January 8, 2012

An Ambitious Plan For Putting Kickstarter Out of Business

It’s not much of an exaggeration to say that Kickstarter is universally loved. Or at least universally liked-on-Facebook, with precisely 170,795 likes as of today, and followed by 457,350 people on Twitter. So coming up with a plan to put it out of business is swimming against the tide to put it mildly, and I feel a bit like Discworld’s Mr. Teatime inventing methods for assassinating beloved childhood figures like the Tooth Fairy, and the Hogfather, Discworld’s version of Santa Claus.

The reason it ought to be put out of business is that it is overcharging its customers for the value it offers, i.e. it is a scam. A tough message to hear, but there doesn’t seem to be any other possible conclusion. Some people have argued that it is possible to be scammed on Kickstarter, a possibility that Kickstarter itself admits to in its help pages, but few people seem to argue that the service itself is scamming project creators.

To make that case, first we should look at what Kickstarter offers to projects. Here are the list of benefits that are offered:

A very small website

That’s it - Kickstarter provides you, the creator, with space for 4 public web pages plus an admin interface that is intended to be used for 4-6 weeks. The pricing scheme is unique: if your project reaches its funding goals, Kickstarter takes 5% of what you receive. If not, it’s free.

How much does Kickstarter make off of this arrangement? According to Wikipedia, Kickstarter has raised $125 million for 15,000 successful projects, and with a 5% cut, Kickstarter takes $6.25 million. We can easily calculate revenue per project, including the unsuccessful ones. The success rate is 44%, so the overall number of projects was around 34,000, which is $184 per project website.

A barebones web hosting company like NearlyFreeSpeech.net charges around $30 a year for far more space, including a domain name. Let’s call that $0.60 a week. Assuming an average of 5 weeks per project, Kickstarter earns $37 per week per website, 61× as much.

In other words, Kickstarter is a web hosting company that charges over 6,000% more than a comparable service.

One objection that might be raised is that web hosting isn’t the only benefit that Kickstarter provides, there are others that I haven’t included. I’ll list three other services that I can think of and why they should not be considered as benefits:

Kickstarter promotes projects through newsletters and on their blog. True, but only a fraction of the 34,000 projects created each year are promoted – and based on newer numbers, the rate has increased to 52,000 per year, making promotion even less likely. All projects are charged the same rate whether they are promoted or not.
Kickstarter’s website lists all the projects and helps potential backers find projects they are interested in, which improves visibility for projects, leading to a greater likelihood of success. In their guide for new project creators on how to run a successful funding drive, Kickstarter specifically refutes the idea that their website will drive traffic. In the Kickstarter School help pages, they explain that it’s actually the project creator’s pre-existing social network that leads to success: “for most projects, support comes from within their own networks and their networks’ networks.”
Kickstarter offer consultation to project creators, offering advice on what kinds of rewards to provide to encourage people to pledge, and how to market themselves on their websites. This is true, but it should be remembered that the cost of following this advice – creating videos, paying for t-shirts, shipping costs for the rewards – is borne exclusively by the creator. And this is not cheap. According to Diaspora’s financial report, the cost of purchasing and fulfilling the rewards was 14% of the revenue they received from Kickstarter. To ensure success and get their 5%, Kickstarter has an incentive to encourage creators to spend more on rewards and elaborate promotional stunts as the market gets more and more crowded.

Another possible benefit that Kickstarter provides is prestige. The projects are carefully curated and some do not make the cut, so being accepted carries a certain amount of credibility. If we accept this as a benefit, it means that Kickstarter is able to turn their aesthetic sensibility into a multi-million dollar business. We can directly quantify this: if the cost of providing a four-page website is no more than $0.60 a week, the remaining $36.40 is provided by curation. Or, their refined taste is worth at least $6.15 million so far.

One caveat is that there is presently no real alternative to Kickstarter. It’s not like you could buy a few weeks of web hosting for $10 and press a button to install equivalent software as you do today to set up a blog. But there’s no reason why you couldn’t, since the technology itself is trivial, and could be written for a fraction of the millions of dollars of somewhat dubious value that Kickstarter provides. It would be nice if such a project – I propose the name “Selfstarter” – would be funded on Kickstarter itself, but I’m sure this wouldn’t be allowed.

The remaining question is: what accounts for Kickstarter’s popularity among the hip progressive left? How can we account for the strange coincidence of left countercultural values with a business model that would make all but the most hardened Objectivist blush? The short answer is that Kickstarter embodies what I want to call “Good™ values”, after the magazine, web site and infographic emporium that was founded in 2006 that describes itself in the following way:

In a world where things too often don’t work, GOOD seeks a path that does. Left, right. In, out. Greed, altruism. Us, them. These are the defaults and they are broken. We are the alternative model. We are the reasonable people who give a damn. No dogma. No party lines. No borders. We care about what works–what is sustainable, prosperous, productive, creative, and just–for all of us and each of us.

It’s no accident that this is the same Third Way center-left post-politics of the mid-90s. The founder of the magazine is 20-something Ben Goldhirsh, the son of the founder of Inc., a magazine that focuses on entrepreneurs and start-up companies. What this amounts to is progressive cultural politics married with neoliberal capitalist economic policy, but opposed to the bad (and boring!) corporate capitalism and instead favoring the dynamic, exciting capitalism of innovation and creative destruction.

The magazine has very positive and supportive coverage of Occupy Wall Street, because people with Good™ values have no problem with a certain kind of anti-capitalism, the kind that implies that the problems are not with the system itself, but with the people in charge. Those people have the wrong values — they’re greedy and selfish and have no goals in life except making money. They’re the problem. What we need are people who have a social conscience, people who live for meaning and beauty, people who care about Darfur and the environment; poverty and education and health care; vibrant communities and public transit.

People who think outside the box, creative types who don’t want to be told what to do, trailblazers and mavericks with new ideas. They’re rethinking everything, breaking down barriers, and bringing their fresh, youthful flair to overturn staid, conventional, old-fashioned paradigms. These people support local artists, local musicians, local bakeries, local apps and locavorism; social enterprises, organic food, micro-breweries, open source software, peer-to-peer production, collaborative consumption, volunteering, making the world a better place, community-supported agriculture; simplicity, minimalism, spiritual but not religious, being a maker, not just a consumer; digital nomadism, owning less and experiencing more; being your own boss, being passionate, being connected, being involved; DIY and knowing exactly who the fuck you are on a Sunday morning.

These are the Good™ people, and they’re here to change everything. The only thing left to add to this list is Kickstarter, a place where artists and engineers can connect with the people in direct peer-to-peer relationships who aren’t just buying entertainment, they’re helping make dreams a reality.

This new collaborative, cooperative ethic promises to bring social change, and posits itself as a threat to the capitalist status quo. This is based on a naive analysis of the world where greedy, selfish, power-hungry people build institutions that embody their corrupt values. Once we get the right people in charge, things will be different. Only they aren’t. Charging 60 times the actual cost of providing a service by skimming a percentage off financial transactions is the very definition of parasitic capitalism.

We’re OK with this, because Kickstarter are Good™ people. So the logic of conscious capitalism and social enterprises is this: as long as you reject the values of bankers & brokers, you can have their business model.