Crowds move from surfing to sourcing to financing

Small may be beautiful as E.F. Schumacher once said, but it is normally more expensive. How can smaller firms challenge the goliaths in any market, such as Apple and Samsung, when resources required for research and development are so significant and where large firms gain from substantial economies of scale? Mass production methods create cheap goods and, with automation and robotics, standardisation is no longer the automatic downside.  So what is the solution for a new, or innovative, firm wanting to compete in markets with established market leaders and brand loyalty?

One solution is to create innovative and desirable, niche brands, such as The Body Shop in the UK or Ben & Jerry’s ice-cream in the US. Both developed and grew using a “small is beautiful” model of economic enterprise that put relationship, craft and environment at the heart of their way of working. However, both were so successful that they were gobbled up by voracious MNCs.
Another solution is to use the power of the World Wide Web. The Web is making the market place more accessible and democratic and creating opportunities for innovative products and brands to gain access to global markets, and to take a bite out of the market share held by the bigger fish.

For example, Crowdsourcing offers smaller firms the opportunity to gather new ideas and opinions, normally for free. However, even with the best ideas, start-ups and firms hoping to innovate find it difficult to finance projects and are wary about large investments, where demand is unknown. Now there is a possible solution, which is rapidly gaining ground; that of crowdfunding or crowd financing.

There are three main reasons why people unconnected to a project or business would support it:

1. They connect to the greater purpose of the campaign

2. They connect to a physical aspect of the campaign like the rewards

3. They connect to the creative display of the campaign’s presentation

There are numerous crowdfunding platforms where consumers can safely donate money such as Kickstarter, Indiegogo, RocketHub, and Rock The Post. While each site offers their own unique spin, the general concept is the same. Project creators produce a profile typically containing a short video, an introduction to their project, a list of rewards per donation, and some images to elaborate. The idea is to generate a compelling message that will encourage new investors.

Kickstarter has enabled 4.5 million people to pledge over $725 million to fund more than 45,000 creative projects since their launch in 2009. For example, the video game console wars welcomed a new combatant in the shape of Ouya, the home video-game console unveiled in July 2012 as a lower-price alternative to higher-end competitors. Its campaign on the crowdfunding site Kickstarter raised more than $8.5 million in one month

On crowdfunding sites, project creators set a funding goal and deadline. If people like a project, they pledge money to make it happen. Projects must normally reach their funding goals to receive any money at all. All-or-nothing funding is very effective in creating momentum and rallying people around an idea. To date, an impressive 44% of projects on Kickstarter reached their funding goals. There are a constant flow of new projects seeking potential investors on the Kickstarter and RockThePost sites.

Indiegogo is presently raising funds for Ubuntu Edge, the next generation of personal computing: smartphone and desktop PC in one state-of-the-art device. This will allow Ubuntu to compete directly with Apple and Samsung, knowing not only that it has the funds, but also the demand, as investors who pledge funds also sign up to buy the phone at discounted prices.

 

 

IB Style questions

1. Define the following terms:

  • niche brands
  • brand loyalty

2. Explain the process a new business will have to go through to start up.

3. Analyse the factors affecting innovation in the telecoms market.

4. Evaluate the relative merits of small versus large organisations, with particular reference to the impact of e-commerce.

 

Sources

Crowdsourcing

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