hit machine

How Kickstarter users raised nearly $1 billion: The really long tail of crowdfunding

March 6, 2014
March 6, 2014

If Kickstarter were like the media institutions that dominated the 20th century—book publishers, movie studios, record companies—the crowdfunding site’s revenue would derive mostly from a few big hits, like the Oculus Rift virtual-reality visor and the Pebble smartwatch. That is, most of the money Kickstarter makes to support its 79 employees, Manhattan office and server infrastructure would come from the 50 or so projects that have received more than $1 million in funding since 2009, when Kickstarter launched.

But being a creature of the internet age, in which having an almost infinitely deep catalog of purchasable (or in this case, sponsorable) items doesn’t add anything meaningful to your operating expenses, Kickstarter’s revenue exhibits traits typical of other online businesses—like Amazon’s massive catalog—that exemplify the economics of the “long tail“.

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Thus, most of Kickstarter’s revenue comes not from its blockbuster hits, but from the massive number of smaller projects. That’s the conclusion of an analysis conducted by Quartz, wherein we collected all of the data Kickstarter makes public about projects hosted on the site.

For example: The top 1,000 best-funded projects in Kickstarter’s history—which are nearly all the projects that received more than $100,000 in funding—account for $352,519,352 (plus £11,507,261) of the $1 billion in pledges Kickstarter has so far received. Pledges turn into actual funding only if a project reaches its pledging target, so of that $1 billion, only $859 million became actual donations, according to Kickstarter; but all of the top 1,000 projects reached their targets. So these big projects represent about 43% of the site’s lifetime revenue.

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The rest of Kickstarter’s revenue is spread across the 56,035 other projects that received about $100,000 and below. Which means the average size of 98% of successfully funded Kickstarter projects—all those in the “long tail”—is $6,743. The overall average funding level of all projects on Kickstarter is only a little higher, says its co-founder, Yancey Strickler.

Kickstarter’s revenue is modest for a tech startup

Kickstarter takes 5% of every successfully funded project, so while it has brought in $859 million in donations, the site itself has made only an estimated $43 million in revenue since launch. (A source at Kickstarter has confirmed that the actual figure is close to this; the site didn’t take a cut from funded projects for the first few months.) For a “tech” startup—at least among those that make any money at all—$43 million in cumulative revenue over four years is a vanishingly small number.

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Which means Kickstarter is either a pretty good lifestyle business founded by artists who are committed to their stated purpose—democratizing the funding of creativity—or, by Silicon Valley logic, a kind-of terrible business that requires way too many humans in order to “scale.”

I asked Kickstarter co-founder Yancey Strickler whether he was happy with the growth of Kickstarter. “Scale is so relative,” he says. “We’re one of the name brands of the internet. That’s happened somehow. I think we will probably change more lives than a lot of companies that will have significantly higher valuations than us.”

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Kickstarter has only taken funding once, from venture capital firm Union Square Ventures, and Yancey says he feels absolutely no pressure to violate his and his co-founder’s original promise to never sell Kickstarter or take the company public.

“We have 79 employees and a nice office and everyone has insurance and we’ve been in the black for years now,” says Strickler. “We’ve been able to be a sustainable business that continues to grow. Investors asking for certain things has never been a part of our life and never will be. That puts us in a very fortunate position to do right by our world and our family and friends and community. [Kickstarter] is very ideological.”

Cross-subsidizing art by running a store for gadget lovers

Privately and publicly, Kickstarter’s employees contend that its strength is that it views all mediums—be they film, music, or physical objects—as equally creative and deserving of funding. But it’s hard to look through the 1,000 highest-funded projects and not notice a trend.

With the exception of a handful of big-name movies, almost all of them look like they came out of a 21st-century version of the old Sharper Image catalog—legendary for its expensive but useless gadgets—as filtered through internet youth culture. There are wireless headphones, 3D printers and computing accessories, and a seemingly endless array of video games. Similarly, look at the categories of successfully funded projects on Kickstarter, and the lion’s share of those over $100,000 fall into just three categories: Design, Tech and Games.

But, says Strickler, look at number of projects funded, instead of dollar value, and music is the most popular category on the site. “What I think it says, that there are more games or tech projects on our list of most funded projects, is really about the of the scale of audience of those mediums,” says Strickler. Country music albums, he says, are among the most successful sub-genres as measured by how often they’re funded; they just don’t get much play in the mass media.

That, of course, is the key to Kickstarter: Smaller projects can succeed because each creates its own community. And this, perhaps, is why the bulk of the funding is in that long tail. “If you make a super-niche version of an iPhone case, in traditional retail, who’s going to do that, if only 300 people would care?” says Strickler. “But on Kickstarter 300 people is legit.”

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