Crowd funding is not a market
Released on: 2021-01-26

Crowdfunding is one of those concepts that comes along once in a while that makes you go “Dang… why didn’t I think of that?” It’s a way of enabling someone else’s dream. We get to choose to participate in projects that matter to us, and in return, we usually get some form of “perk”.

From time to time, I see people asking for refunds in projects. Honouring these requests has a massive impact on the project’s ability to succeed, and after a recent occurance of people doing this, it seemed like time to say something about it. In this post, I’m going to discuss the dynamics of refunds in these projects, and the effects they have. But first, we need to cover some ground work.

A marketplace vs crowdfunding

To me, crowdfunding is one of the coolest concepts to come out for quite a while. We literally get to enable projects that matter to us. We get to enable someone’s dream project, the thing they’ve been obsessing over for goodness knows how many years. We get to influence how the niche that the thing belongs to evolves. And in return, we get the thing that made us go “YES! Why didn’t this already exist?” And often we get it below the retail price that it will cost other people after the crowdfunding project has finished.

It is not, however, a marketplace.

The key difference being that a marketplace is selling already-existing products, while a crowdfunding site is a place for someone with an idea to find people who want to comit to investing in that idea. Or in other words, a marketplace is a tool to make a purchase, while crowdfunding is a tool to find investors or to make an investment. They are both powerful tools, but they are very different tools, with very different expectations and different risks.

Note that made-to-order products are “already-existing” in this context because all of the options are established with their supply chains. Customisations like engraving, wraps, and colours are known-quantities. Ie there is very little to no bug fixing in doing these customisations; other than the day-to-day “why the f___ is this not working…” ;-)

By contrast, a crowdfunding project has many unknowns. Large portions of the project need to be tested in the conflict between “theory vs reality”. Supply chain issues need to be figured out no a scale that is rare for existing products.

Managing risk

Like any powerful tool, there is room for malice and accidents. These two things are very different, and should be treated differently, but can often look similar. Malice should be, and generally is, stamped on. It’s the other risks that are more nuanced and interesting.

Side note: If you see malice (eg someone deliberately decieving you, or acting in bad faith) do report it.

For a marketplace, the hard work has been done, and the majority of the risk for the business has passed. The product exists, and making more of them is simply a matter of managing the supply chain. It totally makes sense that safety for the consumer should be built into the process, and that sellers take the burden of most of the risk. Most countries have laws to protect the consumer for these risks that have been iterated upon over hundreds of years. Where the boundaries lay betweek buyer risk and seller risk varies by country-to-country, but they’re there.

For crowdfunding, the risk profile is completely different and where liability for risks lays for non-malice problems is much more subtle. There is a far greater risk of failure, and a lot more risk falls on the investors than a consumer is typically used to.

First, let’s take a quick peek at some of the costs, and then some of the risks.

Costs

Running a project involves many costs. Most of them don’t simply go away, or get refunded if the project stops. Furthermore, if this is the crowdfunding first project that a person/business is running, they may not have built up the capacity yet to absorb these costs should the project not succeed and they want to refund everyone. I’ve made a quick list of costs below, but there will be many more, particularly costs that are project-specific.

If a project end without completion, most of these costs will remain. But the income will disappear.

Some of the risks

This is not an exhaustive list, but will hopefully get us closer to painting the picture.

Most of these are enough to sink a project and a small company by themselves. But often multiple of these events happen together. I actually wrote much more on these, but the blog post was getting too long. So you can read the details that I’ve removed here if that interests you.

For someone thinking of launching a project, this is a pretty scary list. Risk management goes a long way to keeping it under control, but the project owner can’t 100% account for risk. In fact, the more they account for it, the less efficient they become, and their costs rocket up. There has to be a balance, which means that there are always going to be problems that slip through, and they simply have to do their best at keeping them under control when they occur.

If you choose to invest, you need to understand that the project owner is already taking massive risks in running the project. You have to take the risk that the project might not come out exactly as you imagined/hoped, or may even not get it at all.

Consequences of refunds

The funding that we provide forms a significant part, if not all of the project’s funding, particularly if it’s a one-off run. If we pull out and request a refund, we are directly taking money out of the project. The material cost of the unit itself that we will get out of it, is just a small part of what we are funding. We are also paying for all the other costs listed above, and those don’t simply go away because one less unit has been “sold”.

We are investors. We have the power to enable a project, and the power to cripple it. We have the responsibility to research before committing, and then to provide stability throughout the project. The project will evolve, and it might not evolve in the direction that we like. But when we commit to backing that project; we are committing to backing that project. And unless the group running the project is being dishonest in some way, we should be there for the ride because we said we would be.

Project evolution

Projects evolve. With a large enough budget (both time and money), the evolution can be planned out before it’s visible to the end users, and powered through by burning money when stuff slips through the gaps. The amount of money required to do this would price-out most projects from being interesting to consumers. But even proceeding with the idea, it’s not certain/likely that there will be no surprises. - Think big budget government projects; they don’t always over-run, but they usually do. And that’s despite putting a lot of resources into planning and buffer.

If you don’t want to price yourself out of the market, you have to accept that there are going to be some surprises that you can’t sheild the users from. Maybe it means that the project will be a bit late. Or maybe some specifications will have to change. But it will happen.

Why I’m writing this post

I’m writing this post because a number of backers on the Astro Slide 5G Transformer Indiegogo project have been asking for refunds. This is not the first time that I’ve seen this behaviour, and it felt like time to say something about it.

In the case of the Astro slide, PlantComputers described the situation in update 17/week 42 on 2021-01-11 like so:

As many of you will know, we planned to use the MediaTek Dimensity 1000 in the Astro Slide. After initially indicating its availability to us and including Astro Slide in its April Newsletter featuring the Dimensity 1000 processor, we approached MediaTek to secure supply of the processor. After some delay, we were advised that this processor was not available to licence. Despite multiple attempts across several routes, both ourselves and our ODM have been unable to licence this processor from MediaTek.

This sucks.

A couple of extra details:

They’ve opted for a lower-end processor (Dimensity 800), and then to upgrade the RAM from 6GB to 8GB, along with a couple of other tweaks as well. Why they haven’t been able to get the original processor, I don’t know. But I am confident that they will have had a very serious conversation about what they would do about it. They will have considered upgrading, changing supplier, and possibly other options that I haven’t thought of. I’m guessing upgrading was prohibitively expensive, and possibly would require a fair amount of redesign. And they said that changing supplier wasn’t an option at this point in the process because that would involve almost a complete redesign, a change in tooling, a change in software, and most of the supply chain. In any case; this is the evolution that triggered the refund requests.

Why? People are upset that the specs have changed “significantly”. I hear that, but I don’t buy it. PAUSE

At this point, the original pre-release version of this paragraph, went into detail comparing the chips, and their positions within the market. I decided to scrap it before making it live because I don’t think it added much to the conversation. And it needed to be much longer since there are many different aspects to cover when comparing the chips in this context.

UN-PAUSE However, looking at the comments, I do see a couple of legitimate cases where the new chip won’t meet the needs of the commenter. To me, all of the rest look like tantrums or people trying to coerce the project owners into delivering more (and probably over-spending).

The thing that is special about this device is the keyboard. There aren’t many phones with keyboards on the market at the moment, and to my knowledge this is the best keyboard on a phone on the market at the moment. Tangent: The most interesting competitor recently had the same issue with a different supplier.

We have many choices for devices these days. If you want to be strict on one feature, you have to be more flexible on other features. Considering that there aren’t many phones with keyboads at the moment; if you want a keyboard, you have to sacrifice many of the other aspects. Would I prefer a more powerful CPU? Sure. Would I prefer a higher-resolution screen? Absolutely (sadly, those are also getting pretty rare on the market now, as well.) But I sacrificed those because I wanted the keyboard. A keyboard that I know to be really good based on my experience with the Gemini PDA, which was their first generation device, 2 iterations ago.

Finishing up

Crowdfunding is an amazing tool with possibilities where people get to bring their dream projects to life. It’s useful alongside and distinct from a marketplace. And we, the consumer/enthusiast, get to find and participate in the projects that interest/matter to us. There are risks that come with that, and we accept those risks when we choose to become involved with those projects. Projects will evolve as they proceed. It will happen.

If you need the security and certainty of a marketplace; then a market place like amazon, or better yet, the original seller of the thing you want to buy; will suit you better. You will pay the full retail price, but will get the certainty that comes with that. Asking for a refund on a crowdfunding project has implications for the project that go well beyond just the unit that you committed to. It’s not fair on the project owner, or the other investors/backers.

By choosing to invest in a project; we are committed to, and critical to, the success of the project. Let’s help them succeed, and keep crowdfunding as a useful, distinct tool.

Crowdfunding is not a market place.

The title photo

On the left is the Gemini PDA. On the right is the GPD Pocket. Both are devices that have come out of crowdfunding.

This post references

I've been in the computer industry for well over two decades. It has changed so much that it is barely recognisable compared to what it was. Most of the changes are for the better. Some are things that we have always sucked at. And some are very much worse. The weCanDoThisBetter series of blog posts is for addressing the areas where we could do better....

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I've been in the computer industry for well over two decades. It has changed so much that it is barely recognisable compared to what it was. Most of the changes are for the better. Some are things that we have always sucked at. And some are very much worse. The weCanDoThisBetter series of blog posts is for addressing the areas where we could do better....
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