Groupon was built on a really cool idea: that the internet could give collective buying power to ad-hoc groups of people.
This meant that vendors could do business in bigger volume while customers got better deals. Groupon, you might say, has been a disappointment. But there’s some good news. The core idea, where a group of people can buy something that none could buy alone, lives on in Kickstarter.
Here’s how the site works: Anyone can pitch any project—ranging from art to movies to software and beyond—to the Kickstarter staff, who decide what to feature on the site. Once approved by the staff, the applicants set a funding goal and a timeline, usually a few thousand dollars and about two months. From there, it’s up to the community to collectively choose, one dollar at a time, which projects are funded. No individual user is charged until the entire funding goal has been met on time by the community. If a project is fully funded when the clock runs out, the money is transferred to the project with Kickstarter taking 5% for themselves.
In all, it works as something like a pre-sale for products that doesn’t yet exist. What’s more, customers are buying the feeling that they helped bring something new to market that might not have otherwise had the chance to exist—products like the Elevation Dock (an iPhone cradle that was the first-ever project to exceed $1,000,000 in support), the indie videogame Double Fine Adventures (a new project from an industry veteran, the first project to receive over $1,000,000 in 24 hours) and the Pebble Watch (a Bluetooth watch that at the time of writing has almost $9,000,000 pledged).
As it exists today, Kickstarter is almost too good to be true for startups: the model combines customers, investors, and marketers all into one group.
The Pebble watch in particular is interesting, as the project kept getting rejected by venture capital firms. Without Kickstarter, the product wouldn’t be coming to market. It’s now possible to startups to bypass venture capitalists entirely. And with the US JOBS Act coming into law in 2013, it’ll be possible to use the Kickstarter model to buy equity in companies. Something big is happening here, and it’s going to disrupt the way companies are created and products are brought to market. Traditional in-firm innovation is going to be competing with unexpected ideas that can find markets (and funding) almost immediately.
As it exists today, Kickstarter is almost too good to be true for startups: the model combines customers, investors, and marketers all into one group (if I spend $25 on a new campaign and want to see it funded, it’s in my interests to convince friends to pledge as well). This means a company can scale much more quickly and inexpensively than ever before. Compare this with the product development release cycle in most bureaucracies. Which will be faster to market?
Incumbent companies need to be ready for this fundamentally new and different form of competitor. It’s not yet clear that traditional top-down will be able to respond effectively this kind of change. No industry is insulated from this new model; it can be applied to jumpstart just about any type of company, and as the practice grows, so too will the scale of funding.
When smart ideas can come from anywhere, companies need ways to identify and develop them.
At T4G we have a once a year innovation contest called GeekFest, where all employees are free to pitch new product and business ideas; the winner gets $10,000 and gets to see their idea brought to life by the company. It’s not as extreme as Kickstarter, but it makes T4G make some unexpected and valuable moves.
Kickstarter isn’t perfect and will probably experience some serious—and public—growing pains. But the core idea is only starting to make an impact on the world. All companies will need to keep an eye on where their competition is coming from in order to stay in the game.