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Crowdfunding the future of marketing

Crowd funding has the potential to shift the way entrepreneurs research, develop and market products.
Last modified: 23 Jan 2013 21:58

They had failed to get financial backing for their high-tech smart watch, so last April the developers of the Pebble decided to made the public an offer.

Pre-order one of their yet-to-be-made watches for a reduced price, and be the first to get one. They made the offer on the crowd funding website Kickstarter. Within two hours they had reached their target of $100,000. Within a month they had raised more than $10 million dollars.

The watches are now being shipped to the 68,928 people who bought them, attracted by their ability to communicate wirelessly with smartphones, act as a remote control, a sensor and an extra display for smartphone applications.

"I quite like the idea of supporting an entrepreneur, trying to do something new,” said Andrew Bathgate, a buyer of the new watch and a crowd funding specialist at the London-based agency Good Innovation. “I felt a bit of a connection to them, it felt like something special, nice product and a nice story behind it."

Customer as advocate
 
The product may be winning praise for its design and innovative technology, but the way it was funded – by a group of individuals who pooled their money to support the project - that is being seen as having the greatest potential to disrupt current models of product development and marketing.

“This gives you an ability to go an talk to people who might be using your product and get them to give you feedback on how that product might evolve," said crowd funding specialist Ayan Mitra from CrowdBnk. "The second step is once someone buys into your product, by supporting you financially they then become you biggest advocate in the marketplace, telling their friends about the product and how amazing it is.”

Kickstarter is the largest of the crowd-funding web sites. During 2012 it attracted pledges from 2,241,475 people.

The total amount of money pledged totaled $319,786,629. This was enough to successfully fund 18,109 projects.

Although many were for modest projects and asked just a few hundred dollars, 17 projects raised more than a million dollars. Computer games developers attracted $83 million in pledges. The money came from people in 177 countries.

Challenge to existing models

The crowd funding model offers new developers access to both funding and feedback for their products. It also represents a challenge to traditional models where the developer needs to convince a financial backer there is a market for a product. It also avoids the need for developers to pay for expensive consumer focus groups.

“Conventional business can learn from how these things are being done on crowd funding platforms," said Ayan Mitra.

"We certainly have seen evidence of game studios coming on to crowd funding platforms to try out their new games as a way of finding new advocates and early users and also to find out whether they need to tweak the product before they launch it into the market.”

Along with the development of consumer electronics, crowd funding sites also offer a myriad of other projects for anyone to support.

These include the development of video games, musical artists , software, films, citizen journalism and even charities.

Some allow supporters to choose a particular researcher to fund. Donate enough and you can have a personal tour of the lab. Give even more and you can have the cure named after you.

"Charities are very good at going out and using their networks and find people who are passionate about something, so crowd-funding can be used as a way of bring that behavior online," said Andrew Bathgate.