consumers, observers and critics. Users in a way become co-developers, as they give really useful and fresh input. Especially those who invested money (even small
amounts) tend to act constructively and with regard to developers’ restrictions. This form of communication generally is way more cooperative than conflict-ridden. This process has several consequences: The users (and future customers of the product or service) develop an understanding for decisions taken and are able to understand why products are the way they are. Users do not have to accept the product as planned by the developer but can influence the product’s features or price instead, even though final decisions rest with the project team. Even without a formal right to vote suggestions and criticism are considered, because money also has to be raised in the future. The users’ feedback, moreover, helps avoid the risk of launching a product, users will not like, which often is the case.
The next function beyond financing to be referred to is network building. In the course of a change from closed to open and user innovation it becomes more and more important to be connected with various actors. Especially for start-ups it is not always easy to connect with the right people. Networks are not only essential for user
comments and criticism, but platforms of this kind also allow entrepreneurs to meet other professionals. These include for instance distribution partners, suppliers,
consultants or marketing strategists. With this in mind, platforms for Crowdfunding can be seen as a meeting point for persons interested in start-ups, innovation or financing.
Considering the unbelievable overload of information, “such virtual places” are profoundly important to reduce the complexity. Kickstarter, for instance, submits all projects to a pre-selection, which guarantees a high level of innovation and relevance.
It is, therefore, not surprising that nearly half of all projects meet their goal amount.
Network activities not only take place within the Crowdfunding platforms, but go far beyond these, as people connect with and, at a later stage, within other social network sites. The following example demonstrates the benefit of this process. Last winter the team of a classical Swiss skiing area raised funds on a Crowdfunding platform called
“100-days”. 5000 Swiss Franc were required to extend the Arosa snowpark. A new ramp should make the skiing area even more attractive for tourists. To support the funding process the users can embed a banner into their webpages or blogs, Facebooks
“I like” button can be clicked and the belonging Twitter Account can be followed. This way, users start promoting and transferring the project based on Kickstarter in both networks. There it becomes visible to friends, family and, what is even more, to
professionals. The bigger the network, the more probable it is to find helpful contacts.
Crowdfunding has another function which is of great importance, especially for founders. Entrepeneurs often use Crowdfunding for start-ups. Although prototypes, beta versions and samples already exist, it is hard to predict whether products or services will sell successfully. In the economic sense, products and services are only successful when one can make money with them. This can never be completely assessed in
advance. Promising ideas and projects fail as not enough buyers can be found.
Conventional market analyses often fail to predict the success of a product or service reliably and only inadequately predict consumer acceptance. This is especially the case for really innovative products which open up new markets. The Crowdfunding process, in contrast, obviously offers a better instrument for predicting future market success. If an idea succeeds in case of Crowdfunding, the appropriate service or product is likely to sell well. Burtch et al. (2012)) even assume that the length of the Crowdfuding
process correlates positively with the subsequent sale of the product or service. This is a result of the general “ability to generate attention for entrepreneur’s ventures” (Burtch et al. 2012, p. 6) of Crowdfunding. Crowdfunding platforms, in this sense, are like pre-markets or quasi-pre-markets, which have a good predictive power because of their
structural similarity to real key markets. Within both, people only spend money (as a donation or as a payment), when they are convinced of the product or business idea in general. Furthermore, people do not receive an equivalent value for their donation, for which reason they consider even more carefully, who will get the money. As
Belleflamme et al. (2010) point out, Crowdfunding platforms help inform users about the value of the product: They ensure public attention, are used as a promotion device, or as a way of gaining better knowledge of consumer preferences.
Another look at Kickstarter clearly shows that highly funded projects such as
“Bubble Pod”, a clockwork turntable that grips smartphones and then rotates them 360°
to create easily panoramas of landscapes for touristic and personal use, are very well sold. Of course it is not perfectly clear, if products sell well because of the success in the Crowdfunding process or if the Crowdfunding process was successful because the product is convincing and unique anyway. Nevertheless, the latter is more plausible, also because not all of the former Crowdfunding projects can be identified as such.
Fourthly, Crowdfunding enables entrepreneurs to find the first purchasers for their product or service. This is done by giving users a version of the crowdfunded product as a gift or an incentive in exchange for some form of financial support. The above-mentioned example of the “Bubble Pod”-project shows how this works exactly: The first 249 users pledging 15 GBP, the first 1500 backers pledging 20 GBP get one of the Plug devices for their donation. The first 100 users pledging 35 GBP as well as the 500 first users, who pledged 40 GBP or more, get a Bubble Pod Pro Pack (including a wide angle lens) which will cost 50 GBP in regular sale. This strategy has been highly
effective many times: The project not only gets starting capital, valuable feedback by the community, a great network, and the evaluation of marketability, but also several thousands of buyers. Considering the fact that customer acquisition normally is very cost-intensive, these kinds of sales are profitable despite the discount.
Apart from these explicit purchases, there also are implicit purchases. This is the case, when users announce in their comments that they will buy the product as soon as it is available in a certain configuration or for worldwide shipping. Additionally, these