Crowdsourcing initiatives like Kickstarter are hurting innovation
Crowdsourcing initiatives like Kickstarter are hurting innovation, according to a new study from top business school INSEAD (ranked #1 MBA in the world).
Researchers found that the ‘crowd’ appetite for investing in innovative products is startlingly low. Claims of novelty and usefulness are viewed unfavorably and result in lower pledge figures on crowdfunding initiatives. This is significant as the equity crowdfunding industry is set to surpass venture capital as the leading source of startup funding.
Data from Kickstarter—the world’s largest online crowdfunding portal—from its inception in 2009 to 2017 was interpreted by state-of-the-art machine learning technology that incorporates speech and image recognition, seasonality, perceived risk, etc. to determine the funding success of both ‘novel’ and ‘useful’ products. This is the first time large-scale speech analysis and image recognition has been applied to the study of innovation.
For example: Sunscreenr, a product that shows if you’ve missed a spot when applying sunscreen is both novel and useful, raised substantially less funding than products that are only novel or useful.
Amitava Chattopadhyay, INSEAD Professor of Marketing, says:
· “Scholars thought that crowdfunding could democratize innovation, reducing the need for inventors to depend on hard-nosed bankers and other traditional funders. Despite the hype, there is limited research on the subject and relatively little is known about how individuals respond to innovation.
· “Our study results are both surprising and disappointing because products perceived as innovative receive lower pledge sums. We believe that Kickstarter investors may be more skeptical of projects that claim to be innovative and question all-around credibility or deem it too risky. Innovative products can also be polarizing and deter community support.”
The full research can be found here: https://papers.ssrn.com/sol3/