Crowdfunded Gadget Company Collapses

Jon:
Welcome to Episode 129 of the Digital Life, a show about our adventures in the world of design and technology. I’m your host Jon Follett and with me is founder and co-host Dirk Knemeyer.

Dirk:
Hey Jon.

Jon:
For our Podcast topic this week, we’re going to chat about crowdfunding and its place in our innovation eco-system. Crowdfunding is great for testing markets and launching new product categories but for all its benefits it also comes with some high risk potential. Just recently a well-known and funded drone project, The Robotic Dragonfly disintegrated when they were unable to meet their criteria for shipping products to the folks who had given them money on Indiegogo I believe it was. It was an early success story with Crowdfunding with over a million dollars in pledges. They’re not going to ship their product or it’s very unlikely that they’re going to.

Dirk:
Jon, I smell lawsuits.

Jon:
I don’t know about that but it’s interesting because I think this Dragonfly Drone project really encapsulates a lot about what is good and what is bad about crowdfunding. On the good side I’d argue that you’ve got this space for innovation, that entrepreneurs with ideas good or bad can leverage, test the market. Then experiments and sort of get to market quickly, hopefully with the money that they have acquired there. On the bad side of it, you’ve got this money coming in to potentially inexperienced folks who on the business side may not know what they’re doing. Whereas maybe they really understand the technology part or maybe they’re product people but they don’t have the business people. I don’t know what the circumstances might be but it’s really sort of the yin and yang of crowdfunding. You have this very cool potential product and at the same time you have this flame out. We see that happen over and over again. I know that sometimes they come out successfully but the creative flame out seem to be happening a lot too. What’s your take on that?

Dirk:
Yeah, it’s true. Crowdfunding it’s wonderful and exciting because people are putting up ideas that are new enough. That they haven’t gone through a big cooperation yet so typically much more timely, much more present perhaps more ahead of the curve. In theory also Crowdfunding gives you as a purchaser the opportunity to support a creator who otherwise couldn’t get their product out there and connect with them more directly. The problem is that Crowdfunding is really a mixed bag, as something that is sort of a wild west, anybody can try to put it up there and roll with it. You get a real mixed sense of results. Your example, which is one that wouldn’t even ship. Others that ship but are pretty crummy or probably the most common case is that they ship very late but they do ship.

In some condition, I don’t know I have more experience with of course the board game side of Crowdfunding and so I know that very well. What I’ve seen is that really mature into really just a retail marketplace for lack of a better way to put it. In the beginning it was the anonymous unknown people who were getting funded. I don’t want to say easily funded I don’t think that’s fair or accurate but a wide variety of people were able to get funded at relatively modest, by today’s standards, modest levels to do their thing. What has happened over time is that the new people, the independence are having a much harder time with it. It’s really the big companies who either have had success already on Kickstarter so they’re big from the context of Kickstarter.

Or they’re a big companies, already known and successful, they’re just planking their things down onto Kickstarter. My opinion is that, it has largely become in the context of board games or pre-order service. For legal reasons Kickstarter hates that and doesn’t want people to talk about it that way but that’s what it is. It’s largely people who know their things are going to get funded. Put them on Kickstarter to get a lot of upfront cash behind their product and do a lot of pre-sales. It’s very rare now that somebody is independent doing their own thing and they have a very successful campaign. In that vertical, we’ve very much seen it go from a hobbyist thing to just another channel of direct sales.

Jon:
Yeah, that’s interesting. That sort of maturity model for at least that gaming vertical seems like it would be a harbinger of what would happen in other verticals. When I was looking at some research into synthetic biology projects for my design for merging tech book. One of the game changing projects that was actually Crowdfunded was called Glowing Plants. It changed the whole model of Crowdfunding actually because Kickstarter basically got very very nervous about funding a synthetic biology project. Listeners if you’re not familiar with this particular product, what it is, is a small plant that will provide sort of ambient lighting at night via a sort of natural phosphorous or what have you resident in the plant. This plant was created, it’s not naturally occurring, it was created by a synthetic biology process and they’re basically selling you the seeds so that you can grow your own glowing plants. Then maybe have the equivalent of a night light that is organic. That made Kickstarter as I said nervous and they decided that you couldn’t have biological organisms that were sort of the results of a synbio process.

You couldn’t have those as rewards for Kickstarter campaigns anymore and so this first sort of highly notable project also became the last highly notable project to be funded on Kickstarter in that fashion. What I want to point out here is that, here’s the bleeding edge of technology certainly in the early independent creator segment that you described in your experience. These guys got so much noticed so quickly that it actually undermined their whole vertical. I believe they got their money to go and do their project. Essentially you have an up and coming technology that made the status quo want to jump ship rather quickly.

Dirk:
Yeah.

Jon:
Any thoughts on that Dirk?

Dirk:
Yeah, it’s another example of how this new platform is sucked back down to the lowest common denominator of our society, I mean legal concerns really undermines so many things in our lives. We’ve just come to take for granted and accept but are, we’ve seen already with Kickstarter now. Recently there was the first successful prosecution where a creator has to give back money and pay all these penalties and all these stuff. For a real creator it wasn’t a scam. It was a real person who threw ignorance or incompetence or something completely failed to deliver and now they’ve been taken to court and they have been successfully litigated against. Now that becomes the, “Holy Christ we have to protect against that happening” sort of limit changer. That’s why I joked earlier when you mentioned about the recently failed, “What do you know, now it’s time for the lawsuits to come in.” I do think that the legal process and the legal considerations are what are going to always keep this from being truly interesting. Have the potential to do exciting and extraordinary things, it’s just getting sucked right back to the mean.

Jon:
Yeah, what excites me still about Crowdfunding more as a model and less the particular platforms that we’re discussing today. Is that it connects creative class individuals with a resource and the leverage from that resource namely money, and backers and influence presumably. That they wouldn’t have otherwise and that gives sort of the independent, the explorer, creator that much more leverage to make their idea happen. It’s the same kind of intellectual model that people can leverage with creative commons and open source. You’re taking an open system and you’re able to pull some value out of it whether it’s IP or in this case money and backers. It fuels the forward progress of whatever your endeavor happens to be. I think that’s important because as, knowledge workers and creative class individuals, we’re still really forming sort of the group types, the organization, the associations, the way we work together in the 21st Century. We’re very much held to 20th Century architecture for organizations, co-operations etcetera.

You actually made some reference to that I think with the lawsuits. All the laws are sort of geared towards industrial age thinking. All the contracts, all the organization and what I see in Crowdfunding sort of combined with what I see in open source and creative commons, is this different approach that is I think indicative of the direction that we’re going as knowledge workers. There are certain aspects that are of knowledge workers which are now free for the taking or I’ll put that in quotes because you’re really leveraging what other people have given you. You have this virtuous cycle so if you’re funding something of mine, I’m more likely to fund something of yours.

If I’m using a piece of open source code maybe I’m more likely to return code back to the source and help other people out. I see these virtuous cycles as being part of the future of creative class work. That’s what’s got me excited about Crowdfunding in the long term even if in the near term we have these remnants of 20th Century thinking that we still have to cast off. That may cause quite a deal of pain in the coming years as people get dragged into court for not fulfilling all their crowdfunding obligations.

Dirk:
Do you have any specific vision or conception of what this next generation crowdfunding might look like?

Jon:
I don’t specifically have that other than I do think that when you see sort of larger entities whether they’re open source organizations or take Linux for instance. Linux sort of got it’s bonafides when it started getting installed all over the place on cooperate servers for a lack of better measure for it. Red Hat Linux is going up against IBM, it’s going up against all the big guns that have their proprietary systems. Even IBM, I’m sure deploys Linux now. When Crowdfunding as you pointed out some larger organizations are getting into Crowdfunding. When it becomes a de facto way of whether it’s pre-ordering or just testing the market or what have you. When it becomes part of the language of both the small guy and the big guy, you and I can go out and get a Linux installed on our laptops for no money whatsoever.

There’s still all that goodness for the individual in that LS, just like there is for the big guy. I think receiving some buy in from larger entities is really going to make Crowdfunding a much more powerful thing. I think that will cause a couple of things to happen. One you’re not just going to have this brand name Crowdfunding platforms like Kickstarter. It might just run through your bank or something like that. It might just be another way, you’ve got your digital wallet or something and Crowdfunded dollars just go into that.

Dirk:
Well Kickstarter’s main role isn’t money acceptance, it’s marketing, right?

Jon:
Sure.

Dirk:
Kickstarter awareness is the big thing Kickstarter offers. What will the awareness model look like in a post Kickstarter reality?

Jon:
Yeah, I mean that becomes more of a commodity that’s an excellent point. That’s the other half of the equation, you’ve got the money and then you’ve got the backers, right?

Dirk:
Yeah.

Jon:
The influence, so yeah that’s a terrific question. I don’t know the answer to but I think that, the promise is there for sure. It might be some multi-platform solutions, so if you’re a creator of audio, you have all sorts of different avenues where you can distribute your digital music right now. It’s not just iTunes anymore. iTunes sort of broke through and got people to buy digital music.

Dirk:
Yeah.

Jon:
Now you have things like Bandcamp, YouTube is starting their audio program. I think Soundcloud is going to be or at least providing the audience side of that for audio creators. I think diversity in the eco-system will help to get creators a little bit more of that exposure that you’re talking about. Even if the money side of it, who knows who’s going to be handling all the finances of that. I definitely think there’s so much potential here. As an organizing principal for receiving money for creative endeavors, I think this is the way things are going to go.

Dirk:
Well it’s exciting to hear you just talk about it. I would say I’m a little bit jaded about Crowdfunding not in a bad way particularly but certainly the early enthusiasm I had about helping the proverbial starving artist is years in the past. I have seen it now, it’s just this very again transactional pre-order type system. Hearing some of your bigger ideas and optimism for where these platforms could go is really exciting.

Jon:
Thanks. Listeners remember that while you’re listening to this show you can follow along with the things we’re mentioning here in real time. Just head over to the digitalife.com. that’s just on ‘L’ on the Digital Life, and go to the page for this episode. We’ve included links to pretty much everything mentioned by everybody, so it’s rich information resource to take advantage of. While you’re listening or afterwards if you’re trying to remember something that you liked. If you want to follow us outside of the show, you can follow me on Twitter @jonfollett. That’s J-O-N-F-O-L-L-E-T-T. Of course the whole show is brought to you by Involution Studios, which you can check out at goinvo.com. That’s G-O-I-N-V-O-.com. Dirk?

Dirk:
You can follow me on Twitter @dknemeyer. That’s D-K-N-E-M-E-Y-E-R or email me at dirk@goinvo.com.

Jon:
That’s it for Episode 129 of the Digital Life from Dirk Knemeyer, I’m Jon Follett and we’ll see you next time.

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