Ohad Barzilay_Crowdfunding
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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
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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
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The Funding Challenge
Reaching the financing goal
within the allocated period
56% fundraising campaigns fail
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44% fundraising campaigns succeed
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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
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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
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Success and Reciprocity in Crowdfunding Networks
David Zvilichovsky, Yael Inbar, Ohad Barzilay
Recanati Business School
Tel Aviv University
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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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Average Number
of Backers
Number of backing actions
Frequencies
Num. Backers
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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? [email protected] me:
Full paper will be uploaded soon to the SSRN digital library – check it out