Kickstarter failures highlight the "backer" vs "consumer" divide

It's a testament to the rapidly evolving nature of the games business that crowdfunding, which only a few years ago seemed like the most extraordinarily disruptive thing to happen to project financing in decades, has this year really just become part of the furniture. It's still an exciting and interesting space, but nobody is surprised or shocked when a famous game designer announces that their next project is going to be crowdfunded rather than traditionally funded. We're still figuring out the fine details around the edges, and there have recently been murmurs of discontent over companies crowdfunding fractions of their games' budgets as a marketing tool - but by and large, Kickstarter and its ilk have become an ordinary, accepted means of raising funds and doing business in games.

"A failure rate of under 10 percent is pretty amazing for projects which are, after all, mostly so speculative that they couldn't secure funding from more traditional sources"

The problem is that despite being so broadly accepted and assimilated into the industry's landscape, crowdfunding in general and Kickstarter specifically remains largely uncharted territory. From the perspective of those using it to secure funding, the strategies influencing success or failure on crowdfunding platforms remain frustratingly elusive, and one of the biggest disappointments for early crowdfunding enthusiasts has been that the only really effective way to ensure success is to already be famous and well-established in your field. For those backing projects on crowdfunding sites, meanwhile, there's remarkably little solid information available about the risks involved in what is, essentially, a completely speculative venture, leading many commentators - myself included - to worry that there may be a disconnect between what crowdfunding hopefuls see themselves as offering, and what crowdfunding backers see themselves as "buying".

In this context, the paper published this week by University of Pennsylvania researcher Ethan Mollick, who worked with Kickstarter to perform a large-scale survey of the experiences of project backers on the site, is a really important contribution. Mollick's headline finding is that only about one in eleven funded projects on the site "fail", but there's a lot more going on in the details behind that headline and the entire paper is worth reading. Essentially, it's quite difficult statistically to define project success or failure, so the survey looked at the delivery of rewards - arguably a tacit admission that many backers really do view Kickstarter as "pre-orders for stuff that doesn't exist yet" - and asked if people had received the rewards they expected.

The rough one-in-eleven failure rate is based on a few assumptions. Firstly, it excludes people who haven't received anything yet but still expect to (so the number could rise a little as persistent optimists are disappointed and a proportion of in-progress projects fail), and it also excludes projects where only a minority of survey respondents claimed to have received nothing (or something not as described). There's also a possibility that the survey's findings are biased towards the negative, since only 10 percent of backers responded to the questionnaire that was sent out, and it seems likely that those with negative experiences would be more motivated to respond (a fundamental law of the Internet which, if it doesn't already have a good name, I hereby christen 'The TripAdvisor Effect').

One can argue the figures a little bit in either direction, then, and the small, somewhat self-selected sample means that there's a lot of scope for further research - indeed, the evolving nature of crowdfunding means that ongoing research and monitoring is absolutely necessary in any case. By and large, though, the one-in-eleven (or thereabouts) number is reasonably solid - it may be a little more or a little less, but the research is of pretty good quality and its results are almost certainly in the right ballpark. Of course, there may be some Kickstarter projects which manage to deliver their "primary" goal (the game, movie or whatever they set out to create) while failing to deliver certain backer rewards, and some which deliver rewards but never finish the primary product, but the success or failure to deliver backer rewards isn't an unreasonable proxy.

"If Amazon randomly didn't send you one out of every eleven things you ordered, and shrugged expansively when you complained, you'd be pretty annoyed"

If the core figure is genuinely instructive, then, what is it actually telling us? Well, your take-away probably depends heavily on where you're standing. As a crowdfunding project creator or someone coming from a financing background, a one-in-eleven failure rate is actually pretty great. It implies strongly that Kickstarter is functioning as intended - weeding out weak and unrealistic projects at the funding stage, and leaving a healthy crop of funded projects that deliver over 90 percent of the time. That's a pretty impressively low risk profile for a project funding model and it implies that Kickstarter may be one of the rare occasions on which the much-vaunted "wisdom of the crowd" turns out not to be drooling idiocy, and the "invisible hand of the market" transpires not to be making an obscene gesture behind your back. A failure rate of under 10 percent is pretty amazing for projects which are, after all, mostly so speculative that they couldn't secure funding from more traditional sources.

If you're standing on the backer side of the equation, though, this all looks rather different. Sure, the risks are low - but the returns are exceptionally low too. The maximum return is "the stuff you ordered", so you'd rather expect the risk profile to be minimal. If you view Kickstarter funding as discretionary money hurled into the ether, and Kickstarter rewards as fun things that may or may not turn up down the line, a 90 percent plus return rate is pretty great - and that's probably a pretty healthy way to think about Kickstarter, although it implies a rather casual relationship with money that I suspect many of Kickstarter's backers do not enjoy. If, on the other hand, you're treating Kickstarter as a pre-order site for stuff that doesn't exist yet, the failure rate is disheartening. If Amazon randomly didn't send you one out of every eleven things you ordered, and shrugged expansively ("hey man, that's life") when you complained, you'd be pretty annoyed.

Of course, Kickstarter isn't Amazon, and backers are meant to understand that they're taking speculative punts on things they'd like to see brought into existence, not pre-ordering stuff - but I'd argue that the figures Mollick has established really emphasises the heavy responsibility Kickstarter has to make this situation clear to backers at every step in the process. It also shows up the potential for crowdfunding to undermine itself and reverse its thus-far impressive growth; "once bitten, twice shy", as they say, and watching backer funds go down the drain is an experience that people won't easily forget. If that's genuinely happening to one out of every eleven projects, it's only a matter of time before a very significant percentage of Kickstarter backers have had that experience; how that impacts willingness to back further projects, especially those with higher risk profiles or more unusual concepts, is going to play a major role in the future of this funding model.

"It would not be unreasonable for Kickstarter to demand more transparency in how backers are dealt with in the event of project failure"

One finding of Mollick's research which is hopefully being considered carefully by Kickstarter is regarding what happens to projects when they fail - with his survey data suggesting that failed projects tend to simply drop off the radar, leaving backers entirely in the dark without even an explanation of what went wrong, let alone a full or partial refund. A refund, of course, is going to be out of the question in most cases - underbudgeting and running out of cash is probably the primary reason for project failure - but it would not be unreasonable for Kickstarter to demand more transparency in how backers are dealt with in the event of project failure. Some assistance for creators with budgeting up front, and an insistence on a formal post-mortem process for failed projects, would go some way to making crowdfunding more robust and trustworthy, and could prevent a lot of headaches for this model down the line.

With over $2 billion poured through Kickstarter into various projects since its launch, this has become a small but incredibly important avenue for funding for creative projects of many types - games, perhaps, most of all. It's easy to forget sometimes that crowdfunding is really still in its infancy, and certainly still in its honeymoon period. Kickstarter's granting of access to university researchers, and their eager promotion of the findings (even though they're not entirely positive), are hugely laudable steps; if 2015 was the year Kickstarter really became part of the landscape, perhaps 2016 can be the year in which we start to get some properly detailed maps of this important new territory.