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Ron Popeil © Image: Housewares.org

Crowdfunding and Direct Selling: A Conversation With Dan Williams

Ron Popeil © Image: Housewares.org

Ron Popeil © Image: Housewares.org

[Originally published on crowdsourcing.org, 20 May 2013]

What would the new K-Tel “22 Original Hits” collection be for Crowdfunding? Chances are, it would include must-have (and top-funded) presale products like a fly-killing salt gun, a 3D doodling pen, a networked video doorbell, a robotic insect toy, spring-cushion shoes, migraine-relieving eyeglasses, a gourmet cooker that clips onto any pot, stickers that prevent you from losing things, and little clips that mean you’ll never have to tie your shoelaces again.

As a lifelong admirer of such clever things, I love how crowdfunding has unleashed a wave of ingenuity in consumer products. The immediacy of their appeal reminds me of some products advertised on TV, like the Robo Stir or Rollie EggMaster. As with crowdfunding, these Direct Response (DR) products are sold directly to consumers from the entities that make them. That’s why I consider online “pretail” crowdfunding, in which backers fund production runs of products as a way of hopefully buying them in advance, as a new, indie, riskier form of DR. The crowdfunding portals have discovered that campaigns fare much better if they include a video, but the DR people have known this all along.

Dan Williams serves on the board of directors and chairs the Internet and Emerging Media Council of the Electronic Retailing Association (ERA), the main trade organization for the DR industry. ERA member companies spend about 3 billion dollars per year on advertising, mostly television, including both spots (“short-form”) and infomercials (“long-form”). I recently spoke with Dan about crowdfunding and DR. Here’s part one of a three-part conversation:

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© Image: Wen Chuan Tan

Crowdfunding: Revenge of the Outsider Ants

© Image: Wen Chuan Tan

© Image: Wen Chuan Tan

[Originally published on crowdsourcing.org, 22 Jan 2013]

Imagine that you’re an ant who’s looking for food. One strategy is to find other ants who are crowded around a large source, like a dropped candy bar, and then attach yourself to their supply line. A second strategy is to strike out on your own and look for undiscovered sources of food: crumbs that you can carry yourself, larger pieces that you may need some help with, or a massive new find that will attract and support its own crowd of dedicated ants.

Like ants, humans also arrange themselves in groups to exploit resources together, and I often think about human organizations in terms of this ant analogy. The first strategy described above is the “insider” approach: identify the most promising crowd of ants, join it if there’s room, and if you’re feeling ambitious, work your way up closer to the food source. The second strategy is the “outsider” route: look for some food that no one knows about, or else try to figure out a new way of finding it. If you hit it big, many more ants will join you, and you will be in front.

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Is Kickstarter a Social Minefield?

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[Originally published on crowdsourcing.org, 7 Dec 2012]

Noreen Malone, a writer for The New Republic, doesn’t like what Kickstarter is doing. In her recent essay “The False Promise of Kickstarter,” she starts off by raising the case that donation crowdfunding is a “bright spot” in the current economic landscape and a more democratic way of supporting creative work. Then she attacks it by noting that crowdfunding favors projects that have strong online appeal, that some of the projects are silly, and that some projects fail to deliver. I don’t think Kickstarter fans disagree with any of these points. But should people be prevented from spending money on silly things, on Kickstarter or elsewhere?

Finally, Malone arrives at and develops what seems to be her deeper point: that the demand for donating to Kickstarter projects is not “real,” but is instead due to “peer pressure or idle boredom.” She problematizes the fact that Kickstarter “creates a relationship between consumer and merchant that is more like that of the one between donor and nonprofit.” And what’s worse, she concludes, other sites that resemble Kickstarter are sprouting up like weeds, not just for gadgets and films, but for things like funding local municipal improvements.

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Crowdfunding is Gamification Solving Real Problems

This post originally appeared on crowdsourcing.org.

In her popular TED talk and resulting book from 2010, game designer Jane McGonigal argues that gaming can make a better world. She posits that if we, as humans, approached real-world problems with the same sense of control and collaboration that we bring to multiplayer role-playing games, we could solve them. So, we should do it. We should make solving big real-life problems more like playing games.

McGonigal’s daring proposition comes from research that she did years ago, after having observed the different way that people react to challenges in games and in real life. When we confront obstacles in real life, we often feel overwhelmed, frustrated, or cynical, but when we play games, she found, we never have those feelings. She wanted to identify what it was about multiplayer games that inspired such a positive attitude, and concluded through her research that it came down to four things that the gamers experience:

1) an urgent and reasonable hope of success;
2) a fabric of trust created through interacting with other players;
3) a feeling of flow; and
4) the feeling of making a difference in an important quest.

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The $1,000 Indiegogo Campaign and Petition that Led to Legal Crowdfunding and the JOBS Act

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[Originally published on crowdsourcing.org, 23 Sept 2012]

On June 24, 2010, the Sustainable Economies Law Center (SELC) in Oakland, CA submitted to the SEC the first public petition for a crowdfunding exemption, which the SEC posted as File No. 4-605, “Request for rulemaking to exempt securities offerings up to $100,000 with $100 maximum per investor from registration.” The legal work for researching and writing the petition was itself crowdfunded on IndieGoGo as “The Crowdfunding Campaign to Change Crowdfunding Law,” and the donors are all listed in the petition’s first footnote.

The SELC petition subsequently inspired more public comments than any previous SEC rulemaking petition, and catalyzed a movement that resulted in the signing of the CROWDFUND Act, as Title III of the JOBS Act of 2012. At a recent Milken Institute roundtable on crowdfunding, one participant described this legislation as one of the most momentous and rare exemptions in U.S. securities laws since the Securities Act of 1933. Here are some citations that reference the SELC’s influential petition.

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A Crowdfunding Pioneer Psychoanalyzes Crowdfunding’s True Believers

[This is Part 2 of a series originally published on crowdsourcing.org, 21 Sep 2012]

II. Inside the Cult

It was satisfying and fun collaborating with others on efforts to push the crowdfunding exemption from idea to reality. I’ve always had an idealistic view of the exemption, and I saw that my compatriots felt the same way. We were (and are) excited about it, but ultimately, it’s just the creation of a new asset class. Others might see our beloved chunk of legislation as just another tweak of the financial system, too complicated and boring to understand. Or, worse, a suspicious-sounding new loophole that, as always, lets the conspiracy of scum in high places skim more money away those of us who do our nation’s real work.

It probably doesn’t surprise anyone that the people who worked as unpaid volunteers for a piece of new legislation hold high hopes for it. But for me, as someone who’s never been much of a joiner or a zealot, had never spent much time on political issues before, and is generally skeptical of any purported “magic bullets,” these group feelings were a new experience. I’ve processed them, and here are the results, ten reasons why I believe the crowdfunding exemption gained something like a cult following:

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How Crowdfunding and the JOBS Act Got Started, Told by the Guy Behind the Big Idea

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[Originally published on crowdsourcing.org, 19 Sept 2012]

Remember the Internet boom in the 1990s? That was triggered when Congress allowed the National Science Foundation (NSF) to revise its Acceptable Use Policy to permit commercial traffic on its Internet backbone. During that expansive time, Cyberpundit John Perry Barlow argued that the newly unleashed Internet was the most transformative technology since the capture of fire. Others compared it to the invention of the printing press or the automobile. But whatever your preferred antecedent, a stroke of the federal regulatory pen fundamentally democratized the flow of information, and led to an era of grassroots innovation, empowerment, and economic vitality that we are still enjoying. (Well, maybe not-so-much with the economic vitality today.)

Now the SEC is formulating regulatory changes that I hope will have similarly positive and far-reaching effects — not over the flow of information, but over the allocation of human effort. The JOBS Act’s crowdfunding exemption, along with its legalization of general solicitation, is a deep-structure re-engineering of securities laws that, to quote internet guru Clay Shirky, “isn’t a new way to do the old stuff; it is a new model of the business ecosystem, full stop.” The SEC should implement the new exemption so that it’s useful to entrepreneurs, but if they don’t, efforts are underway for individual states to pass their own exemptions. Either way, the revolution is coming. Whose side are you on — the stifling past, or the glorious future?

The movement for a crowdfunding exemption was initially launched by my efforts. You’re welcome. And I continued contributing to it, as an ad-hoc network of co-conspirators snowballed around the issue via ever-growing email recipient lists. Last April at the White House, this crowd of fellow travelers and I had the honor of seeing the JOBS Act signed, and now many of us are working with the SEC and FINRA to make sure the new legislation works out nicely for everyone. We look forward to seeing the rules that the SEC comes up with, and our fingers will be crossed next year, as the new regulations and regulatory infrastructure have their first contact with reality.

This is an article in two parts. The first part tells my part of the story of how the crowdfunding exemption movement got started. In the second part, I’ll explain what I believe motivated the people involved in the surprisingly fast-acting movement, and why we sometimes say such far-out and cult-like things about crowdfunding.

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