In the last few years a lot of crowdfunding platforms have appeared or gained popularity after Kickstarter had its big success story. People like to invest in ideas they find interesting or that suit to their unmet needs. Kickstarter and IndieGogo are two examples of crowdfunding platforms for entrepreneurs who want to start a business or develop a product. However in recent years these several crowdfunding platforms have taken on different roles in providing funding (Floship, 2015).
Firstly it is interesting to understand why these platforms are successful. According to Agrawal, Catalini and Goldfarb (2013) the economic theory can help in explaining the rise in popularity of the use of crowdfunding platforms. Initially crowdfunding was not preferred as a means of funding due to the high cost of searching for funders. However with the popularity of the internet taking over and everyone becoming mobile everywhere and anywhere it has become efficient to match creators to funders. Searching costs have typically become lower. In addition risk exposure has been reduced due to the nature of the crowdfunding platforms allowing people to fund incrementally and making it economically feasible. Furthermore information gathering has become easier due to lower communication costs. Project details and progress are often easier for funders to monitor than before. This led to the rise of various crowdfunding platforms. One of which has taken an interesting approach to the crowdfunding business.
A company called Patreon, founded in 2013, took the idea of crowdfunding and put a little twist to it. The company focuses on providing a platform for ‘Creators’, who ask/need the funding, to interact with their audiences. These people are content creators of media and art. Think of user-generated content like YouTube videos, Streaming videos, music, webcomics, books etc. Patreon has a unique business model. The platform offers these creators a way to get funding to maintain the ability to create content and sustain it. The funders are called ‘Patrons’. These people have the opportunity to support the creators they love so they can create the content their patrons (and fans) love. This crowdfunding platform differs from the more popular ones like Kickstarter in the way the community is approached to participate in the funding. Creators get stable monthly funding from their patrons, which helps them sustain their practices and have a more consistent income. In return creators give their patrons exclusive content, sneak peeks or other extra rewards for their generosity. This idea of crowdfunding is not project oriented as we are used to seeing. Instead the funding is an on-going process for both the creators, as long as they need support, and the patrons, as long as they want to show support. Patreon is generating revenue by taking 5% of the pledged funding of patrons each month (Patreon, 2016).
This video illustrates how the business model works by drawing the process of funding:
As more crowdfunding companies try to take their share of the market, the current business models of existing players need adjustments to accommodate growth. I personally think this business model is a better way to sustain business as a crowdfunding company, because monthly pledges ensure you can keep generating revenue without having to depend on loose projects that might or might not attract interested funders. It is essentially a good start to a better model. I believe if Kickstarter for example incorporated this aspect of Patreon’s business model into their own platform, it could create a business model that generates the most revenue.
- Agrawal, A.K., Catalini, C., & Goldfarb, A. (2013), Some simple economics of crowdfunding, (No. w19133). National Bureau of Economic Research.
- http://www.floship.com/kickstarter-alternatives-you-should-know-about/, 2015
- https://www.patreon.com/become-a-patreon-creator, 2016