In our Technology of the Week (group 25), we compare two firms operating in an Electronic Market for crowdfunding. We choose for Kickstarter and Indiegogo. Electronic Markets, or E-Markets, are virtual environments on the internet which allow individuals or firms to conduct business electronically, usually through the form of a website or smartphone application. Both companies make use of a new business model.
Indiegogo and Kickstarter are both companies that have developed a crowdfunding platform. Crowdfunding platforms give people who have an idea for a project, cause or undertaking the opportunity to present their ideas to the world on a digital market and collect money or knowledge to further develop their ideas. Crowdsourcing platforms use IT technology to make the ideas of creative entrepreneurs public to anyone with an internet connection.
So what are the differences?
There are enough companies who tweet just to tweet. Create an account, once a week send a tweet and never look beyond what others say. Simple and it does not cost any extra money, after all sending a tweet is just a mouse click away. Occasionally there will be a new follower and the company also follows every follower. The question is, however, do you really follow everybody?
You start with simply “follow” someone, actually read all the tweets is a second. And then even respond to tweets is for many companies a very different story. But sometimes, just sometimes, there is a company that really knows how to deal with Twitter. Respond quickly is a must. These companies passed the stadium of “just check my Twitter account during the coffee break”. It has become an effective call for one or more employees.
Do you travel frequently by train and do you use Twitter? If so, you’ll know the Twitter profile of the NS (Dutch Railways). Since March 2010 they’ve send over 315,000 tweets. With over 110,000 followers, NS is one of the companies most discussed. Commonly used hash tags to messages with the NS are #fail, #vertraging, #Utrecht and #ns.
Founded in 2006 by Dan Benjamin and Dan Cederholm, Cork’d is a playground for wine lovers. It is a free service for wine aficionados, allowing members to review, share and discover wine. Dan Cederholm and Dan Benjamin launched Cork’d publicly in May 2005. It was later acquired by internet wine star, Gary Vaynerchuk.
“The goal of Cork’d is to bring wine to the everyday person – to remove the snobbery often associated with the world of wine. The result is a fun, playful, easy-to-use site that’s enjoyable to explore and offers a service that focuses on community for keeping track of and discovering new bottles ” (simplebits.com)
Cork’d as a social network
Cork’d is a social networking site which has attracted a niche market of wine enthusiasts, connecting wineries and people who have an interest in wine. Reflecting its CEO’s vision, Cork’d has been established and served as a social network, where its users and wineries can interact with each other. The site comprises specific features of a typical two-sided network, such as same-side and cross-side network effects. The large numbers of users of the platform on each side attracts more users in the other side, while the number of users on the same side also escalates. The key factor for such an attraction is values that users bring to each other’s and simultaneously, is values which are expected by people who intend to participate in the network. These values would be discussed in the following, from each direction:
Values that wineries bring to users
Firstly, from the perspective of users, the site provides them easier access to wine purchases or product offered by different wineries. It allows wineries to post information and provide links to their website, where wine can be purchased presumably. Owing to this feature, users may feel it convenient and enjoyable to purchase from guaranteed wineries about which they have just read reviews from other users. Moreover, they could effortlessly find information about wine-store opening hours, updated promotion and events from wineries. They could also search for information and reviews of nearby wineries around the corners of their districts. Besides reading reviews, users could also maintain a “wine-cellar”, create their preferred shopping list and more importantly, actively interact with their favorite wineries. All of these features create a so-called community feeling on local wineries, which is an essential sensation that users seek for in a typical social network.
Values that users bring to wineries
More than just being a place to post business information, Cork’d serves as a customer base for wineries, where they can find potential buyers for their products. Furthermore, It enables wineries to interact directly with their loyal customers and new buyers. The site provides data on customer preferences and wine tastes through reviews and rating system. These reviews, either positive or negative, may help wineries to improve their products and attract more consumers. On the other hand, a network effect to the outsides also occurs since the more users know about wineries, the more their reputations increase.
Values that users bring to users
The most obvious advantage seen by users when joining the site is the reviews and rating system about various types of wines. These reviews help them to have a clear impression on the wines that they intend to purchase or they have interest on, avoiding wasting money on poor quality wines or wines that do not suit their personal tastes. A more fabulous feature that Cork’d provides their users is the focused education system, where users may find it easily and exciting to learn about grapes, manufacturers and winemaking process. Most of these feature and utilities are generated by users themselves. Moreover, joining such a social network like Cork’d, users may find people sharing their mutual interest, making friend and expand their network based on similar interests on wines. However, like other social networks, the site itself could not avoid negative network effect since there are people, who are price sensitive and new to wine tasting, write their negative reviews, which may cause misleading negative impression.
Generally, Cork’d could be a potential platform-mediated network, as it owns an outstanding concept and gathers required attributes of a two-sided network. However, the site has been shuttled down in 2011 since Lindsay Ronga, the site’s CEO, decided to move to other opportunities and Vaynerchuk is involved in too many other projects.
Interested ? You may read more about the case in this article:
My interest in this blog is on a particular type of 2-sided networked market, namely gaming service platform, called STEAM. I will review the site as a platform for multiplayer gaming, based on the theory that we studied in last session.
Describe the service
Steam is a digital distribution, multiplayer and communication platform developed by Valve Corporation. From the perspective of the company, Steam is used to distribute games and related media online, from individual developers to large software providers. Through Steam, Valve introduces its own developing games as well as games of other third-party developers. Steam serves as a portal where gamers can purchase, play and update their favorite games. The site could be accessed at: http://store.steampowered.com/
Steam has more than 2000 computer games in various types, from action to strategy gameplay. Some of the games offered are for single players, who just play the game in offline mode, without the participation of other players. However, most of the games are offered with multiplayer feature, which is the core business of the site. In this online mode, the players need network connection to play the game together with many other players in all over the world and Steam serves as a hub to connect players, arrange matches and manage players’ levels in game.
The number of Steam’s users reaches 4,777,123 at the beginning of 2013, and is increasing. To attract more users, the platform also provides a forum where users can discuss about gaming related issues, such as malfunction in game, patch and update, tips and tricks, and suggestions for development of the platform. The forum also allows developers to access and answer players’ questions, and receives feedbacks for their games.
Exhibit. Steam play’s interface
Consumer side: Steam is initially an online retail store where gamers can purchase their favorite game conveniently and quickly. The site allows consumers to pay in most popular forms of online payment, such as credit cards or Paypal. Once the game has been purchased, Steam allows users to download that game to their gaming device and re-download it for unlimited times in other devices, as long as the game is supported in that gaming platform. The site well exploits same-side network effect by enable functions as making friends, achievement and discussion. Making friend function allows users to add other users as friend and follow or invite these friends to join their game, while Achievement function allows users to compare their in-game process and special achievement with other players, by a system of achievements gained and ranking. By these functions, Steam attracts more and more users to their platform since multiplayers gaming requires a lot of users to become more exciting.
Content provider side: From the perspective of third-party developers and publishers, Steam offers a customer base with a huge increasing number of online gamers, exploiting cross-side network effect. Moreover, a service called Steam Greenlight was launched recently, allowing developers and game publishers to pitch their games to the Steam community to examine whether the users will vote for it to be released on the service. This tool not only welcome new developers and publishers to join the platform, but also provide potential customers and game fans an opportunity to connect directly to the latest offerings.
Opportunities and challenges of the network
None of Valve’s sales figures of Steam service has been released to public, instead the company only shares the data to companies whose games are on Steam, which cannot be released without permission due to a non-disclosure agreement with Valve. However, Stardock, the former owner of Impulse, which is a competing platform of Steam, estimated that Steam has a 70% share of the digital distribution market for video games in 2009. It was reported by Forbes that Steam sales occupied 50-70% of the $4 billion market for computer games in early 2011.
From the perspective of game developers, Steam contributed a huge source of consumers for their products. It was exposed by the developer of “The Witcher 2: Assassins of Kings” that 200,000 to 250,000 versions, which is approximately 80%, of their total online sales of the game came from Steam. It is so obvious that Steam is currently the market leader in the market of digital gaming distribution.
Gamers prefer purchasing game from Steam because the site often offers a lot of promotions and sales, when users can purchase their game with very cheap price comparing with normal price offered by third-parties. There has been debate over whether these promotions are favored by game developers. It has been argued that games could be devalued by major discounts, affecting the industry in the long-term. However, according to a number of developers that participate in Steam Summer Sale, the promotions not only attract more sales, but also generate more revenue and revive games of old time.
Threat of envelopment
Although Steam provides lot of benefits to users, many disadvantages are also recognized, including:
- When the program is started, it automatically update to a new version. This process may require a lot of time regardless users’ network speed; confusing users are in the mood for playing.
- Downloading games in large size may be an endless process if users’ network connection is not fast. Moreover, players cannot start playing until all of the content is downloaded, requiring from them a huge amount of waiting time, comparing with purchasing a disk from a game store.
- It is complicated for users if they wish to play their game in offline mode. They have to log in using their Steam account and enable the function “I am going offline”, which prevents unexpected loss of connectivity.
- Although Valve has launched their Steam version for Mac, most of the games offered are available only for Windows, preventing Apple fans to enjoy gaming.
Another threat for Steam has been proven to come from hackers. On November 6 of 2011, Steam temporarily closed the community forum, mentioning potential hacking terrorizations to the service. Afterward, on November 10, Valve informed that the hack involved a compromise of one of their customer databases, possibly allowing the perpetrators to access customer database including encoded password and credit card information.
Currently I am writing my thesis on gamer behavior on purchasing games from Steam vs. downloading cracked games. I would love to discuss with someone who find some interest on studying this platform-mediated network from other perspectives.
Martin M., 2010, StackExchange. Retrieved from: http://apple.stackexchange.com/questions/4304/what-is-the-steam-gaming-platform
Oliver C., 2011, Forbes. Retrieved from: http://www.forbes.com/sites/oliverchiang/2011/02/15/valve-and-steam-worth-billions/
Steam Store. Retrieved from: http://store.steampowered.com/
Stephanie M., 2012, PCMag. Retrieved from: http://www.pcmag.com/article2/0,2817,2409173,00.asp
Tom C., 2012, Gamasutra. Retrieved from: http://www.gamasutra.com/view/news/174587/Steam_sales_How_deep_discounts_really_affect_your_games.php#.UTOjdzBRDK0
Wikipedia, 2013. Retrieved from: http://en.wikipedia.org/wiki/Steam_(software)
Wikipedia, 2013. Retrieved from: http://en.wikipedia.org/wiki/Valve_Corporation
When Spotify was launched back in 2008, it marked the rebirth of the music industry. The long slump in revenue growth was halted thanks to the smart new service that allowed people to enjoy the benefits of unlimited music access.
The main reason people download music illegally is not because it is free. It is because one is able get instant access to all the music in the world. In the old days, purchasing music meant going to the record shop and buying an album, and even then you only have access to the songs on that particular CD. Services like iTunes made access easier, but the product was basically the same as the one offered for free by the illegal alternatives.
The founders of Spotify understood this, and developed a product/platform that was more user-friendly than any downloading alternative. Streaming the music means that one doesn’t have to download anything, and you have unlimited access as long as you have got an internet connection. Spotify charged for access instead of ownership, and it worked. The user base has grown ever bigger, meaning that more and more artists and record labels have wanted to offer their content on the platform. Spotify is thus a huge success!
Or is it? Sure, the consumer is better of, and so are the record labels. However, as Spotify has grown, so have the losses. In 2012, the company more than doubled its revenue, to 434 million Euro. Unfortunately, the losses also grew by 50%, to 59 million Euro (http://www.dn.se/ekonomi/spotifys-svenska-bolag-gor-forlust, http://computersweden.idg.se/2.2683/1.516763/okade-forluster-for-spotify). Spotify has serious troubles turning a profit. An article in the Swedish business magazine Affärsvärlden (Affärsvärlden, 14th February 2013, Volymen räcker inte för Spotify) discusses what the company itself sees as its main problem: there are still too few users that prefer the ad-sponsored version to paying the full monthly fee.
It is also possible to analyze Spotify’s situation from a platform theory perspective. Most of the world’s music is in the hand of three big record labels: Sony, Universal and Warner. Early on, Spotify had to subsidize these major record labels, who were “magnets” that could provide strong cross-side network effects, attracting a large user base. This meant that Spotify would have to charge more from the music consumers. However, music consumers were used to not paying anything at all (high price elasticity), which meant that Spotify had to subsidize them too, basically giving the content away for nothing. As consumers, over time, have come to accept paying a small monthly fee, Spotify has been able to charge more. However, it is still far from the amount needed to cover the heavy royalty rates that Spotify has to pay to the record labels.
As more companies are now getting in to the music streaming business (Google, for example (http://crave.cnet.co.uk/software/google-will-launch-a-free-music-streaming-service-ft-says-50010505/)), Spotify will face price competition on both the consumer and content provider side, limiting its options even more.
I know that this question has been asked before, but in light of the interesting lecture on platforms we attended this Friday, what advice would you give to Spotify? Is it time to throw in the towel, or is there a way out?
My tip is that Spotify will either go bust, or be bought by another, financially stronger actor.