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Out with High Crowdfunding Fees, In with App Markets
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Out with High Crowdfunding Fees, In with App Markets

Editor's Note: The following guest post comes to us from Kevin Lawton, whose book The Crowdfunding Revolution: How to Raise Venture Capital Using Social Media has just been released in a new, updated 2nd edition.

The door is wide open for new leaders to emerge in crowdfunding, as the existing ones haven’t learned from the painful lessons of open source and web-oriented startups.

One of those lessons - replicable bits are a cover charge, not where the main value comes from. The core value derives from the enablement of a rich ecosystem. Or in web startup terms, the value lives not in the front-end logic, but in the back-end of the business. One needs look no further than Google, to understand this – it gives away a spectrum of free services and yet makes reams of money on the back side. And it’s eating Apple’s lunch in the smart-device market.

- Community Crowdfunding Right Now
- The Future of the Crowdfunding Revolution

If you were to visit a current crowdfunding site, with all of the logos and color themes removed, what services or features in specific would truly allow you to differentiate the site from myriad others? For many of the ‘perks’ based sites, the answer is not many. As was the case early on in the search game, that holds only until a player enters the market who “gets it.”

Let’s look at crowdfunding from the perspective of a campaigner for a moment. If they have a successful raise on Kickstarter, they face site fees of 5% plus roughly 3 to 5% in 3rd-party payment processing fees. What cash-strapped party wants to pay 8 to 10% in overhead, from the get go? These fees will inevitably get crammed down, and sites which are counting on them will be disappointed. One of the top complaints about crowdfunding sites is their fee structure – not a great future indicator given the lessons learned.

Low cost payment provider WePay provides a perfect example of how the heavy fees of crowdfunding are already being disintermediated, charging only the payment processing fee if you provide your own site, or an extra 2% to also host the fund-raising page. Additionally, they allow you to plug into your Google Analytics account, have APIs for developers and are PCI compliant.

But really, sites like WePay are addressing only part of the evolving landscape in crowdfunding. How much value in crowdfunding comes from today’s platform versus the campaigners’ ability to get the word out? We could look to the Lockitron campaign for an idea. After being rejected from Kickstarter, Lockitron rolled out their own crowdfunding platform software and proceeded to raise over $2 million with it, subsequently open sourcing the code on GitHub. And then newcomer iPhone dock maker Lumawake chose the software as a Kickstarter alternative and is currently working towards their $150k goal.

As we’re seeing, a lot of the buzz surrounding successful campaigns actually comes from the blogosphere and social networking in general, and only partially from the platform. Given the current state of crowdfunding, there’s not that much preventing it from going the way of web hosting providers, which provide re-branded white-box solutions. Now, almost certainly there will be “brand name” winners, where the eyeballs start their journey. But the key value going forward is in the ecosystem, and that means massive scale and a back-end business model which facilitates that scale.

Think app market plus APIs meets MLS. You want an app to do background checks, you plug in a related app from the marketplace – it interfaces with APIs from the crowdfunding framework. Or maybe you plug in the app for locating studio time, co-founders, jobs, credit checks, equipment rentals, office space, legal services, etc. And then of course, there are those using the premium dashboard & apps, looking for clients or getting trend analytics in film, products and gaming – or of course investors looking for early deal flow. Are you a curator of crowdfunding projects? No worries, you’re offered a widget which plugs into your own site or brands your own section of an existing platform. And if the platforms can align policies, potentially the campaigner is offered the ability to co-list their project across multiple sites (a feature many campaigners dream about!), with the referral agreements properly set up (like real estate’s MLS system).

For people who want to value-add on top of existing crowdfunding platforms, this offers a way to extend crowdfunding in unimaginable ways, and yet another business model for ecosystem players. It certainly adds a whole new meaning to ‘search!’

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