Kickstarter Teardown 1 – the business model
But Kickstarter is also radically different from traditional e-commerce:
- Psychology of customer involvement – Without supporters (or customers), a project won’t happen. This makes customers more invested in the project – ultimately meaning they enjoy it more, are willing to pay more, and are more likely to support the creator in the future.
- Risk-shifting – Moving risk from the creator to the supporters makes it easier to create.
And Kickstarter’s business model also has three other characteristics that, while not unique in e-commerce, are extremely attractive:
- Network effects – The more creators on the platform, the more valuable Kickstarter becomes to supporters and vice-versa; but supporters also benefit as more supporters join, because projects are more likely to be funded.
- Strong viral mechanism – Unlike ebay or amazon, sharing is built into Kickstarter’s business model: Every creator brings her own network onto the platform and leverages her biggest supporters to bring their networks.
- Multi-homing costs for creators – Creators can’t use multiple sites for a single project; and, though switching is possible, network effects make it undesirable.
Since their revenue model is simply a cut of all transactions, these business model characteristics are extremely attractive – if the market is big enough.