Neal Stephenson's Epic Fail
Jul. 1st, 2012 12:10 pm![[personal profile]](https://www.dreamwidth.org/img/silk/identity/user.png){kind=small}
andrewduckerA few days ago I posted about my worry that Neal Stephenson's Clang kickstarter (raising money for an accurate swordfighting game) was going horribly wrong.
I then instantly realised I'd got some of my maths wrong, and made it private (although two people hit refresh fast enough to notice the post or its tweet). But it's been going round in my head since that point, and as I'm currently lying in bed recovering from yesterday's Stag Shooting/Drinking events, this seems like a good time to cover where I think he's going wrong*. The hindsight of the last few days gives me an extra advantage there, as the changes they've made since I wrote the original post seem to be helping them a bit.
Anyway - there seem to be two ways that people use Kickstarter:
1) To take advance orders. They've already done most of the work on their album/book but now they need to finance the final mixing/editing and the print runs, and to work out how many copies they should be producing. A Kickstarter allows them to presell the copies, and thus not take on a lot of debt, overextend themselves, and end up in financial trouble.
2) To finance a development project. They have a good idea, but haven't really done anything yet, because they can't afford to hire a development team until everyone puts in some cash.
The second is inherently riskier than the first, because development is a horribly variable business. You don't know how hard something is until you've done it, and unless you have an awesome management/financial team in place you've probably badly misestimated the effort involved. Less risky with a team who have produced good things in the past**, but even so a bigger risk than when you're funding just the publication.
Clang started off with an amusing video, but nothing to show what it was they actually wanted to build. It wasn't until a few days later that they gave any technical details (that they were using the Razer Hydra 6-axis controller, for instance. Which is an incredible piece of kit, but not something everyone has lying around the flat). It was only four days ago that they thought people might be interested in the technology behind the game. And it was only a couple of days ago that they finally posted a video of what they expect the game to look like when you play it. They really were expecting their backers to take an awful lot on faith.
_Some_ people see Kickstarter as supporting a project. They're happy to throw in a chunk of cash because they want a project to succeed. Most people, however, see a product they like, and buy it. They don't mind that they've bought it months before it will actually be produced - that's what Kickstarter is good for, paying for the product up front so that they can afford to construct it (and know how big their print run should be). You then sell better versions of it (or extra awesome versions of it/associated products) for higher amounts of cash, so that people can but the gold plated version and support you more.
Amanda Palmer, for instance, offered you the basic product (her new album) for $1. Or $25 for the CD. For double that you got an amazing vinyl package. For $100 you got an amazing art book. For $300 you got to go to a launch party where the band played. For $5,000 she'd come and play _in your house_.
But Klang didn't structure themselves around that. Instead you get the game for $25. And then for paying double that you get...a PDF. For treble you get _two_ PDFs. For quadruple you get all of that and..a t-shirt with their logo on it! At $150 they throw in a printed manual for the game. It's only when they get to $1000 that there's anything exciting in the rewards - an invitation to the company parties.
Some people, obviously, are willing to put money into a project that they want to succeed - and I think that's awesome. But most people, so far as I can tell, want to pay some money for a product, and if they're helping out with a project then that's a nice side-effect. I'm not sure what else the project could have offered, but the option of a physical version would have been a good start, as would a luxury edition with an awesomely designed box. Market segmentation is a fairly basic part of sales nowadays - offer a range of products so that people with more money can give it to you for, effectively, the same product. Additionally,![[livejournal.com profile]](https://www.dreamwidth.org/img/external/lj-userinfo.gif)
johncoxon pointed out to me that there _really_ ought to be a pledge level that includes the motion controller, which in retrospect seems insanely obvious!
They finally offered a "Buy two for $40" a few days ago, and that's already garnered nearly $4000, so there's clearly an appetite out there. I wish they'd get their act together and tap into it before it's too late***.
*As far as I'm concerned, one of the most awesome things about the internet is that it allows me to tell people like Neal Stephenson how wrong they are.
**Like Tim Schaefer/Ron Gilbert's Double Fine Adventure.
***Kicktraq is an awesome way of watching the progress of Kickstarter drives. Clang's is here, and if you take a look at the "[Exp] Trend" tab at the bottom you can see the uptick from three days ago when they started putting technical details out there. The projections still aren't good, but if they can push their momentum up further then they can hopefully push themselves over the line.
I then instantly realised I'd got some of my maths wrong, and made it private (although two people hit refresh fast enough to notice the post or its tweet). But it's been going round in my head since that point, and as I'm currently lying in bed recovering from yesterday's Stag Shooting/Drinking events, this seems like a good time to cover where I think he's going wrong*. The hindsight of the last few days gives me an extra advantage there, as the changes they've made since I wrote the original post seem to be helping them a bit.
Anyway - there seem to be two ways that people use Kickstarter:
1) To take advance orders. They've already done most of the work on their album/book but now they need to finance the final mixing/editing and the print runs, and to work out how many copies they should be producing. A Kickstarter allows them to presell the copies, and thus not take on a lot of debt, overextend themselves, and end up in financial trouble.
2) To finance a development project. They have a good idea, but haven't really done anything yet, because they can't afford to hire a development team until everyone puts in some cash.
The second is inherently riskier than the first, because development is a horribly variable business. You don't know how hard something is until you've done it, and unless you have an awesome management/financial team in place you've probably badly misestimated the effort involved. Less risky with a team who have produced good things in the past**, but even so a bigger risk than when you're funding just the publication.
Clang started off with an amusing video, but nothing to show what it was they actually wanted to build. It wasn't until a few days later that they gave any technical details (that they were using the Razer Hydra 6-axis controller, for instance. Which is an incredible piece of kit, but not something everyone has lying around the flat). It was only four days ago that they thought people might be interested in the technology behind the game. And it was only a couple of days ago that they finally posted a video of what they expect the game to look like when you play it. They really were expecting their backers to take an awful lot on faith.
_Some_ people see Kickstarter as supporting a project. They're happy to throw in a chunk of cash because they want a project to succeed. Most people, however, see a product they like, and buy it. They don't mind that they've bought it months before it will actually be produced - that's what Kickstarter is good for, paying for the product up front so that they can afford to construct it (and know how big their print run should be). You then sell better versions of it (or extra awesome versions of it/associated products) for higher amounts of cash, so that people can but the gold plated version and support you more.
Amanda Palmer, for instance, offered you the basic product (her new album) for $1. Or $25 for the CD. For double that you got an amazing vinyl package. For $100 you got an amazing art book. For $300 you got to go to a launch party where the band played. For $5,000 she'd come and play _in your house_.
But Klang didn't structure themselves around that. Instead you get the game for $25. And then for paying double that you get...a PDF. For treble you get _two_ PDFs. For quadruple you get all of that and..a t-shirt with their logo on it! At $150 they throw in a printed manual for the game. It's only when they get to $1000 that there's anything exciting in the rewards - an invitation to the company parties.
Some people, obviously, are willing to put money into a project that they want to succeed - and I think that's awesome. But most people, so far as I can tell, want to pay some money for a product, and if they're helping out with a project then that's a nice side-effect. I'm not sure what else the project could have offered, but the option of a physical version would have been a good start, as would a luxury edition with an awesomely designed box. Market segmentation is a fairly basic part of sales nowadays - offer a range of products so that people with more money can give it to you for, effectively, the same product. Additionally,
johncoxon pointed out to me that there _really_ ought to be a pledge level that includes the motion controller, which in retrospect seems insanely obvious!They finally offered a "Buy two for $40" a few days ago, and that's already garnered nearly $4000, so there's clearly an appetite out there. I wish they'd get their act together and tap into it before it's too late***.
*As far as I'm concerned, one of the most awesome things about the internet is that it allows me to tell people like Neal Stephenson how wrong they are.
**Like Tim Schaefer/Ron Gilbert's Double Fine Adventure.
***Kicktraq is an awesome way of watching the progress of Kickstarter drives. Clang's is here, and if you take a look at the "[Exp] Trend" tab at the bottom you can see the uptick from three days ago when they started putting technical details out there. The projections still aren't good, but if they can push their momentum up further then they can hopefully push themselves over the line.
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no subject
Date: 2012-07-01 12:44 pm (UTC)no subject
Date: 2012-07-01 01:37 pm (UTC)no subject
Date: 2012-07-01 01:39 pm (UTC)no subject
Date: 2012-07-01 03:01 pm (UTC)Okay, that's a lie, I supported the Order of the Stick project, but that had already got 5 times its initial barrier, and I've bought plenty of the guy's stuff before, so I knew it couldn't go too far wrong.
no subject
Date: 2012-07-01 03:08 pm (UTC)no subject
Date: 2012-07-01 03:11 pm (UTC)no subject
Date: 2012-07-01 03:15 pm (UTC)$100 for the rulebook seems expensive, but I assume that it's made of purest awesome.
no subject
Date: 2012-07-01 04:37 pm (UTC)no subject
Date: 2012-07-01 04:42 pm (UTC)no subject
Date: 2012-07-01 04:58 pm (UTC)
Date: 2012-07-01 05:13 pm (UTC)Now, if only they'd get the next TPB out I'd be happy!
no subject
Date: 2012-07-01 06:33 pm (UTC)no subject
Date: 2012-07-01 09:10 pm (UTC)no subject
Date: 2012-07-01 09:11 pm (UTC)no subject
Date: 2012-07-02 10:54 am (UTC)Kickstarter will provide an exciting opportunity for thousands of ordinary people to visit the wonderful world of project financing.
I agree that two of the things that Kickstarter does is to allow you to see if pre-sales will fund the final completion of a piece of work and allow you to gain funding for riskier development funding.
An other way of looking at this is Kickstarter lets you access working capital for low risk projects. You get the cash upfront and at low interest. You can also access longer term venture capital. Which is risky.
A third think that Kickstarter et al do that I think is very valuable for the creative arts is that it allows artists to paid up front for creative work before the work is a position where it has essentially entered the commons.
There is definitely something about market segmentation and also value engineering. There are some people who will happily pay more for the same thing. Easy to do explicitely on a platform like Kickstarter, you just ask. But you can also find ways of segmenting the market covertly $25 gets you the CD, $35 gets you the CD, with a different piece of art on the CD, $50 gets you two CD’s, one with each set of CD art. Essentially the same product but for the aura of limited edition-ness and the price. There are also opportunities to segement the market by those who are willing to buy more and then sell them more. $25 for the CD, $75 for the CD and a concert ticket, $1,000 for front row seats and after-show party, $5,000 lets you ride in the limo with the band to the gig. What will people pay more than it costs me to provide?
As the market matures I’d expect to see sequential Kickstarters. One stage for the conception of an idea, one stage for the development, one stage for the final production. Each stage having progressively lower risk. Early investment gets you a ticket to the latter rounds.
I suspect in the future Kickstarter users will become more aware of the risks (having been bitten by failed projects) and there will be more explicit discussions about project risk and how it is mitigated.
Some questions for the future
Who owns half-finished IP for failed or failing Kickstarter projects? Looking at the e20 Kickstarter it’s clear that the development team are having some problems. What happens if some activist investors want to take the work to date and hire someone else to finish it?
Does Kickstarter have a mechanism for allowing re-fi’s? (the process where, once a risky project is completed, the asset that is completed is sold / used as collateral for financing that is only interested in funding lower risk completed assets.)
Does Kickstarter have a secondary market for trading the rights that an investor buys?
no subject
Date: 2012-07-02 11:46 am (UTC)"Project creators keep 100% ownership of their work."
and
"Kickstarter does not investigate a project’s claims. The claims and responsibilities of every project are its creator’s. The community ultimately decides the validity and worthiness of a project by whether they decide to fund it. "
and
"It is the responsibility of the project creator to fulfill the promises of their project. Kickstarter reviews projects to ensure they do not violate the Project Guidelines, however Kickstarter does not investigate a creator's ability to complete their project."
So, basically, massive Caveat Emptor there. It's all down to reputation.
no subject
Date: 2012-07-02 11:50 am (UTC)Kickstarter is purposefully and explicitly a donation system, not an investment system. Until earlier this year, an actual investment system would have broken US banking/financial laws. In other words they are acting as an agent (for which they and Amazon Payments take between 8-10% of the total funding) for the collection of your donation on behalf the individual project. Once they have collected the money and passed the net on, their job has finished.
[Certain con projects have already been attempted, which has resulted in a tightening of the scrutiny new projects are given.]
If you donate to a Kickstarter then you are not an investor in the project in the legal sense of the word. You have no such rights and protections that follow such a position. At best a court may consider that you have entered into a sales agreement (your money for future exchange of product), but it could be just as likely to be found that that you were donating the money with the premise that your rewards would be received if the project was completed. In which case you get nothing if it wasn't. But that also hinges on the ability to take the individuals creating the project to court. Unless it's a class-action suit it's probably cheaper and easier to not bother.
In other words the IP remains with the project creators at all times, and the Kickstarter "investors" have little or no actual rights, beyond a breach of sales contract.
no subject
Date: 2012-07-02 12:01 pm (UTC)I'm using Kickstarter here as a generic term for internet-based small-size funding routes.
They are the Hoover of internet small batch funding models.
no subject
Date: 2012-07-02 12:03 pm (UTC)One which actually set up a small company and made everyone shareholders would be interesting. Probably more expensive to run though.
no subject
Date: 2012-07-02 12:10 pm (UTC)Reputation is important in all things.
no subject
Date: 2012-07-02 12:25 pm (UTC)It might be that people are happy to keep things as making a donation and are happy to accept a caveat emptor risk when doing so.
This seems like a slightly inefficient market to me so I'd expect something else to come along with a different model.
no subject
Date: 2012-07-02 12:29 pm (UTC)Some things won't suit that - Amanda Palmer doesn't want to hand control of her work to other people, for instance, and nor would most creative types, and I don't want to have to take shares in Amanda Palmer Ltd in order to get a copy of her next album. But for things which are group oriented in the first place, I can see a possible attraction.
no subject
Date: 2012-07-02 12:44 pm (UTC)I might want some form of guarantee that the work is going to be produced and that might take the form of a lien over the work to date. In some form, which might be co-ownership in a company or some contingent vesting of title. (Not sure how much value these things have but if reputation is important I wouldn’t want to the the guy who did so badly his Kickstarter funders took his album off him. *These are ribbons of shame.*)
So I’m thinking about things with a bit of a longer time horizon and things that are very big.
Like a movie or researching a new technology or funding a proto-type.
You do get into difficulties with laws regulating investment brokering and prospectuses though.
(Again, I’m thinking about this from the point of view of 10-20 years from now when post-hoc IP is of much reduced value.)
no subject
Date: 2012-07-02 01:03 pm (UTC)Same with a product still in development. If a new man manufacturer takes the cash, spends it finishing their design, and then gets bogged down with manufacturer defects and never manages to bring it to production then you're going to be a long way down the creditors list at the bankruptcy proceedings.
Of course, if Nike wants to do a limited run of shoes, and is funding them up front to see what the appetite is like then that probably is suitable for guarantees, as while the shoe might never make it to production Nike aren't going anywhere. In that situation a mass court case might be the best bet.
no subject
Date: 2012-07-02 02:58 pm (UTC)So taking your Neil Gaiman example, there are problems with exercising any form of guarantee against a stawm man but does the Hoover Finance project plan include key man insurance for if he goes under the proverbial bus? That might make me more inclined to put $500 into something. I might be prepared to lose $10 and the hope of an autographed t-shirt but if I were parting with $500 I’d be much happier knowing that if I didn’t get the book and the role as an extra in the film of the book I’d at least get some of my money back with no need to sue a man who has already lost his livelihood.
I think part of the discussion about risk is for things like this to be aired and decided on up front. NG says – I’ll spend a year working on this book. If I succeed you get the book and other goodies, if I fail for whatever reason you get one of the following
- Nothing
- 10% of your money back and we’ll keep the cash in escrow and treat it like a completion bonus
- 100% of your money back from my key man critical illness insurance pay out.
Folk can decide to sign up on or not on the basis of the offer.
Looking at the example of the guy with a product in development, again if I were putting in a significant chunk of money into the venture I might be more inclined to do so if the IP were owned by me and the rest of the gang who had paid for it and we had something we could parley into what we wanted, the product or some of our money back.
Most of this stuff doesn’t matter if all you are funding are recording time for a new album or materials for public artwork but if we find ourselves living in a world where technology means that post-hoc value from IP is very hard to appropriate then Hoover Finance might become bigger and more prevalent. Perhaps the biggest source of privately sourced funding for the creation of intellectual goods.
no subject
Date: 2012-07-02 04:13 pm (UTC)Which will raise the costs, but provide the extra security. Possibly something that Kickstarter could do as the intermediary - give people the option "Check here to take out insurance for 5% of the pledge."
Heck, insure yourself against the product being rubbish "If the metacritic scores are lower than 50% then you get your money back!"
If this becomes the main kind of funding I will definitely expect to see more options, that's for sure.