Playing Both Sides of the Market: Success and Reciprocity on

Crowdfunding Platforms

Dr. Ohad Barzilay

Recanati Business School

Tel Aviv University

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@ohadbr

I started as a software engineer

Software Engineering Lecturer

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@ohadbr

Research interests:

Contemporary Software Development

Digital platforms, BIG DATA

Social and Crowd networks

Video Blogger:

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Agile and Lean Software Management

Agenda

• Crash course on Information Systems and Digital Platforms

• The Crowdfunding platform

• Success and Reciprocity on KickStarter

– Joint work with Dr. David Zvilichovsky and Yael Inbar

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Information Systems Research

• The “physical world” is gradually being “projected” into the computer

– We study the effect on business and society

• 15 years ago: Enterprise context (ERP, CRM)

• Later: Everyday life

– Shopping

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The Rise of Platforms

• The maturity of information systems create platforms which brings into play new mechanisms

– The platforms re-design the “physical” process

– They introduce new abstractions and terminology

– They create an ecosystem

– They are used in surprising ways

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The Crowdfunding Platform

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Crowdfunding (מימון המון)

• Definition:

Crowd - Small investments from a large base of contributors

Funding - In order to finance projects

Over the Internet

• Gaining momentum:

Crowdfunding Platforms

More Projects

Higher Sums

Legislation

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KickStarter Stats

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http://www.kickstarter.com/help/stats, 2013, 10July

The Funding Challenge

Reaching the financing goal

within the allocated period

56% fundraising campaigns fail

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44% fundraising campaigns succeed

Research Question

• What makes a crowdfunding campaign successful? Successful = raising the goal within the funding

period

• In order to answer this question we go back to the “physical world”

The business process that the platform encodes

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Fundraising => Crowdfunding => Crowdfunding Platforms

• What affects success?

• Any disadvantages?

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Fundraising => Crowdfunding => Crowdfunding Platforms

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The Crowdfunding Platform KickStarter

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The Crowdfunding Platform Kickstarter

Fundraising

Multidimensional Success Factors

• Fundraising

Entrepreneur's attributes and project funding (Packalen 2007, Krumme & Herrero 2009, Lin et al. 2013, Hsu 2007, Gompers et al. 2010)

• Online Communities

Social involvement and willingness to pay (Oestreicher-

Singer & Zalmanson 2013)

Different participation levels - different online behaviors (Kim 2006, Li & Bernoff 2011, Preece & Shneiderman

2009)

Online communities leaders and their activity patterns (Cassell et al. 2006, Yoo & Alavi 2004)

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The entrepreneur: - Experience - Learning - Reputation - Social capital

Viral Marketing

Online Communities

The platforms: - Digital platforms nurture

online communities - Socially involved users are

more likely to pay

The importance of community leaders: hubs, salespersons, mavens

Crowd funding

Success and Reciprocity in Crowdfunding Networks

David Zvilichovsky, Yael Inbar, Ohad Barzilay

Recanati Business School

Tel Aviv University

Research Data Set

• After cleaning the data (March 2013): 68,057 projects

60,680 project owners

3,001,417 backers

5,647,547 pledges (covering more than 400M $)

• “Big data” analysis Some of the backers had projects of their own

Direct reciprocity

Indirect reciprocity

Also in the “opposite direction”

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Results

• Owners’ backing history has a positive impact

on projects’ financing success

Has backing history

Number of backings

Playing both sides of the market pays off

OR = 1.84***

OR = 1.06***

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Results • Owners prev. Backing

Impact on Num. of Backers

Coefficient = 3.91***

***- significant at the 0.01 level

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10

100

1000

10000

100000

0

50

100

150

200

250

300

3500 1 2 3 4 5 6 7 8 9

10

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12

13

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-20

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+

Average Number

of Backers

Number of backing actions

Frequencies

Num. Backers

Results (cont.)

• Owners’ creating history has a negative correlation with projects’ financing success

Has creating history

Num. of prev. created projects

• Depends on success history

OR = 0.88***

OR = 0.98***

Experience is not enough

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Results (cont.)

• Projects created by owners with a backing history :

Have a higher chance to secure financing

Have more backers

Have higher goals

Raise more money

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Backer Owners

BOs create more projects and succeed more than Owners

BOs back more projects than Backers

BOs as “power users”, “community pivots”

Backers

3M Owners

60K BO 34K

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BOs Projects vs. O Projects

BO projects O projects t-test

P Value

Success Rate 62% 49% 0.00***

Number of Backers 124.33 54.92 0.00***

Goal $16,968.4 $12,863.41 0.008**

Successful Projects

Only

Goal $7953.36 $5140.93 0.00***

Money Raised $13,551.98 $6927.93 0.00***

**-Significant at the 0.01 level *** - Significant at the 0.001 level

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BOs Projects vs. O Projects

Average Values BO projects O projects t-test

P Value

Success Rate 62% 49% 0.00***

Number of Backers 124.33 54.92 0.00***

Goal $16,968.4 $12,863.41 0.008**

Successful Projects

Only

Goal $7953.36 $5140.93 0.00***

Money Raised $13,551.98 $6927.93 0.00***

**-Significant at the 0.01 level *** - Significant at the 0.001 level

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BOs Projects vs. O Projects

Average Values BO projects O projects t-test

P Value

Success Rate 62% 49% 0.00***

Number of Backers 124.33 54.92 0.00***

Goal $16,968.4 $12,863.41 0.008**

Successful Projects

Only

Goal $7953.36 $5140.93 0.00***

Money Raised $13,551.98 $6927.93 0.00***

**-Significant at the 0.01 level *** - Significant at the 0.001 level

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It is not a “crowd” - it is a network

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Summary

• Crowdfunding platforms

• Two-sided market: the dual role of the user

• Visibility of on-platform actions

• Long-term participation

• Strategic & Community Interactions on Platform

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Summary

• Backing others pays off:

Higher success chances

More backers

More money raised

• Sub-Community of Backer-Owners:

More engaged in platform

Potential long and short term strategic benefits

• Direct and indirect reciprocity:

Crowdfunding platforms as social networks

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Thank You

Questions? ohadbr@tau.ac.ilEmail me:

Full paper will be uploaded soon to the SSRN digital library – check it out