Comments for The multisidedness of crowdfunding platforms

After having read this article, I decided to interest myself in the differences between CFPs and real estate platforms.
As a surprise, I discovered that those platforms are quite similar and don’t have a lot of differences.

First of all, Real estate platforms are traditional multi-sided platforms bringing distinct groups of customers together.
On one side, we have the home buyer that are interested in buying a property(house, apartment,…) and on the other side we have the home seller that are interested in selling a property.
Those platforms coordinate the demand of distinct groups of customers (home buyer and home seller), who need each other.

Second, if we look at the externalities for the consumers in the real estate platforms, we also are in presence of cross-side effect and within side effect.
Regarding the cross-side effect, Home buyer are likely to prefer platforms with a large number of home seller as they will benefit a wider set of choices and increase the possibility that they will find the property they are looking for.
The same applies as well for the home seller, as the more home buyer there are, the more opportunities they have to sell their properties and it can increase competition for some goods as well, which could higher the prices.
We can see that the cross side effects for the real estate platforms are clearly positive unlike for CFPs.
Regarding the within side effect, we observe the same kind of effects than for the CFPs.
In the case of real estate platforms, we also are in presence of effect likely to be negative.
For home buyer, the fact that we are in presence of individual goods makes the competition tougher as the platforms have a lot of home buyer and it can rise the price of some specific goods.
The same applies to the seller because the more they are on the platform; the more competition there is for selling a good.
But there is also a positive impact of the number of sellers on a platform, because the bigger the numbers of goods, the more clients are attracted on the platform.

Finally, we are in presence of high transaction costs.
Even if the two groups could meet without a specific platform, real estate platforms clearly offer higher prospects of success and lower costs.

To conclude, I would like to raise a last comment about the apparition of crowdfunding real estate platforms such as Fundrise.
The first opening for the emergence of such platforms has come with new rules linked to the JOBS Act of 2012.
The new rules allow mostly affluent investors to gain direct access to the real estate market through crowdfunding, giving them direct access to a selection of private real estate offerings where they can browse, research and make well-informed investment decisions online.
I think that we are going to see more and more of such platforms and it emphasizes the fact that real estate platforms are closer than we might think to crowdfunding platforms.

In my opinion, CFPs differ sorely from well-known multisided platforms such as videogame consoles, dating sites or real-estate platforms. The difference isn’t in the products proposal, neither in the business model (way to charge a fee), nor even in the intensity of the within-side external effect. It lies in the number of distinct groups of customers and in the influence of the network effect.

On the one hand, in dating sites, so as “Meetic” or “Ashley Madison”, it seems obvious that we have only two different groups who want to get in contact with each other. As for the real-estate platforms we have an owner who is trying to sell a property to a buyer. The same is relevant for the videogame consoles where gamers and developers are able to meet one another. In short, we have two distinct groups of customers and one intermediary platform.

On the other hand, the article focuses only on the entrepreneurs and the contributors when we they are talking about CFPs. Therefore, I believe that we could add a third-party: the final customers of the project. Indeed, it is not enough to have an idea and to fund it. In the end everything is about making it successful.

To sum, I think that the benefits of CFPs depends on the reaction of a last third party (final customer) regarding the project of both contributors and entrepreneurs.

In this comment, I would like to investigate two aspects of crowdfunding platforms (CFPs). On the one hand, I tried to identify the different intermediation roles exerted by CFPs. On the other hand, my analysis examined the specifics of CFPs by comparing them with other multisided platforms such as videogame consoles.

Firstly, to determine the different roles CFPs need to assume, I tried to put myself in the situation of a fundraiser looking for the best-fit CFP. As a matter of fact, the most popular CFPs are GoFundMe, Kickstarter and Indiegogo. Therefore, we can expect that these platforms deliver the finest services in terms of exposure and marketing. Nevertheless, considering that crowdfunding becomes more and more popular, you can now find CFPs for everything for arts, sport, social enterprises, games… In my opinion, as fundraisers want to reach as many funders as possible, they should really identify the most tailored CFP to their project.

Now, let’s try to get into the head of CFP providers. The platform has to promote the most feasible projects because the majority of these platforms still need to establish themselves. In many cases, CFPs get their margin only if the fundraising reachs the set goals. As a result, they really have to be good marketers and communicators. This is why appealing to superstars could be also a strategic move.

In this part, I firstly would like to explain my understanding of the differences between CFPs and other multi-sided platforms as videogame consoles. CFPs differ from other multi-sided platforms for several reasons. Firstly, people can decide how much they want to spend on a CFP while there are fixed prices on multi-sided platforms. For some projects (mostly, artistic ones), the fundraiser/artist offers a copy of its product if the contribution exceeds a certain amount. Consequently, depending on how much you want to contribute to a project, you can be offered compensation.

This was the case, when the former developer of Mega Man, Keiji Inafune, proposed its project “Mighty No. 9” in 2013 on Kickstarter. The initial $900,000 goal has been significantly exceeded with nearly $4 million in total funding. The creator offers a copy of the game for $20 contribution and for $10000 you can even have dinner with him. Why did he prefer crowdfunding to the conventional system? If you work for a videogame platform as for instance Steam (a very famous platform among gamers that offers unbeatable prices during sales) you will have strict deadlines and maybe need to hold back creativity.

This last crowdfunding model could be linked to the investment crowdfunding, in which funders become shareholders of the project and might expect a return on their investment. As a result, to get increased attention and exposure, fundraisers distance themselves more and more of the initial crowdfunding model.

http://www.forbes.com/sites/chancebarnett/2013/05/08/top-10-crowdfunding-sites-for-fundraising/
http://arstechnica.com/gaming/2013/08/31/mega-man-designer-crowdfunding-a-new-pc-based-side-scrolling-shooter/
http://www.lesoir.be/869455/article/economie/entrepreneuriat/2015-05-05/oksigencrowd-une-nouvelle-plateforme-crowdfunding-dediee-aux-entreprises-soci
http://www.theverge.com/2014/7/6/5875115/spiritual-successor-to-mega-man-gets-new-crowdfunding-goals-plans-for

Let’s compare two well-known websites from really different sectors: kickstarter.com (a crowdfunding website) and elitedating.com (a dating website). I am going to compare them in regard of the three criteria discussed in the article.

The first criterion is related to the fact that a multisided platform must join different group of customers. If we take the first website, Kickstarter, one group is composed by the fundraisers. Fundraisers are entrepreneurs coming from everywhere in the world wanting to launch a new product or service but who needs funds to start. The other group is composed by people who put money in projects because they found it promising or because they like it, the funders. They can be professionals or individuals.

As far as Elite Dating is concerned the two groups concerned are the two genders. It exists four categories depending on the gender and on the sexual preferences, for example: man seeking man and woman seeking man.

It is pretty obvious that regarding this criterion, the two websites works in the same way. There are two different groups useful for each other. These websites cannot work if one of the group is missing.

The second criterion is the (in)direct network effect that comes with every multisided platform. This effect means that the different groups can take benefits from the amount of person in the other group. If we take the Kickstarter example, entrepreneurs will be more attracted to platforms with lots of funders on the website. The large number of funders give a large probability to be fully funded. On the other side, investors will seek projects on big platforms to find the project which give them the most probability of success or the project which is the most adapted to their affinities.

The article treat also the question of the within-side external effect. This effect is actually illustrated here by the fact that large number of entrepreneurs is not a good news for entrepreneurs themselves because it raises considerably the competition. The good news is that the effect is positive among contributors: a project with very good chances to reach the threshold will attract even more funder.

If we take the example of Elite Dating, the first effect is also of application. Individuals who are searching for love will choose a website with a large amount of people signed in in order to raise the chances to find the one. Heterosexual women will seek a website with many heterosexual men for example. On the other side the effect is exactly the same because the two groups are very similar (if not identic). The within-side is here missing.

The last criterion is the fact that an intermediary facilitate the interactions between the different groups. It is quite obvious with the two examples. With Kickstarter, what can be the chances for a Belgian to support an American project without this website? The probability is very low… For Elite Dating, individuals can always meet people everywhere and start a relationship but it is way easier to communicate and make contact behind a keyboard for shy people. Moreover, the website sorts profiles out to find the perfect ones for your personality and ensure that all profiles have been verified.

Sources:
http://www.elitedating.be/fr
https://www.kickstarter.com/?ref=nav

The first thing that comes in mind when you talk about crowdfunding is often this image of a young group of people starting a start-up. This gives off a feeling of a very risky project. Fortunately, crowdfunding has its own ways to protect the investors. If the minimum amount is not reached, the totality of the money will be redistributed to them.

When I hear about crowdfunding platforms, the two than I can « tell » are KissKissBankBank and Ulule.
They’re both European platforms. I couldn’t explain why these two, I just think they are the ones I’ve come across the most, even if I’ve never been invited to « participate » in a crowdfunding project.

One of the other roles of crowdfunding platform is to act like a marketing panel. I’ve often seen interesting project on these, but didn’t want to invest in them. But sometimes, I found the product really interesting and was actually ready to buy them once the project was officially on board! But most of the time, I just didn’t remember the name and was unable to find it. So I think these platforms should work a little bit more on that aspect and try to « convert » prospects that want to follow the project without participate in it by keeping in touch with them.

The platforms also give a feeling of “good idea”: if the site is serious, people will tend to think: “They would never put a project here that absolutely won’t work”.

We also have to differentiate different types of crowdfunding platforms. We can, among other things, name :
Donation-Based Crowdfunding, where people give money but don’t ask for anything in return.
Rewards-based crowdfunding, where people receive a gift in exchange of their participation. The price of the gift is lower than the price paid by the investors but sometimes, the sentimental value outweigh the price.
Equity crowdfunding is when « Investors give money to a business and receive ownership of a small piece of that business ».
In Presales based crowdfunding, businesses sell their products before producing them. This is also great for publicity. I’ve seen this type of platforms a lot when it comes to books.

These all come with their advantages and disadvantages, which allow every project and every business to fin the perfect platform for his desires.

I think crowdfunding is different from other platforms as money is the key to them.
It’s pretty safe for the owners of the platforms: if the project reaches its goal, they will collect a commission on the funs raised (for KissKissBankBank, it’s 5%+ 3% for the bank transactions). If the project didn’t, they will refund the investors, which will take them a little time and money, but it’s not a great loss.

Another big difference is the importance of the platform for the two sides. Usually, in platforms as dating sites, real-estate platforms, etc. the people paying themselves are the owner of the websites, while in crowfunding platforms, business really count on them too.

Sources :
http://datanews.levif.be/ict/les-raisons-de-l-echec-provisoire-du-crowdfunding-en-belgique/article-opinion-354165.html

http://en.wikipedia.org/wiki/Equity_crowdfunding

Michaël Riga (2014). Le Crowdfunding: bilan et perspectives (Master Thesis)
Date accessed: http://www.ipdigit.eu/wp-content/uploads/2014/09/M%C3%A9moire-Crowdfunding.pdf

Since most of the previous comments have addressed the different comparisons with other multi-sided platforms, I thought I would focus on an example of intermediation role that a crowdfunding platform can exert.

The European Crowdfunding Network published in 2013 a “Review of Crowdfunding for Development initiatives”. The article refers to a paper from that same year by Oliver Gajda and James Walton.

Like most crowdfunding platforms, development focused crowdfunding platforms rely on different crowdfunding models: donation-based, reward-based, social lending, lending and equity. For each type of model, the authors describe the types of projects supported, frequency, rate of success and other parameters.

I would like to focus on the donation-based model.
The different groups are:
1) potential donors, who want to donate money to developing countries. The authors observe that with donation-based crowdfunding, higher amounts of money are raised per donor, “because funders know that their money will be used on a specific project” (O. Gajda & J. Walton, 2013).
2) NGO’s. They put the project on the crowdfunding platform and use the funding amount for specific projects.
3) Local entrepreneurs in the developing countries. The specific projects might be to support and help a local entrepreneur to build his business.
4) The crowdfunding platforms operate as an intermediary. It is important to note that the average fee is between 2 and 5%. The authors mention that “some platforms have more complex fee structures, plus payment fees via third party operators, some are free of charge”.

The platforms give people (donors) the possibility to donate some money, but also to know exactly where and how their money will be spent. They don’t donate to “an organisation” anymore, they donate to a specific project and don’t have to fear that their money is being spent without actually helping the people in need. In other words, development crowdfunding platforms offer donors a “security” that they don’t have, unless they donate to NGO’s with a strong reputation. In this sense, we could look at it from the perspective of the NGO’s: crowdfunding platforms might allow smaller NGOs to raise amounts of money they wouldn’t have raised because of their lack of reputation.
Unlike most projects on crowdfunding platforms, funders won’t necessarily enjoy the benefits of a successful project; they won’t be able to watch the crowdfunded movie or buy the crowdfunded book or washing machine. The projects will mainly benefit the local economies. Donors’ main motivation for the funding is social return, as mentioned by the authors of the paper.

Some examples of such donation-based crowdfunding platforms are: http://www.justgiving.com/, http://www.startme.co.za/ and http://changa.co.ke.

Additionally, it is also interesting to note that a lot of micro-businesses and microfinance institutions (offering micro-credits) in developing countries are using social lending crowdfunding to raise funds. Social lending means interest free loans. The average funding amount per project is $420 and the rate of success is 90%.

Finally, it is important to note that currently only a few development focused crowdfunding platforms exist, although they seem to show very good results and could greatly contribute to the development of local economies of developing countries.

Sources:
http://www.eurocrowd.org/wp-content/blogs.dir/12/files/2013/10/EoD_HD061_Jul2013_Review_CrowdFunding.pdf
http://www.eurocrowd.org/2013/10/review-of-crowdfunding-for-development-initiatives/

Crowdfunding platforms are in a rapid evolution in the last couple of years. Like the article said it is quite evident that the two types of platforms are linked together. However there are still some differences.

The first one I would like to highlight is the fact that, for me, those crowdfunding platforms reduce more costs than the traditional multisided platforms. Indeed with those kind of platforms there is the legal side of the transaction that is eased. You are able to avoid the administrative paperwork and the overall costs of a bank loan (the interests). Moreover this kind of transaction, in the sense that it is a money transaction, can be very complicated without those platforms. But with those crowdfunding platforms there are extremely easy to put in place.

The second one I thought about is the fact that it is not as straight forward as for other multisided platforms like video games platforms, dating sites that there are positive cross-side network effects. For crowdfunding platforms, it is not as clear as that. Indeed we cannot say for sure that the effect of the number of entrepreneurs will affect in a positive way the contributors. It is a bit ambiguous since there are several contradicting forces at play. Moreover there are negative within-side effects between entrepreneurs. When there are too much of them, it will increase the overall competition.

The third one, with the crowdfunding platforms, there is a more durable relationship between the different groups of the platform. Indeed the contributors invest in a crowdfunding project because they hoped to get a return. This return depends on the type of crowdfunding platform. It can be a monetary one or not. Those returns are not given immediately after the transaction since the contributors need to wait that crowdfunding project is truly launched. This involves a long term link between the different groups.

The last one I would like to point out is that instead of being in front of a one-to-one transaction, we are now in front of a transaction where multiple persons take part in the transaction. This implies that the transaction becomes more complex.

As a conclusion, I would like to say that I see crowdfunding platforms as a more sophisticated multisided-platform. There are more complex issues in play in those platforms.

Sources :
– Belleflamme, P., Omrani, N. & Peitz, M. (2015). The economics of Crowdfunding Platforms. http://icampus.uclouvain.be/claroline/backends/download.php?url=L1JlcXVpcmVkX3JlYWRpbmdzL0xlY3R1cmVfMTIvY29yZWRwMjAxNV8xNXdlYi5wZGY%3D&cidReset=true&cidReq=LLSMS2374
– http://en.wikipedia.org/wiki/Crowdfunding#Role_of_the_crowd
– Castrataro, D. (2012). Crowdfunding Platforms: to each their own. http://socialmediaweek.org/blog/2012/01/crowdfunding-platforms-to-each-their-own/

Crowdfunding is quite a new way of financing projects. As explained in a work paper of P. Belleflamme and T. Lambert ‘instead of raising funds from a small group of sophisticated investors, entrepreneurs try to obtain them through the Internet from a large audience (the so-called “crowd”), where each individual provides a small amount’ (1). According to them there are 4 types of crowdfunding models: ‘donations model’ where the funder is not promised a return; ‘reward-based model’ where there is a non-financial return that is promised ; ‘lending-based model’ where entrepreneurs are borrowers while contributors are lenders ; and the ‘profit-sharing model’ where contributors receive a share in the profit of the business.

In my comment I would like to highlight concrete examples of the different intermediation roles that crowdfunding exerts in the world of ‘video-games streaming’. Nowadays crowdfunding is mainly mediated by Internet platforms. As explained in the article, the main role of such platforms is to enhance the interaction between entrepreneurs and contributors. In order to do so, ‘they assist entrepreneurs in publishing campaigns and collecting funds’ (1) and enable contributors to find a wide range of projects to invest in.

The crowdfunding platform I want to speak about is a new project launched by Millenium (2). Basically, Millenium is a streaming platform. It allows video-gamers who play in live stream (streamers) to be broadcasted on ‘TV’. Actually, Millenium is a multi-sided platform that facilitate interactions between streamers (first side) and viewers (second side). Indeed, the streamers reach a larger audience while the viewers are ensured of the quality and presence of streamers.

Few days ago, Millenium has decided to launch a new formula of its platform based on crowdfunding. Even if the streamers are still allowed to stream on Millenium’s TVs , they are now able to ask funds to viewers in order to offer more ambitious contents. Then the streamers can propose projects such as video-games’ tournaments, video-game streaming with famous people, et cetera, and viewers have the possibility to invest in these projects if there are interested in. It’s clearly a donation model because a viewer who decide to become contributor in a project is not going to receive a reward or something like that because once a project is launched everyone has access to it without discrimination. For Millenium this model is a ‘first try’ so maybe that in a few month it will be stopped because it’s not viable and that the viewers will not contribute to any project. Nonetheless Millenium believe in the loyalty and the dynamism of their viewers to carry the streamers’ projects.

Millenium exerts different intermediation roles in the crowdfunding part of its platform. Firstly it’s important to highlight that there are few streamers selected to stream on Millenium. Then there is a strong relation between Millenium and its streamers. Moreover Millenium aims at providing good contents to its viewers. According to this the most important role of Millenium in its crowdfunding part is to ensure the quality of the project proposed by streamers to viewers. In order to do so, once a streamer has project that he wants to finance by crowdfunding, Millenium will bring its expertise to identify if the project is technically workable. Then Millenium will allow (or not) the streamer to raise funds for his project by crowdfunding.

Secondly Millenium expects that its crowdfunding part gives the opportunity to streamers to launch more ambitious projects. Crowdfunding will allows viewers to donate in order to launch ambitious projects in which they are interested in, and give by the way the necessary means to streamers to develop their activity (3). I believe that is really nice because plenty of viewers are interested in choose a specific project. Add to this I believe that most of the viewers’ community thinks that video-game streaming has to be developed with larger financial means in order to make the most of the possibilities of video games in terms of divertissement. Then crowdfunding enables them to take part in this development.

It seems like this project of crowdfunding to increase the quality of stream contents launched by Millenium is really ambitious. Firstly the funds asked for projects are around 20.000 euros and it may seems a lot regarding the share of viewer which should be interested into donating. In my view Millenium relies too much on its community. I mean that most of the viewers will just wait that others contribute because they are used to have a free access to Millenium TVs. Then it’s possible that the donation will not be enough to cover the funds asked. I believe that a reward-based model will attract more viewers. The reward should be special emoticons on the stream chat or wallpapers for example that cost almost nothing to Millenium.

As a conclusion, crowdfunding models are more and more used to launch project in plenty of domains. Millenium has decided to launch a donation model on its platform and it’s quite impossible to say if it will work or not. Knowing that it’s a structure that I really like I’m impatient to see how the viewers community will react and if as expected by Millenium it will be able to carry the development of new video games’ streaming projects.

(1) Crowdfunding: some empirical findings and microeconomic underpinnings Paul Belleflamme, CORE & Louvain School of Management Thomas Lambert, Louvain School of Management https://www.uclouvain.be/cps/ucl/doc/sshilsm/images/lsm_wp_201404.pdf
(2) http://www.millenium.org/
(3) https://www.twitchalerts.com/donate/milleniumtv

Crowdfunding platforms are often said to be multi-sided platforms. However, crowdfunding platforms have specific characteristics that make them different from all the multi sided platforms that we have seen so far.

First of all, concerning the type of product that the platform offers. As we know, crowd funding platforms propose to invest in projects, they don’t offer tangible product or concrete services.

Secondly, to stay in this idea of non tangible product, many crowdfunding platforms follows the “threshold pledge model”. The entrepreneurs and the platform agree on precise period of time within which the necessary amount of money has to be collected. If, at the end of this period, this amount isn’t reach, the project don’t take place. It is important to know that investors only promise to give a certain amount of money and financial transactions only take place at the end of the period, if enough money have been collect. So on the platform, users only agree to pay a certain amount of money but no transaction take place. This idea of “hypothetical investment” is very characteristic to the crowd funding platforms.

This bring us to the third characteristics of crowdfunding platforms. In many cases, financial transaction don’t take place on the platform itself but imply, in order to enhance the confidence of investors, the presence of another intermediary; a bank.

It is important to mention that in order to protect investors the domain of crowdfunding is highly regulated. Therefor, entrepreneurs must have their projects to be approved which imply a long and costly procedures. As a result, access to crowd funding platform is restricted to projects that respect certain criteria, proper to each platform.

The last thing I would like to mention concerns the network effects that appear on a crowdfunding platform. Indeed, on a crowdfunding platform, the nature of the network effects differ from those observe on a typical multi-sided platform such as a dating website.
Indeed, for the dating website, the two within-sided network effects are negative while, in the case of the crowdfunding platform, entrepreneurs are worse off if the number of entrepreneurs on the platform increases (so negative within-side network effect). Moreover, as mention in the article, the effect of entrepreneurs on investors is unclear.

All those characteristics, proper to crowfunding platforms, indicate that they differ, in some terms, from multi sided platforms.

[1]https://www.econstor.eu/dspace/bitstream/10419/52302/1/671522264.pdf

[2]Sunghan. R, Young-Gul. K. Dynamics of the Crowdfunding Platform: Participation Model Development and Empirical Analysis.

Through this comment, we will to see if the the advantages and drawbacks of crowdfunding platforms also applies to dating websites.

First, let’s see what are the common points between those two kinds of MSP.
To begin with, as it is said in the MIT article listed below, one important rule for the management of MSP is to charge if not both side, the side that can extract the more value out of this exchange. For a crowdfunding platform, a percentage is taken from the total amount of money that has been gathered if the campaign is successfull, the money is thus taken from the investors.
On dating website, there are registration fees that are charged in order to deliver the service. On a lot of dating website, those fees only target men, who are considered as the users that benefitiate more of the exchange. Thus, on this point, crowdfunding platforms and dating websites are not so different even if the business models are not the same.
Second, as it is said in the article, there are usually 2 sides to these platforms : investors and entrepreneurs on one hand and men and women on the other hand.

The general rule of MSP is the following : the more you have people on one side, the more you will attract on the other. But there are also drawbacks as it is said in the article and we will see here how these apply on dating websites.
To begin with, it is more difficult to attract women than men on dating websites, that is why their subscription fees are often lower or free. The more there are women on a website, the more men will be attracted and pay their subscription. But on the other hand, the more there are men, the fiercer is the competition.
The effect is not as pronounced as it is for MSP, the most important being to keep a balance between these two groups.

To conclude, even if there are similarities between these two kinds of platforms, competition one crowdfunding ones is more likely to be thougher. Indeed, money is at play and the concerns of the two sides are more serious than in the case of dating websites.
According to us, all MSP have advantages and drawbacks coming from the number of their users, but the point that really matters is to be abble to make a balance between the number of users on both sides.

Sources:
[1] http://sloanreview.mit.edu/article/strategic-decisions-for-multisided-platforms/
[2] http://blog.paymentwall.com/guides/dating/monetizing-matchmaking-quick-guide-dating-site-revenue-models/
[3] http://www.lumosforbusiness.com/blog/792

1. Multi-sided Platforms: Online Dating vs. Crowdfunding

A traditional multi-sided platform brings together two or more distinct but interdependent groups of customers. The value is derived to one group on this platform, only if the presence of another exists. An online dating site is a perfect example of the traditional multi-sided platform, as distinct groups; men seeking women, women seeking men, men seeking men etc are only of use, if the group they are seeking are also on the site.

Crowdfunding platforms or CFPs are also multi-sided platforms , although not in the traditional sense as with online dating sites or video game consoles. The primary reason crowdfunding differs from these other MSPs is that it is unclear as to whether or not an increase in one side (in this case entrepreneurs) has a positive effect on another side (investors/contributors). This is not the case in online video games/dating sites/real estate vendors, as in these platforms, an increase in the participants on one side, has a direct positive influence on the other side and of the platform as a whole.

2. Role of Intermediaries

Intermediaries are vital platforms for crowdfunding, and generally take the form of a specialized website. These websites connect entrepreneurs with investors who can then contribute fiscally online to “kickstart” these entrepreneurs ideas. (Powers, 2012) There are two distinct types of crowdfunding platforms which can be availed of by both entrepreneur and investor depending on their preferences. The first platform holds all investment in an escrow account, until a specific total is reached, and if that total is not met within a given time period all funds are returned to the investors. The second platform has no specific total or time limit and allows the entrepreneur to keep and use all funds raised. (Valenciene & Jegeleviciute, 2013)

3. Future Prospects

Crowdfunding platforms have grown exponentially in recent years, and that trend is projected to continue in the future. The internet and the digital age in which we live allows investors and entrepreneurs from all around the world interact and engage in mutually beneficial business agreements through crowdfunding and its intermediaries. In 2012, according to the crowdfunding industry report by Massolution , it was found that 2.7 billion dollars were raised by these platforms across over 1 million individual campaigns worldwide. More recent numbers , also by Massolution , report that crowdfunding platforms raised 16.2 billion in 2014 with a projection of 34.4 billion dollars raised in 2015. This exponential growth illustrates the crowdfunding as a platform is one which thrives in the digital age, and companies like “Kickstarter”, “Indiegogo” and “Crowdfunder” will only continue to grow and become more prevalent with time and further internet penetration.

Sources:
Powers, T. V. (2012). SEC regulation of crowdfunding intermediaries under Title III of the JOBS Act. Banking & Financial Services Policy Report, 10 (31), p.1-7.

VALUATION OF CROWDFUNDING: BENEFITS AND DRAWBACKS Loreta Valanciene, Sima Jegeleviciute, Kaunas University of Technology, Lithuania, 2013

Crowdfunding Industry Report, Massolution, 2012 http://research.crowdsourcing.org/2013cf-crowdfunding-industry-report
Date accessed: 4/5/2015

Massolution, March 31, 2015
http://www.marketwired.com/press-release/crowdfunding-market-grows-167-2014-crowdfunding-platforms-raise-162-billion-finds-research-2005299.htm
Date accessed 4/5/2015

“Crowdfunding platforms enable the financing of projects by soliciting small investments from a large base of potential backers over the internet.”(Zvilichovsky et al., 2003)
There exists many CFP and each as different rules, so contributors can choose which kind of platform they prefer according to the ways of fundings, types of projects they can invest into,.. On this site, http://crowdfunding.cmf-fmc.ca/fr/directory, they resume some different platforms that exist. The entrepreneurs also choose their platforms according to their rules, for example Kickstarter requires a prototype for complex projects like a gadget. (https://www.kickstarter.com/rules)

A first difference between CFP and well-known multisided platforms is the within-side effects. Indeed, in a multi-sided platform such as dating site the within-direct effects are negative on both side whereas on CFP contributors have positive effects on their own group. However, for videogame console, the players have positive within-direct effects like for the contributors on the CFP.
Then for the cross-side effects, we can see a difference with date site and videogame consoles. Indeed, in the case of date site the two side have positive effects on the other side. Girls prefer when there is a lot of boys on the side, and conversely boys prefer when there is a lot of girls. While on CFP, entrepreneurs have a negative and a positive effect on the contributors.

Crowdfunding platforms such as Kickstarter raised funds for many different types of organizations (Doshi A., 2014).
A difference exists in the way CFP earn money, they charge a fee on successful projects ( for example Kickstarter and Indiegogo). Moreover, there exist criterias in order to subscribe on a CFP for the projects ( Doshi A., 2014) but not for contributors. On date site, everyone (both sides) can become a member.
On CFP, like on videogame consoles, there are the sellers (the entrepreneurs in the CFP case) who try to sell something to consumers (contributors in the CFP case). But for videogames, consumers just expect a good console in return of his money and choose it on its characteristics while for CFP contributors base his choice of a project on the return is expecting and if the project interests him. So with CFP, there is a risk, the contributors could loose some money, if the project doesn’t work (platforms like Kickstarter doesn’t offer refunds).

Sources:
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2304101
http://www.anilrdoshi.com/uploads/3/2/0/6/32062545/adoshi_jmp.pdf

Dating sites, video-games plateform and crowd-funding plateform have the characteristic to be multi-sided plateform. However, some externalities are not the same.

First of all, lets compare CFPs and dating sites. If we define man and woman as the two different groups for datings sites and contributors and entrepreneurs for the CFP, the within-side effects are not completely the same. In fact, as this article argued, contributors are attracted by plateforms regrouping a lot of contributors. Indeed, the more contributors they are, the greater the chance they have to see the project they like as a success. On the other side, one man would be interested to subscribe on dating sites where the number of other man is low, because more woman will be presented to him.

Secondly, CFP are multi sided plateform offering no real products like videogames console, real-estate plateform do. The principle of the CFP is that you invest for a product hoping other contributors will also contribute to that project. Contributors have thus no certainty to gain something. That is why, some plateform collaborates with business angels. The expertise these lasts reassures the contributors.

Lastly, one characteristic proper to the CFP is that the project are commonly limited in time. The creator choose in the beginning how long would the project remain avaible to contributors (Doshi, 2014) [1]. This charateristic can not be found in videogames console or dating sites.

[1] Agent Heterogeneity in Two-Sided Platforms:
Superstar Impact on Crowdfunding
Anil Doshi, 2014

While being part of the multisided platforms group for sure, CFPs differ from classic multisided platforms in different points.

First, in CFPs, the services or the goods contributors are participating might not be created yet. Kappel (2008) distinguish two different kind of CFPs: “ex post facto crowd funding” and “ex ante crowd funding”. The first is where contributors are paying for a finished product and the second is when contributors are paying to achieve a mutually shared result [1]. Therefore, the platform is not only used to raise funds, but can also be used as a way to gain information from the contributors to adapt the product according to this information. CFP might be considered as a way for creators to gain free information. The social aspect in this platform is thus more important for the creators, as long as they are willing to use it.

Second, contributors may have a large scope of different reasons to participate to a project, and thus waiting for different kind of return, while in classic multisided platforms, customers are usually waiting for the same kind of return. Indeed, the motivations that lead someone to participate financially at a project through a CFP is highly correlated to his expected return [2]. On the other hand, creators can choose the return to give to the contributors, and this without considering the motivations of the contributors. Therefore, some of the contributors might receive at the end less than they wanted, and some might receive more, which leads to inefficacity. Of course, this analysis is not relevant in the case of non-profit organizations.

Finally, I personally think that creators in CFPs have an additional role that explained in the article. In my opinion, CFPs that do not have “sophisticated investors” have therefore small contributors. Those contributors will not go on the CFP website to search for a project to contribute to. They will rather be informed of a project and on the capability to participate to it on another platform, usually related to the subject of the project. Therefore, I think that creators also have the role to promote their project on other website to make it known, which is not the case for classic multisided platforms.

[1] Kappel, T. (2008). Ex ante crowdfunding and the recording industry: A model for the US. Loy. LA Ent. L. Rev., 29, 375.

[2] Gerber, E. M., Hui, J. S., & Kuo, P. Y. (2012, February). Crowdfunding: Why people are motivated to post and fund projects on crowdfunding platforms. In Proceedings of the International Workshop on Design, Influence, and Social Technologies: Techniques, Impacts and Ethics.

In this comment I will try and investigate what makes CFPs different from another well-known multi-sided platform, i.e. videogame consoles.

To do so, I sall show that videogame consoles can be seen as a multi-sided market as it fulfills the 3 conditions that are described in this article.

1. Distinct groups of consumers

The game consoles bring together 2 types of customers:
– The gamers who buy the console and games which are compatible for this platform (it is very important to understand that there’s no cross-compatibility between competing game consoles)
– Game developpers who develop and sell the game and who can of course decide to multi-home, i.e. develop games for competing platforms. Of course, if all game developpers were multihoming, then game consoles would probably not be considered as a two-sided market as the only thing that would differ would be the stand-alone benefits, the quality of the products, the tastes of the consumers, etc. But if all games are available on all platforms, then it means the platform doesn’t really matter in terms of network effects. It’s very easy to see that this is of course not the case: developers are very often singlehoming.

2. Presence of externatlities.

There are 4 types of externalities in a this two-sided market:

– the cross-side effect of the presence of gamers on developers, which is clearly positive: the more there are gamers using a particular game console (platform), the more developers will want to develop games for this game console (market size);

– the cross-side effect of the presence of developers on gamers which is also positive since the more there are developers, the more there are games, and hence the wider the variety of games and the bigger the chance you will be interested in the games developed;

– the within-side effect of the presence of gamers on gamers which appears to be positive as well. In fact, people would rather have the same console as their friends, in order to be able to play online together or to share/lend games. PlayStation has for example decided to implement a new feature in its PS4: you can know play a game you don’t own but one of your friend does for a few hours simply by a peer-to-peer transaction: you are invited by your friend to play the game he owns and if you accept you can play it for 2 straight hours. This gives an extra incentive for people to buy the same console, as it decreases the searching cost (you can test the games for free before buying them) and allow you to benefit from your friend’s acquisitions;

– the within-side effect of the presence of developers on developers which is most probably negative because of the competition effect: the more developers, the more sellers and the more intense competition. This might actually be one of the reasons why there exist competing game consoles, otherwise on the long-run everyone would be better-off using the same platform since all the cross and within-side effects would be positive.

3 Transaction costs

Not only are game consoles the platform that brings together two distinct groups of consumers, they also provide the needed physical support (hardware) for the transaction between the two groups to have any value. In fact, developers and gamers might as well find each other without the platform but their transaction would be completely worthless since you can’t play the game without the consoles. It’s also clear that neither developers nor gamers would be better off if every single developer were selling their own consoles.

Now let us compare the videogame industry with CFPs.

One very noticeable difference is that in the case of CFPs, it’s unclear whether an increasing number of entrepreneurs has a positive effect on the contributors (or at least at some point it might end up being negative, even if it’s likely to be positive to a certain extent). This simple difference might actually have a big impact on the structure of the competition.

In fact, if there’s some kind of threshold above which more entrepreneurs has a negative effect on the contributors, then at equilibrium we should observe more firms in the sector of CFPs than in the videogame industry as it would be unprofitable to increase the number of entrepreneurs on the platform. This effect simply does not exist for videogames: both side of the platform are always better-off when the size of the other side increases. The competition effect on the other hand is clearly present in both sectors, making sure a single platform is not the most efficient strategy (among other reasons).