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Monday, April 25, 2011

The Problems with Kickstarter

As many of you know, I successfully funded my Won Over Frequency record with Kickstarter.com last year. It was a very educational experience, and one I do not regret at all.  As the site's popularity continues to rise, I thought it would be helpful to publish some of the downsides and potential pitfalls that an artist may experience using the Kickstarter system.  These are issues I found with the site as of October 2010, so if they have been changed, please post a comment and correct me:
  • Kickstarter keeps 5% of your donations and Amazon (their payment gateway) charges a 3-5% transaction fee (rest assured, it's 5%). I cannot over-emphasize how important it is to fully comprehend that percentage, and the fact that their pricing not tiered. Consider this: if an artist raises $10k for a project, Kickstarter/Amazon takes $1000 just for providing a template profile page and pledge management account on their site, none of which allow custom branding or styling. If an artists were raising a budget for a small film, say $50k, then Kickstarter/Amazon would take $5k, despite the fact that the functionality they are providing in the $5k scenario is the same as the functionality they provide for a $100 scenario (albeit with more credit card transactions). This seems suspect to me, and that cost to a project budget must not be underestimated - an artist must increase their goal amount considerably to account for it. 
  • Pledgers and artists are only allowed to use Amazon Payments for all transactions, which requires an Amazon account. No Paypal, no cash, no checks, no easy credit card form (unless you have an Amazon account). 
  • Even though the funds can be instantaneously collected, artists cannot get paid until two weeks after their campaign ends. They then have to wait 5-7 days for the funds to transfer to their bank account. These delays are not explained anywhere on Kickstarter.com. The only explanation I can come up with is that Amazon is giving itself an extra two weeks to make interest off of the  artists' collected monies. 
  • Artists cannot change Rewards descriptions or quantities after publishing their campaign.  I understand doing so is a bit dicey, as allowing artists to change a Reward's description after a pledger has signed up for it may be objectionable to the pledger, but I think that editing should be allowed, as it is the artist's reputation that would suffer should they choose to do something unethical. Running a campaign like this is always a learning experience (especially since the majority on the site are first-timers), and there is a strong likelihood that incentives will need a few adjustments as the artist learns what's working, what's not, and what is just unrealistic. It is important to be able to optimize a campaign as it is underway.
  • If a campaign is successful before the end date is reached, the payment process still won't start for 14 days after the end date. I understand that in doing so Kickstarter is honoring the agreement that pledgers donated under ("my card won't be charged until this date") but I think offering a "charge my card as soon as the campaign is successful" option during the pledge process would allow for both cases and better accommodate artists working with no funds (ahem, all of them). 
  • I do not believe Kickstarter has cultivated a network of philanthropists that browse the site trying to give away money to cool projects. It is my impression that traffic is not one of Kickstarter's value adds. Artists should not expect to get a project funded if they haven't already amassed the fans and generous family members needed to do so. 

All this being said, I was very impressed with the Kickstarter user interface and admin section, as well as their propensity for collecting donations - therein lies their true value. I'm not convinced that their interface should be credited with any campaign's success, though; I believe that a campaign's success is very much dependent upon the quality of its associated video and the cleverness of its incentives. If an artist has the technical ability or the kind of budget where that 10% deduction is large enough to pay for web development, building a microsite with similar functionality may be more cost-effective and allow for more branding and flexibility.

9 comments:

heyyou70 said...

Interesting take on that process. I've thought about using kickstarter in the past-- it's nice to learn from your experience in case I should decide to go that route.

On a completely different note-- your music is great!

jordan moser said...

i saw these problems with kickstarter and started a fundraising blog. i have offered rewards and will document recording process. although paypal takes a fee(3%) as well its better than amazon and kickstarter double dipping potetially to 10%.

Brett said...

I really am not a fan of this "service." You are much better off finding a friend with some decent web skills, have him/her set up a simple donation website for you, and use PayPal. Less money will be wasted and you'll be able to pad your buddy's pockets a little for their time. Maybe try this for the next album process.

rob said...

agreed but check your math. $1000 of $10000 is 10%. if kickstarter only takes 5%, that's $500 bucks. i definitely see eye to eye with you and in fact, my band just successfully completed a KS campaign. the BIG downfall is the oversaturation and lack of effort in people's videos/campaigns. that and the fact that large companies are now raising money..

Gavin Castleton said...

with the 5% that Amazon Payments takes in transaction fees, that brings Amazon's cut to 10% (since Kickstarter is owned by Amazon).

Andy Baio said...

Correction: Kickstarter isn't owned by Amazon. They handle payment processing, but that's it. There's no other relationship between the two.

Gavin Castleton said...

you are correct Andy - a poor assumption on my part!
Here are some details on their funding: http://allthingsd.com/20110317/kickstarter-fesses-up-the-crowd-sourced-funding-startup-has-funding-too/

Gavin Castleton said...

This is a much more indepth look at the pros and cons: http://localwiki.org/blog/2010/nov/15/kickstarter-pros-and-cons/

Unknown said...

There is another problem, which you haven't addressed. Kickstarter has complete and total control over your campaign and can stop it at any time or for any reason. My proposal for a design object was accepted and I was told there was no time limit to put it up on the site. Due to the complexity of the project, I needed a few months to get the engineering and exact cost estimates done, and, when I put the project up on the site, they erased it and simply told me their guidelines had changed. Actually, the hadn't changed at all, but they were now interpreting them differently. Months of work and a considerable amount of money was lost and every appeal failed, even though they told me I was approved and there was no time limit. Read the Terms of Use you click to agree on and realize that they can do whatever they want, including stopping you campaign midway through, which has also happened, and you never see any money. Dealing with their customer service is about as pleasant as your credit card company: Emails are signed by "Kickstarter" and they are very short on specifics. It takes a lot of effort to get anything out fo them and even then, they don't have to honor their commitments or adhere to their own guidelines, which, by the way, they are free to change at any time without telling you about it.