It’s not ok for billion-dollar companies to crowdfund

http://www.androidauthority.com/billion-dollar-company-crowdfunding-804008/

by tuwannu • 9 years ago

185 76 9 years ago

Isn’t their form of crowd funding to do a public offering to raise cash?

maxxxxx• 9 years ago

I wonder if you could find a way to distribute assembly tasks and others to the "crowd". I bet you would find a lot of people who would be willing to put in significant work to help build some cool gadget. So you could get initial funding from the crowd and then also let them do the actual work. The only thing you have to do is to cash the profits. A little simplified but I bet someone will figure that out at some point.

coryl• 9 years ago

Its probably more efficient to just hand over money and let the organizers pay people to do the work.

Unless the work is highly modular and distributable. But it depends on the product being worked on, some things work well (open source software development), other things don't (design, hardware, physical stuff).

kobeya3• 9 years ago

Pre-sales have always been a thing. Tesla is a $60B company. Can they not presell the Model 3? Calling it crowdfunding is just a new branding of an old idea.

I would argue the opposite—as a consumer I am considerably safer putting my presale funds into a product of an established company as they are more likely to honor the arrangement. They can’t just go belly up and move on to the next big thing.

lowboy• 9 years ago

I imagine that presales would come with a greater set of legal protections for consumers than crowdfunding. IIRC both Kickstarter and Indiegogo specifically state that rewards are not a sale.

aaron-lebo2• 9 years ago

That it is a rebranding of an old idea shows you exactly what it is - an attempt to sell a business model.

If established companies were just a tiny bit better with the way they do presales, this might be okay. But I've bought too many products in the last five years that were literally broken (videogames are the prime example) after forking over $60. Some of those products have remained broken for months. That's unethical. What shocks me most is this has happened with flagship franchises, which tells me those companies simply don't give a damn. Why should they, when the pay now, deliver later business model works?

Companies need to prove that their product is valuable, you can't do that when you flip the relationship, the power dynamic is completely out of whack - we're the billion dollar company, but we want you, the consumer, to give us money now for a product which we promise will be good later.

As consumers, we should expect more.

kakarot2• 9 years ago

Imvestors beware! I've only ever purchased 3 pre-release games and all delivered. With a keen enough eye it's pretty easy to tell if a game is going to deliver on its promises in a satisfactory manner. If you are having trouble discerning the lemons from the good stuff, maybe you shouldn't be investing in games.

zaptheimpaler• 9 years ago

Companies do have to prove their product is valuable when its not a pre-sale - via reviews, popularity, word of mouth etc. If you choose to buy a product when none of those signals exist.. well.. expect to get screwed once in a while. The deal is pretty transparent - no one is lying or misrepresenting the good (a promise of a game) being sold, so its on the buyer to exercise judgment on whether to buy it. You are entering a contract to take on some risk in exchange for a better price/bonus features - don't be surprised when that risk materializes occasionally.

Waterluvian• 9 years ago

Not just unethical. Illegal in many regions. I will not hesitate to charge back a software purchase if the software cannot be returned but does not work.

It's fuzzy because of the definition of working, but I get to decide that.

prklmn• 9 years ago

I am considerably safer putting my presale funds into a product of an established company as they are more likely to honor the arrangement. They can’t just go belly up and move on to the next big thing.

Sure, compared to an unestablished company. But why would you ever want to do that when you can buy something that's out there and has been proven? You are much safer buying a product that's been put through it's paces no matter who's making it. You don't have to worry about honoring any type of arrangement because the product exists. You want a new Ford a year from now, then buy it a year from now. You've been told your model 3 will be delivered a year from now? Don't hold your breath. These companies are pre-selling little more than hype.

smegel2• 9 years ago

Don't you get your money back if a presale fails to deliver? Crowdfunding is a donation that might yield a reward if it succeeds.

kobeya3• 9 years ago

Not necessarily, no. It’s just that a big company won’t take the publicity hit that would come from reneging on the pinky promise that they’d refund the deposit. Even where it is contractually provided for, the contract could be forceably renegotiated in bankruptcy.

scarface74• 9 years ago

They can’t just go belly up and move on to the next big thing.

If Tesla goes bankrupt then what?

kobeya3• 9 years ago

Then potentially you’re out your deposit, depending on the whims of the bankruptcy court. That’s life, and you knew what you were getting into (or should have known the risks).

montaguy• 9 years ago

This doesn't sound like a real problem.

amelius• 9 years ago

The problem would be bigger if they used their own money to fund development of new products in existing markets; that would put small startups at a disadvantage. What the article speaks about does not.

josephpmay• 9 years ago

It’s part marketing campaign, part pre-sales to prove demand with an easy out if nobody wants to buy it. There’s nothing wrong or unethical about it IMO

usrusr4• 9 years ago

Depends on the amount of deception involved. There is outright lying on kickstarter because truthful claims of "smallest/first/only in the world" of some campaigns has been mindlessly cargoculted by those who are clearly not.

Presales by established companies would not do that. Next are expected product features that turn out to be impossible/too difficult to deliver on time or budget. Happens all the time, there are entire software development processes built around this uncertainty. For presales, this is really solved by precise language clearly differentiating between the definite and the possible. With zero effect on customer enthusiasm and disappointment, because we all ignore them every single time. Just be careful to not "not-promise" too much.

Then there is the pre-sales rebate. The least suspecting of all pre-sale perks. But many products get cheaper over time. How long does the announced "post-presale price" have to stay valid so that the pre-sale rebate is not deceptive? Clearly it would be ok to slash prices when when the successor model is announced two years later. Clearly, it would be absolutely outrageous of they only sold one unit to a guy hired by marketing at the announced full price on release day, to then immediately go below pre-sales price. At what point between those extremes does a pre-sales rebate become deceptive?

icodestuff2• 9 years ago

It seems the core of the objection is "billion-dollar companies using crowdfunding platforms violates the spirit of crowdfunding platforms". Doesn't seem to be much in the way of hard evidence as to why it's a bad thing though.

filereaper• 9 years ago

The emphasis might be on the "crowd" part as opposed to the "fund" part. Companies can try and size the actual market for their products, once a MVP is found properly fund it. I think this actually make it a level playing field for products between the big and little guy.

echan00• 9 years ago

Sorry, I really don't agree with this. It doesn't matter how big or small you are, any company has a right to crowdfund. Big companies have their own set of problems, and crowdfunding can be a way to help those companies solve them. The point of crowdfunding is to allow the "wisdom of the crowd" to determine what ought to be funded and what not to. In that sense, if enough people believe that a project is worthy of funding then it is worthy.

wpietri5• 9 years ago

Did somebody say they don't have the legal right? I can't find that in the article.

seankimdesign2• 9 years ago

You're right in that nobody mentioned anything about legal rights.

The article in question, however, is titled "It's not okay for..." and alludes to corporations who supposedly are violating the 'moral rights' by participating in crowdfunding practices. The parent post is merely extending the debate regarding the same moral rights but taking an opposite stance, claiming that the right(not legal, but moral) is not exclusive to the start-ups.

mbloom1915• 9 years ago

what better way to market test product then crowdsource interest and sales? all points made above mine make it clear this is not a problem nor new

seankimdesign2• 9 years ago

Hard to agree with the sentiment behind this article, as the entire argument seems to be rooted on this arbitrary idea that crowdfunding is some sort of sacred ritual that's reserved for the underdogs only. Who mandated this rule? I certainly didn't agree to abide by it, and will continue to fund any product that I deem to be fund-worthy regardless of the current financial capabilities of the creator entity.

oelmekki• 9 years ago

I had the same impression while reading the article. I think that somehow, author is equating crowdfunding to charity (which would explain why they would think it's outrageous rich companies are trying to take advantage of it).

To me, crowdfunding is more about testing market fit, which is especially critical when building physical products that need manufacturing - so it's for everybody. Actually, the simple fact that refund is automatic when campaign goals are not met is probably better than any usual presale.

usrusr4• 9 years ago

To be fair, if you only look at the kickstarter model of crowdfunding, where campaigns can claim anything they want no matter how factually wrong and the only guarantee given is that your card won't be charged unless the funding goal is met, then charity is the closest analogy. It works best as a money collection tool for community projects were trust is already established off-site.

shopkins• 9 years ago

Agreed. Obviously they have every right to do this, but what are these companies actually contributing to the crowdfunding community, outside of (seemingly) inferior products like the Nebula Capsule [0] or Opal Nugget Ice Maker [1]? Why do we need to sacrifice more of our sacred startup / maker spaces to megabrands?

[0] https://www.indiegogo.com/projects/capsule-the-world-s-most-...

[1] https://www.indiegogo.com/projects/opal-nugget-ice-maker/#/c...

dsacco• 9 years ago

A stylistic critique here: I think the trend of taking a quote from the article and presenting it on its own somewhere else on the page is overused, especially in blogs and magazines.

For example, in this article, we have a sentence pulled from the article and presented in a larger font with italics, a quote block and green text:

If this was three guys in college looking to try and get their prototype into the world, great. But this isn’t a start-up.

This seems like a poor sentence to use for two reasons:

1. That sentence literally appears immediately before the quote block in the article in a vertical layout, which means I read the same sentence twice, back to back.

2. The sentence itself doesn't seem...noteworthy?

It seems like this concept was cargo culted from the design zeitgeist of modern magazines, to the point that it's worked in as stylistic sugar where it doesn't really make sense.

oddlyaromatic3• 9 years ago

I agree with you. I've always assumed these things were used to catch somebody's eye as they flipped through the pages of a newspaper or magazine, as highlights to draw the reader into the content. I haven't been able to figure out what value anybody thinks they provide online for the same reasons you point out. They are just irritating repetition.

tqi• 9 years ago

I think it's fairly common for people to read the first 1 or 2 paragraphs, then scroll down to the conclusion + comments. Pull quotes are likely a way to re-engage those users, thus increase their time spent on the page + ad impressions.

| Pull quotes are likely a way to re-engage those users, thus increase their time spent on the page + ad impressions.

I agree though, execution is pretty hit or miss.

egocentric2• 9 years ago

This is very common, specially in longer content. I think a lot of people are in the habit of just skimming through too many articles, rather than fully reading fewer ones that they more selectively chose. In response, publishers try to do anything they can to catch your eye and keep your attention “here”, rather than you quickly moving on to something else. And probably as content becomes more “skimmable” this way, people in turn make even more use of these flashy bits, re-enforcing this vicious circle. I find them annoying because it reminds me that the content is simultaneously trying to appeal to both skimmers and focused readers but has no idea which kind I am at the moment I’m reading it (I might be either).

SterlingHero• 9 years ago

Kind of like watching a trailer for the movie you’re currently watching.

jotm• 9 years ago

"Being asked to put money down for a product that hasn’t been finished, hasn’t been seen by tech sites, and that definitely doesn’t have any reviews, would normally sound crazy."

But we can ignore that when pre-ordering games... because they look fucking awesome!

Seriously, not an issue. Why would companies not crowdfund? If anything, they have a higher chance of delivering on their promises.

Crontab• 9 years ago

I do think that it can also be a way to get companies to make niche products happen.

occultist_throw• 9 years ago

The issue here is the following:

Crowfunding implies that you don't have enough money to start making and holding inventory for $something. And $something is usually small, under some hundred dollar device that the markets haven't figured out yet.

Like, the recent RISC cpu board - its new, novel, and really neat. But to make them costs a bit per board. $25 each, which in lots of 1000, is up to $25k capital. But the design and idea is awesome, and lots of others agree. So people put money in, and take a bit of risk, to see that this is made, and they get it, and prove there is a market to continue.

When big companies do this, they have plenty of capital and ability. The risk they're taking is that if the "market bears it". And using crowdfunding platforms, they also shunt the risk almost completely off since those platforms offer pretty much nothing in terms of guarantees.

Big companies using crowdfunding also short-circuits the idea for these - which is that big companies ignore many market segments because of their size. In the short and long of it, they are bad actors.

Read my previous comment history and tslug's comment about how capitalism reduces an infinite amount of dimensions of ethics, value, and liability down to a single scalar : money.

Of course bad actors (read: big companies) are going to hack and use it ways that aren't intended. They have no ethics(legally required, except for benefit corps), only governmental fines which are some percent of the damages they cause.

icodestuff2• 9 years ago

It seems like a ridiculously inefficient system you're promoting. Why should companies be forced to risk spending millions developing a product using only a best-guess system as to actual demand for a potential product, when they could have people put their money where their mouth is? Sure, they don't have to use crowdfunding platforms, but if they're not set up to do pre-orders for things themselves, they might judge the platform fees worth it.

The ethics aren't what you say they are either. First, while if a startup crowd funds a product and fails, you're SOL. When a billion dollar company crowd funds a product, even if the platform makes no guarantees, if it fails do deliver then you have recourse against the company. Second, Why should only small players be able to address previously unaddressed markets? Isn't that one of the complaints about big companies, that they ignore small markets? And now that they've got the ability to actually test out a market - and serve it in the process! - that's a bad thing too?

kylehotchkiss• 9 years ago

I'd rather buy from an Anker kickstarter/indiegogo than "Three guys in college looking to try and get their prototype into the world".

There are some really cool ideas on Kickstarter and some things that seem incredibly well designed (they crop up on uncrate.com all the time). Execution seems to be the challenge - a good product isn't just the design of it, it needs to perform its task well, safely, and durably.

Would be nice to see colleges themselves forking over some of those sweet, sweet endowments into students ideas.

ChuckMcM• 9 years ago

I can't say I agree with the author here. The biggest problem in "product" manufacturing has been trying to understand whether or not your "great idea" was in fact great or just something you and you alone liked. Crowd funding sites do two things for you, they give you a slope and an intercept. The slope, how quickly people sign up, is a good indicator or market interest, the intercept (the final point you end up at) is a good indicator of overall addressable market.

Why wouldn't you take advantage of that before committing possibly millions of dollars into a project?

That said if you're a successful company you really should execute perfectly on your crowd funded product, it should ship when you say it will and it should have all the fit and finish of a professional product. If, as a company, you consider crowd funded products to be somehow a 'cheaper' alternative to "real" products, then I have an issue with that.

ScottBurson• 9 years ago

Agreed, as long as the fact that it's an already-successful business is disclosed up front.

snarf21• 9 years ago

Right, and since they are a successful company returning the product for your money back should be something that is easy for them to do. If not, you can charge it back.

I don't have a problem with this as it is really just an ad hoc focus group. I think they do have a responsibility to make sure there is more upside for the early adopter like early access or unique skin/badge, etc.

zeep• 9 years ago

Large companies just have better odds of delivering the product than the average Joe (because you are not guaranteed a product on Kickstarter alikes).

shitposter69• 9 years ago

let the open market decide.

bdibs• 9 years ago

I understand the general consensus in this community will be one of "pro-business" (large corporations should crowdfund), but I'd like to share the contrary.

The whole purpose of crowdfunding is to hedge the financial risks of bringing a product to market. This is something that "3 college kids" should consider (and may even be necessary), but a business with hundreds of millions in revenue should be able to avoid for the consumer's sake.

Why should we, as the consumer, accept to pay for something before it's even made? If the product ends up being subpar, the company has nothing to lose, so what's their incentive to make a quality product?

I'm not coming from a legal standpoint, this is just my opinion, of course they can do whatever they want.

comstock• 9 years ago

I agree in general, if the product was going to be made anyway.

But one situation where crowd funding might be appropriate is where a product manager or developers can’t get budget to fund development. So unless a crowdfunding project is successful, the product will never get developed.

That may or may not be the case here, but in general I can see a few scenarios where crowdfunding in large companies might be appropriate as a way of seeing if a real market exists and gaining traction internally, prior to development.

edanm• 9 years ago

That's a fair point of view.

But evidently, lots of people disagree with you and, and, for one reason or another, do want to pay for some products before they are made.

I'm sometimes one of them - I will pay for a prerelease. Sometimes it's to help (e.g. I'll buy books on preorder to help authors I like), sometimes it's to help get a product made, sometimes I get benefits (it costs less than it will later, at least supposedly).

jansho3• 9 years ago

If the product ends up being subpar, the company has nothing to lose, so what's their incentive to make a quality product?

That's an interesting thought. Assuming that the company is already worth millions/billions of dollars, I wonder if it can give extra assurance of a money back guarantee to unhappy consumer backers. Especially if the company primarily intends to use crowdsourcing as a form of product validation.

There's also the risk of unhappy but influential backers going public about what they think. Crowdsourcing for big companies must not be as fun as your typical Kickstarter campaign!

ivanhoe• 9 years ago

Usually there's some type of incentive for customer to take this risk: you either get it cheaper or you get some extras or something. It's a gamble, but companies wouldn't be doing it if there was no customers interested in it, so obviously customers don't mind taking this risk.

donatj2• 9 years ago

I disagree. It's a tool like any other and good tools have multiple applications. If there's no reason it can't do both other than falsely imposed limitations that's a bad tool. The best tools have many uses.

Jdam• 9 years ago

On my way to work, I‘m passing a store of a bag manufacturer that‘s in business for 25 years. Now, they advertise their Kickstarter campaign that will still run for a few days. Out of the 100k funding goal for a new bag(!), they reached almost 500k. Mind blowing for me.

jansho3• 9 years ago

Not anti-crowdfunding for large companies, but consider this: what happens if these companies start flocking in Indiegogo and Kickstarter? The main ethos of crowdsourcing platforms is to give extra leg-up to lone inventors and small startups so that they have a chance to be competitive too, but if you have large companies with their big budgets and finely tuned marketing, would these platforms still provide fair ground for everyone?

As the author pointed out, Indiegogo is supposed to focus on the "underdogs":

"Our mission is to empower people to unite around ideas that matter to them and together make those ideas come to life... We know building something from scratch is hard, so we’ve got your back."

usrusr4• 9 years ago

The platforms have already been taken over by finely tuned marketing, no need for large companies to get involved.

In fact, large companies might bring some refreshing linguistic restraint into the game, as I would expect them to be much more cautious of claiming "best/first/only in the world" about products that are clearly not. I rarely see a product kickstarter that does not look like exactly how a highly polished parody of product kickstarters would. At least with a big company, you would know that they put more into the product than into the campaign.

What is currently ruining the platforms (well, at least ruining kickstarter) are campaigns were this is clearly reversed, e.g. campaigns trying to do a moneygrab with something as commoditized as USB power banks.

jansho3• 9 years ago

They won't just bring "refreshing linguistic restraint" though, if you have two campaigns doing the same product idea, but one has a slicker video and can promise bigger rewards, which would you back? For crowd-funding platforms that proclaim support for the "small people", I can understand if some people feel a bit cheated.

Personally, I like to go for the artsy projects because these can't be found elsewhere (except maybe Etsy) so I've learnt to filter out the "money-grabbing" spam. Inevitably you'll have noise in a system, like eBay's counterfeit problem, but I just don't think that you need large companies presence to deal with it.

GeorgeDewar• 9 years ago

I'm not exactly a "free markets solve every problem" guy, but in this particular case I think we have a platform with an agreed set of rules, and when a willing exchange can happen there is really nothing wrong with it.

I see these rules as:

1. The vendor is using the platform to sell a product that's not ready for market yet. They are not willing or able to develop the product without securing the funds to do so from willing buyers. Note that the distinction between "not willing" (a company swimming in cash that doesn't want to take a risk) and "not able" (a guy with no financial means whatsoever) is blurry in many real cases (e.g. three guys in a garage that could spend their whole life savings and mortgage the house but aren't quite willing to, as the in-between case).

2. The buyers are getting a product they can't get elsewhere, at a price they are willing to pay. This implies they feel adequately compensated for the risk they know they are taking on.

3. The platform earns a fee.

A giant corporation playing by these rules seems to me to be fairly contributing to the ecosystem just like a small player. If their proposition is not on terms that buyers accept, they'll simply fail.

anonytrary• 9 years ago

Yes it is, it's up to the people (i.e. the crowd) whether or not they want to crowdfund something. Free market should do the rest.

cup-of-tea• 9 years ago

Well it's not as bad as billion-dollar companies crowd-sourcing.

perpetualcrayon• 9 years ago

I don't get the impression we'll ever be able to prevent it, but I do think crowd funding platforms should require disclosure of this kind of thing, and should spend time vetting new accounts (at least the ones who will want to create campaigns) to ensure the disclosures are accurate. This way the public will be able to draw their own line of what's acceptable and what isn't.

donatj2• 9 years ago

I disagree. I feel like it's a great way for a company to suss out actual product interest before investing millions in fleshing out an idea. Just think of it as pre-ordering.

It’s not ok for billion-dollar companies to crowdfund

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