Harvest a thousand ideas. Above photo from popular photographer, and my friend, Thomas Hawk.
Crowdfunding is the highest form of loyalty, but only a few big companies have deployed this crowd strategy.
Big companies can learn from Indiegogo, and Kickstarter. You’ve heard of Indiegogo, Kickstarter, and other crowdfunding platforms for the tech savvy, but what does it mean to corporate product development and marketing strategy? Today’s crowdfunding projects include a panoply of products that never make it to the shelves. I jokingly refer to this as “this decade’s home shopping network,” due to the proliferation of oddball products you didn’t realize you needed. These “long tail” products, are examples of grassroots market innovation offering an opportunity for entrepreneurs to get pre-orders, pre-funding, and free marketing to support future business.
U-Haul Investors Club spurs crowdfunding strategy. For years, marketers have told themselves that repeat sales are the highest form of loyalty, but I’d like propose that we’re now seeing a greater form of loyalty in crowdfunding. Yet, it remains largely an untapped opportunity for large companies to recognize and develop. Take U-Haul Investors Club for example, where the crowd can finance and own parts of the loading equipment, often at better rates than traditional banks. In return, they receive periodic revenue from the performance of these vehicles. It’s safe to assume, that when it’s time for folks to move, U-Haul Investors will use U-Haul’s services, as well as advocate U-Haul to their friends.
GE taps crowd innovation from Quirky. With that said, this is just the first phase of the crowdfunding movement. Expect more refined versions to appear, akin to GE’s Quirky program, where the crowd submits ideas, a smaller team selects the best, then GE’s massive production and supply chain creates and distribute at scale. The inventors who submit ideas benefit from their name being on the box, shared revenues, and a chance to see their brainchild on store shelves – without even going to a fabrication plant.
What are the benefits of Corporate Crowdfunding?
A nearly limitless supply of fresh innovation and ideas. Struggling to get fresh ideas to market? Is your company mandate to foster outside-in innovation? Tap into crowdfunding sources to start your journey for crowd innovation.
Backers pre-pledge to go on the journey with you. These backers are telling entrepreneurs, and even large corporations, that they’re committed for a long period of development in exchange for early access and other perks or financial benefits.
They’re engaged with product development. This engaged community can be counted on for active feedback, although they may likely be representative of a passionate contingent, not necessarily a mainstream audience.
A built-in set of early adopters. In both Kickstarter and Indiegogo, most benefits include perks, which include special services, recognition, or gifts. Some provide early access and a period of exclusivity for the product being funded. Tap these early adopters for feedback and word of mouth.
They’ll naturally advocate the product. Being engaged means to commit fully. These crowd-based backers are invested in your future product with time, money, and even reputation. Assume they’ll advocate your products to their network and beyond.
Opportunities for corporate product strategy. Using the same consumer-type strategies as Kickstarter and Indiegogo, allow the crowd to suggest products, then fund them for potential development, akin to GE’s successful Quirky program, which has now extended beyond consumer electronics to appliances. Allow the crowd to drive the initial discussions and ideation. Allow a system for IP protection, rights and rewards to be shared between independent inventors and your company.
Below Graphic: Crowdfunding behavior set to double Result of 90,000 respondents from my recent research with Vision Critical show that Crowdfunding will double in adoption by the U.S., UK, and Canadian general population.
Corporate crowdfunding is newly charted territory.
What’s the one major downside of Crowdfunding programs? Many project don’t see the light of day and, if they do, they may not become a global success. Additionally, some companies are afflicted with the “if it’s not invented here” syndrome, which limits innovation to only engineers and scientists. Here’s where established brands can help make the right choices, apply the right resources and help both crowds and companies win. Corporations can adopt this new strategy to create a shared destiny with the crowd, fostering a higher form of loyalty through crowdfunding.
Crowdfunding is the highest form of loyalty: shared destiny
(Disclosure: GE is a founding member of my company, Crowd Companies, an association for business leaders at large companies.)
So what’s a marketplace all about? First of all, it’s not a new concept. It predates Airbnb and even the birth of the Internet. The ancient Greeks called them Agoras. Marketplaces go back to the earliest civilizations when farmers and villagers gathered at a common location, usually in a town square. We get the words “agriculture” and “agoraphobia” from the original koine Greek word.
Above Image: Click to see a sample of dozens of marketplaces in six major verticals, read the full post.
These marketplaces can exist anywhere, through mobile, social, Internet of Things, and payment apps. Today, the most common marketplaces, like eBay, Airbnb, Etsy, Lyft, CustomMade and Lending Club, allow just about anyone to offer goods, food, services, transportation, space, and even financial solutions to each other. These are now called “two-sided marketplaces,” which means there are two distinct positions that anyone can take on each trading platform. In fact, any one individual or entity can actually take both positions on some platforms. For instance, people who sell on the eBay platform usually also are buyers on that same platform. The two sides in the two-sided marketplace are
1) Platforms, a system that enables this trade in an efficient manner
2) Providers of resources, someone who offers them.
3) Partakers of these resources, someone who receives them.
Marketplace Examples: Platforms, Providers, and Partakers
Here’s a few examples to help illustrate, using the same categories as the Honeycomb image above.
You may wonder why these marketplace companies (the Platforms) are performing so well. It’s because they enable seamless transactions, regardless of locations or social relationships, and they take a cut of the revenues at scale. They have recurring revenue without owning most of the liability – they are efficient, money-making machines.
Additionally, these platforms offer a number of features that enable smooth transactions, including, but not limited to, inventory management, profiles and reputations of Providers and Partakers, payment systems like Stripe or Braintree, matching software, and marketing services to amplify all services involved. They also offer on-boarding services, customer care, insurance, and lobbying at the government level to further empower their business.
[2014 funding has increased 350% in deal size mainly due to large investments in Uber, Airbnb, Lyft, Lending Club, and BlaBlaCar]
Exactly one year ago, the average funding amount was $29m. In July 2013, I surveyed a sample of 200 startups (read full report). I found that 37% had been funded, with startups receiving an average of $29 million in funding. The 200 had received over $2 billion in total funding, which is a very high amount for a largely undeveloped, pioneer market. Interviews with several of the Venture Capitalists in this space indicated that they favor two-sided marketplaces that are scalable and have low inventory costs
[In 2013, average funding was $29 million. In 2014, the average funding amount is $102 million due to outliers, like Uber, receiving over $1.2 billion]
In the first half of 2014, the average funding amount, is a whopping $102 million. The findings are stunning. I’ve not seen this much investment in tech startups for some time. Some data highlights: In seven short months, there’s been at least 24 distinct funding instances of at least $1 million or more in investment funding. Of those, Uber received the lion’s share of a whopping $1.2 billion in investment for global growth and product expansion. On average, $102 million is the common amount, but if you strip off the Uber investment, Airbnb, Lyft, and Lending Club are lower in investment amount, bringing the average closer to $52 million, which is still very high.
Last Seven Months of Collaborative Economy Funding by Amount
Above image is the same data.
Total investments from in last seven months: 24
Average deals per month in 2014: 3.4
Average funding amount in June 2013 study: $29 million
Average funding amount in last Jan-July 3, 2014: $102.6 million
Median funding in last seven months: $14 million
Average Funding Amount (excluding Uber) in last seven months: $52.6 million
Total Amount of Funding in last seven months: $2.46 billion
Increase in funding amount per investment in 12 months: 351%
Conclusion: Investors love the Collaborative Economy – But will it bust? So, why are investors betting big on the Collaborative Economy? These scalable business models run on top of highly adopted social and mobile technologies. They offer a high frequency of transactions, with low operating costs. They are also disrupting traditional corporate business models, as they are more efficient by leveraging internet of everything, mobile devices, apps, and payment platforms. Neal Gorenflo reminded me that these startups cause the incumbents to wail in the media, creating incredible low cost PR value, which in turn attracts more customers.
In summary: Investors expect these startups to be highly profitable and are betting down big.
This successful expansion of applications begs the question, “Can the sharing model work for individual professionals?” Not only will it work, it already does work. Now that these services are available for personal use, we’re also seeing them expand into the business world. These services help professionals outsource tasks in their work life so they can focus on their core responsibilities and competencies.
Here’s a list of collaborative economy services targeting business professionals. As you’ll see, this market isn’t just about ride sharing and home sharing. If you know of other similar services, please share them as comments below.
Fon hotspots in Paris, France. Photo credit: NRKBeta.
AirPR: On-demand PR professionals in two-sided marketplaces of providers and communication buyers, AirPR tracks actionable insights into what is, or is not, driving engagement.
CloudPeeps: On-demand community managers, ready to help your company scale up for launches or during seasonal periods. CloudPeeps provides the services of experienced professionals to assist with everything from startups and small businesses to mature enterprises on an as-needed basis at a fraction of the cost of a full-time manager.
Trunk Club: Are you a busy, male executive who wants to present yourself as stylish and professional?Personal stylists are available to help you look your best. Trunk Club sets up a profile for you, then saves you time by sending you a new “trunk” of clothes selected especially for you on a regularly scheduled basis. Keep and pay for what you like. Return the rest. It’s shopping at its best.
Sprig delivers inexpensive hot meals on demand to you or your employees, or you and your boss, or you and your family, within a few minutes in the San Francisco area. This is not fast food. These are hand-crafted meals created by former Google executive chef Nate Keller. And, yes, there is an app for this service, too.
The collaborative economy is exploding, reaching into all areas of life and work. These services enable any professional to have access to a broad marketplace of talent without having to hire them on a full-time basis. On the flip side, it enables the providers to set their own schedule, work on projects they want, and have more control over their work life balance. Even the invention of sliced bread was not as good as this.
This also show’s Tesla’s commitment towards social good, as Musk writes that most car companies only have a fraction (1%) of their sales as electric vehicles. He writes, “It is impossible for Tesla to build electric cars fast enough to address the carbon crisis.” In essence, he wants everyone else to help.
For Tesla, this fosters an ecosystem of makers, hackers, developers, and partners around their brand, growing their position in the ecosystem as Tesla will become the standard of the electric vehicle (EV) industry. Why would a dominant player let go? This enables others to build on top of their platform in order to replicate, enhance, and improve existing Tesla vehicles.
What are the additional business benefits? commenters on Facebook point out that by securing the industry building off their spec, Tesla is in a dominant position to upsell other value added services such as batteries, super charging stations, and other services.
What all companies can learn from this unprecedented move:
In this new world, partnering with your crowd is the tenet of the Collaborative Economy.
Providing a platform so the ecosystem can build on top your specs enables new innovation.
Companies can scale as the partners around them deliver additional capabilities.
Companies can secure their place in the ecosystem by offering value added services.
Demonstrate true commitment to a mission by enabling anyone to participate.
Tesla, by being open, secures their own architecture as the industry standard, assuring their place in the electric vehicle market. Companies who let go, gain new innovation from their crowd, securing their place in the ecosystem.
Incredible business move, and incredible potential for a collaborative planet.
This P2P commerce is the most significant disruption ever seen in business. The people formerly known as a business’ customers – are now competitors.
The CEO of an SF Taxi company says they only have 18 months left. That’s just enough time to adopt the same strategies and technologies as these tech startups (which are financially backed by Google, VCs, and which use powerful technologies from Facebook, Apple, and Samsung).
So what should taxi companies do? They could continue to adopt the on-demand technology from companies like Flywheel (who I’m visiting tomorrow), but they also need to launch their own marketplaces of drivers and trucks using tools from Near-me or Localmotion, or build their own. They need to understand how to promote accountability by enabling customers to rate drivers and experiences. Then they need to retain and reward those who perform well and either retrain or release those who do not.
Let’s recap: European Commissioner Neelie Kroes’ final line in her post, which states: “It’s time to face facts: Digital innovations like taxi apps are here to stay. We need to work with them not against them.” I very much agree. If you’re protesting the Collaborative Economy, it is proof you’re late to the party. Change your business model now and lead this movement.
Dear Businesses: Don’t protest the Collaborative Economy – adopt it, then lead it.