If you haven’t heard about Kickstarter you should go look it up right now. It is a revolutionary idea that cuts red tape and eliminates the dreaded middleman. Kickstarter still remains as a crowd sourcing alternative for any individual or firm to launch a product or service. If you are interested or believe in a product you put your vote in terms of dollars and the funds are transferred when the project goes live. Obviously, those who helped kick start the project can gain additional producer specified benefits. Also benefits scale with funds received.
Eliminating Publishers and other Middlemen
If you look at many media related industries including gaming, the position of a publisher is key for a game’s success. What a publisher does is to package and market the product. They pump in the funds, pay the developers a portion and take most of the profit. This is similar to the music label industries. When you hear talk about piracy affecting music or gaming sales, it is the publishers who are making the most noise because the original developers or musicians only take a fraction of profits. On top of that, publishers like Electronic Arts have forced the hands of many developers to rush a game out when the final product was clearly not ready just to meet sale deadlines and targets. In short, the system is slowly eroding the very creative nature of production.
Everyone has a general idea of corruption. Corruption is a rent seeking action that positions itself between two parties to extract funds by providing a certain perceived advantage. Bribes for example operate in that manner. A public administrator charges an illegal fee to ensure you get on an express queue. Bribery is not common in Singapore and that is why most Singaporeans do not understand the very nature of it.
In many ways, most middlemen are practicing a legal form of corruption. Publishers come between developers and consumers. Obviously, they provide key links that give them a more positive outlook. Funding, marketing are major strengths of publishers that developers can ill afford to handle on their own. But the monopolistic position of such middleman have in its natural cause allowed major profit extraction to occur. This cannot continue.
And Kickstarter is here to be a transparent platform to eliminate such types of legal corruption thanks to the widespread audience of the internet. Everyone talks about ‘the internet bringing connectivity’ without knowing what they are actually talking about. Sure, the internet has got the globe linked in more ways than one for more than a decade but can any tom dick and harry be fluent at using it? No. But things have accelerated in the recent years thanks to demographic changes and also Web 2.0 becoming a very much more user orientated experience. This means that the gaps in information between developers and consumers have been narrowed significantly. And this is the exact gap that middlemen operate within.
Now, you might be wondering what I have against middlemen. Let’s break this down by incentives. Developers have an incentive to make a good product for profits and also to enhance their brand / personal image. This makes a better product. Consumers have the sole incentive of consuming a product or service in order to satisfy themselves. This also drives the product towards excellence. Now, what is the incentive of a middleman? The middleman’s sole incentive is to thread the fine line between developers and consumers to the extract maximum (usually in dollar value) from both producers and consumers. You can see the problem here. While they obviously do not go all out to wreck a product, their incentives often allow them to limit the satisfaction levels of producers and consumers. In short, they wedge themselves in just to grab some cash in a process that does not really need them now.
The U.S. have recently moved the Kickstarter idea forward to larger and more physical firms who may not operate within or enjoy the benefits of an internet audience. The ‘Entrepreneur Access to Capital Act’ was passed recently that allows startups to gain much wider financial support. I have been personally involved in startups and the process has been always about having a good idea that you can either pitch to venture capitalists or attract them by having a successful launch on your own.
Usually two things happen, there are insufficient venture capitalists and / or some really good ideas get missed due to lack of foresight. In fact, some VC firms are now hiring successful entreprenuers into their team to be able to better spot talented startups. This bill have come to fill the exact gap.
A Market Response
In many ways, Kickstarter and the ‘Entrepreneur Access to Capital Act’ represent not just a form of funding. It allows producers-to-be to gauge the consumer response to a product or service they are thinking of providing. This represents clear market signals which is good when moving to the direction of perfect information. With better information for both producers and consumers, you are more likely to get products and services that are actually useful and make efficient use of resources and funds.
The Next Step: Politics
I see our economy heading towards such a trajectory in the long run. Middlemen will diminish and only a few strong ones will be left. The next frontier will be that in politics but will take a very long time to come because politicians are the best at delaying anything that will harm their position. Also, it takes time for citizen competencies to reach a sufficient level.
Politicians are the middlemen between citizens and policies/laws. A platform must be found to bring citizens closer to policy making. Obviously, the market mechanism fails in certain areas such as public goods but many of the decisions made by politicians can be passed on to direct communication and interaction starting from citizens.
This will be a new dawn for democracy as it will soon be for the economy.