Category Archives: Economics and Advertising

The Kickstarter Conundrum

Joel Johnson at Valleywag:

There is a standing presumption when one backs a Kickstarter project: you may lose your money. But there’s a new—or at least now proven—angle to consider, in light of Facebook’s acquisition of the virtual reality company Oculus: people may use your money to make a lot more money without ever properly starting a successful company in the first place.

When you contribute money to help get a company off the ground, you don’t expect them to sell out for $2 billion before they even manage to release the first version of their product. A lot of people are furious at Oculus VR for selling to Facebook, and understandably so – many of them contributed hundreds or thousands of dollars to support an independent, groundbreaking startup with a great vision and the chance to create a new paradigm for interactive entertainment, communication, and who knows what else. Instead, Oculus used that money to make itself an appealing acquisition for a company that will use its technology for its own purposes (hint: Facebook makes a lot of money off of ads). For people who had been dreaming of the amazing potential of VR, I’m sure it is frustrating to see a massive company snatch up that potential in utero.

Interesting to compare the indignation from Oculus VR backers to the exhilaration from Veronica Mars backers. The dynamic is similar – dedicated resources from a well-heeled corporate patron (Facebook and Warner Brothers, respectively) ensures a much wider distribution and a higher-quality product, while diluting the relationship with the most loyal supporters. But in the case of Veronica Mars, getting Warner Brothers on board seemed mostly to vindicate its Kickstarter backers’ faith (even though the studio had refused to commit itself for years, until the Kickstarter ensured that its modest investment came with no risk). There was some grumbling, but the prospect of sequels (or a new season of the TV show) would surely be seen as a major victory, even though it would return the property (and any associated profits) to its corporate parents, not to the loyal fans who resuscitated it from obsolescence. Maybe this is because Veronica Mars fans already cared about the franchise well before the Kickstarter; they see the movie itself, not its commercial success, as the reward for their support.

With Oculus VR, much of the above applies. Part of the reason people backed them was because the big players (e.g., Microsoft, Sony, Nintendo) didn’t seem to be interested in virtual reality hardware. To get that hardware in people’s hands, someone other than the establishment would need to make it happen. So Oculus got to work, and made enough of a case that thousands of people put their money into it, in part to get rewards like prototypes, development kits, etc., but in part to send a clear signal that there was consumer interest (and money!) in VR. Backing Oculus was a bet by contributors that this technology had a future, and in the end that bet seems to have paid off in a big way; but for Oculus VR and its VC investors – not for most of its earlier investors, left with nothing but a convenient place to scream into the void.

Now, with that said, the Oculus acquisition in some ways demonstrates just how successful the Kickstarter campaign was. In the year and a half since Oculus raised $2,437,429, industry legends joined the company, Sony announced its competing project, indie favorite game company Valve signed on to support Oculus and compete with it, among plenty of other indications that this technology is legit. That’s what Oculus backers were hoping for when they contributed, isn’t it? Whether it’s ultimately Oculus/Facebook or someone else, there’s too much momentum and too much investment for VR to disappear now. And it’s all because of the 9,500 people who put up their money to make it happen.

I don’t blame anyone for having a bad taste in their mouth, though. When you back a small, independent company’s Kickstarter to support their innovative ideas, you’re not doing it because you hope your contribution will help them get acquired. You’re buying into a story, one where your money keeps the lights on, so they don’t need to get acquired.

Ultimately, Joel Johnson is right – in some cases, Kickstarter may be the spark that lets small players get their businesses going, but for companies like Oculus VR, it’s an opportunity to get the little people to fund your project (and pay your salary) until you have something good enough for a “real” investor to find interesting. That’s a great deal for Oculus, and a great deal for VCs, but it’s not so great for Kickstarter backers.

You can’t make this stuff up, folks

MG Siegler:

Charles Cooper and Seth Rosenblatt:

Microsoft went through a blogger’s private Hotmail account in order to trace the identity of a source who allegedly leaked trade secrets.

Technically legal or not, this is absolutely insane. And awkward — here’s the copy from Microsoft’s “Scroogled” Gmail campaign: is different—we don’t go through your email to sell ads.

Nope, we just go through it to get information we need to use in lawsuits. You literally cannot make this up.

New Brewpub, The Public Option, Won’t Take Your Tips

Librarian Bill Perry will open a brewpub called The Public Option at 1601 Rhode Island Ave. NE by late summer or early fall.

This brewpub, however, will be a little different from other brewpubs and restaurants around town: The waitstaff won’t accept tips. Instead, Perry says he plans to pay a “living wage” of at least $15 an hour. If anyone leaves money on the table, the staff will decide on a charity to donate it to, either weekly or monthly. The Public Option will have notes on the tables and on its website explaining its policy.

“We are uncomfortable with the dynamic that is created by tipping,” Perry says. “We may end up crashing and burning, but we’re going to give it a try.”

I hope this works – tipping is a crazy system.

Defending Innovation and Consumer Choice in New Jersey

When last we spoke, New York’s auto dealers were lobbying ridiculously to screw over Tesla. Well, apparently their peers in New Jersey liked that idea so much that they stole it and convinced the governor’s office to fast-track it. Per Tesla’s blog post yesterday:

Proposal PRN 2013-138 seeks to impose stringent licensing rules that would, among other things, require all new motor vehicles to be sold through middlemen and block Tesla’s direct sales model. This move comes in spite of discussions with the Governor’s staff as recently as January, when it was agreed that Tesla and NJ CAR would address their issues in a more public forum: the New Jersey Legislature. Instead, rather than engage in an open debate on such a significant policy issue, the Administration has expedited the implementation of a new law that the Commission intends to stealthily approve at a meeting in Trenton today at 2:00 PM EDT.

See also: The Verge‘s summary of the situation.

Just a reminder that these kinds of unnecessary regulations hurt competition by raising new entrants’ costs. This has got to be the Chris Christie administration’s dumbest act of the year!

NYTimes: ‘Mad Men’ Enlists the Graphics Guru Milton Glaser

Imagine the pressure on Mad Men‘s marketing people – their promotional material has to measure up to the iconic ads depicted (and imitated) on the show itself. Somehow they’ve managed it throughout the show’s run (remember the Season 6 poster?), perhaps never better than this year’s work by Milton Glaser.

Today in dumb ideas

Matt Yglesias points to some nonsense going on in New York, where for some reason that I’m sure has nothing to do with the traditional automobile industry’s lobbying, legislators have proposed legislation requiring auto manufacturers to sell their cars through an in-state dealership/storefront. Of course, for innovative companies like Tesla that sell their vehicles direct to customers using something called an “inter-net”, this would increase the cost of selling vehicles. Maybe those companies would just forego profits and eat the cost, but maybe they would pass this cost on to consumers.

As Yglesias notes, the proponents pushing this scheme (including, believe it or not, the Eastern New York Coalition of Auto Dealers) argue both that the bill was designed to protect consumers (because apparently human beings cannot be trusted to decide on a purchase without an in-state storefront) and that allowing direct sales creates an “unfair advantage” (which hurts, if I’d have to guess, auto dealers in eastern New York). Obviously this has nothing to do with the former and everything to do with the latter – but what’s “unfair” about coming up with a more efficient business model? The bill should languish, wither, and die.

Amazon raised its Prime subscription price in Europe

GigaOm reports:

Amazon is rolling together its Prime and Lovefilm Instant services in the U.K. and Germany. Starting February 26, U.K. and German Prime members will be able to stream movies and TV shows as part of their Prime memberships, just as they can in the U.S.

As a result of the rollup, the prices of a Prime membership in the U.K. and Germany will increase to £79 ($131) and €49 ($67) per year, respectively — though customers who sign up for a trial by February 26 will be able to lock in a price of £49 in the U.K. or €29 in Germany for their first year. Previously, Amazon had charged £49 ($81) per year for a U.K. Prime membership or €29 ($40) per year for a German Prime membership that included unlimited one-day shipping and access to the Kindle Owners’ Lending Library. Meanwhile, a Lovefilm Instant subscription had cost £5.99 or €4.99 per month, with access to about 15,000 movies and TV episodes in the U.K. and 12,000 in Germany.

As the company mentioned in its earnings call in January, Amazon is considering raising Prime pricing in the US. I’d say this makes it just about a sure thing.