Likelemba is an African system of solidarity savings mechanism where several members put a certain sum of money in a “pot” and every month, the total amount contained in the pot is then donated to one of the participating members [..]

The secret of the success of Likelemba is its simpleness and formula whereby a lot of small amounts, that every member can easily spare, make one big prize. The winner has a fairly large amount with which he/she can do something extraordinary {..]

(Taken from the Likelemba entry on Wikipedia)

There are so many niche crowdfunding platforms nowadays, seemingly to cater to every large enough population your mind can imagine. Be it financing academic research or breast augmentations, there’s a platform for that.
There is one variate I have not seen yet: a platform to help dreams come true (call me a romantic).
We all have dreams, and usually what stands between us and making them a reality is time and money (or the laws of physics in some cases, such as my dream of flying, but that’s another story).
Setting up the time is arguably the easier problem of the two to overcome. What about money? Well, here’s what I suggest: a Likelemba for dreams.

(Dream, a photo by Philippine (Fil0u), CC BY-NC-ND 2.0)

Here’s the basic mechanism I suggest:

Users register to the website and join a Likelemba – it can be one of public Likelembas on the site (to their choosing, according to some characteristics the define the Likelemba, like a Likelemba for extreme sports fanatics, for world travelers, etc.), or a private Likelemba, such as one set up by a group of friends or families. From now on, we’ll call these users ‘members’ of the Likelemba.

Members commit to a recurring monthly contribution to the joint pot of the Likelemba (they can of course stop payments at any point of their choosing, but then they’ll have to leave the Likelamba and lose their rights – more on that to follow).

Each $1 actually contributed to the Likelemba (not just committed) grants the member one vote.

Now, each member of the Likelemba can pitch his own personal dream to the group, specifying the needed funds he wishes to draw from the pot in order to pursue this dream. Obviously, he can’t ask for more than there’s currently in the joint pot.
With his pitch, some personal stats will be shown to the members of the Likelemba, such as the seniority of that member, and how much money has he contributed to date.

Throughout each month, members vote on the dreams their fellow Likelembaians (?) pitched (a member cannot vote for his own pitch). At the last day of every month the vote tally settles how to allocate the funds in the communal pot, i.e. which member is given the funds to pursue his dream (or members, if enough resources are available in the pot).

Now, here’s a the key element to make this mechanism work: in order to guarantee the financial viability of the Likelemba, a dream can’t be chosen if it got less votes than the desired sum. That is, if someone requested $2,500 for a trip to the Easter Island, he must have at least 2,500 votes. This ensures two things:
1) Positive balance in the Likelemba.
2) Even if a member quits the Likelemba after getting the funds for his dream (and therefore stops his monthly payments), the Likelemba itself will still be able to continue operation. Hopefully, some social mechanisms (in Likelembas established by friends or families) or wisdom of the crowd (not funding projects to members whose pitch and Likelemba behavior pattern suggest they’re at flight risk after they receive their share) will reduce abuse of the Likelemba, but even if it does happen – the Likelemba could live on.

Note that unused votes carry on to following month. A member doesn’t have to use all (or any) his votes in a given month. If a project a member voted for is not chosen, he gets his votes back. However, if the project was chosen – those votes are detracted from the member’s balance.

Also note that even if (when) a pitch received more votes than the amount requested, the funds the member receives are by the amount he asked for in his pitch. There’s room to discuss what happens to the excess votes – whether they are rebated in some way or forever lost, but this post is not about going into the smallest details.

What do you think of the suggested mechanism?
What would you add? How can it be made more successful?
Where are the fail points?
What do you think about a continuous version of this model – where dreams are funded as soon as they receive enough votes, not just once a month?

Ideas/constructive criticism/suggestions are welcome.

Alon

I’ll try to publish a few posts with quick start guides (build around resource lists) to different web analytics issues. There’s one in the pipeline for A/B and multivariate testing. This one is about cohort analysis. Here we go:

1. Start by reading cohort Analysis – Measuring Engagement Over Time by Joshua Porter over at 52weeksofUX and see why or if you need to do a cohort analysis.

2. Jonathon Balogh has some more info in his posts:

Introduction to cohort Analysis for Startups (Part 1, Part 2)

How to do cohort Analysis in Google Analytics (Here). Not for the faint of heart.

3. Jeremy Liew writes on the Lightspeed Venture Partners blog how he estimates the lifetime value of a customer with cohort analysis. Hint: if you LVT > CAC (customer acquisition cost) you’re in trouble!

4. And here‘s an interesting way to present the insight from your cohort analysis with Excel. There are of course quite a few paid tools to do cohort analysis, and discussions on Quora on which is the best one.

5. Cohort away.

(It’s important to remember that your cohorts do not necessarily have to be categorized by signing up date. For instance, it would be interesting to analyze how/if users from different acquisition channels differ over time)

FREE - Image by Brad Stabler, CC by-nc-sa 2.0 http://www.flickr.com/photos/bstabler/770416963/

1.

Dan Ariely, a leading behavioral economist, my inspiration and the reason I first got into behavioral economics (alongside Uri Gneezy, another brilliant mind), wrote extensively on the allure the FREE price tag has on us. See, for example, the third chapter of his first book, “Predictably Irrational”. Here’s the video cliff notes version:

 

2.

Prof. Ariely also wrote a blog post titled “This Is How I Feel About Buying Apps”  in which he discusses the interesting case of paid iPhone apps. Why is it that people are willing to pay $500 for an iPhone, but are reluctant to pay 99c for an app? I’ve heard many friends and people in my professional network which published apps, complain about this phenomenon.  Ariely suggests that we are anchored to expect apps to be free due to the multitude of free apps on the app store. That’s an interesting and plausible explanation I agree with. In addition to it, I have another suggestion as to why (some) people shy away from buying apps. I think that people can justify a one time $500 expense to purchase an iPhone by saying to themselves “This is a great buy and well worth the price tag. It’s THE BEST phone there is and it has everything you’d ever need in a phone!”. Buying apps might make people feel their decision was only partly right, because now they have to pay extra for complementary functions. Moreover, a one time $500 expense is hefty, but you only feel the pain once. Occasionally buying apps, albeit for as little as $0.99 a piece, makes you feel (some) pain in your pocket over and over again.

 

3.

Earlier this week, the nice folks over at Macadamia Apps offered one of their apps, Groupshot, which usually goes for $0.99 for free for a limited time frame of 24 hours. In a blog post, CEO Yair Bar-On writes on their experience and reveals some numbers. Apparently, in those 24 hours, almost 225,000 people downloaded the app. Quite a boost from regular daily sales. However, only about 100,000 people launched (let alone used) it even once.  In other words, more than half (roughly 55%) installed it just because it was free and they wanted to secure the low, limited time, price. Incredible.

 

To sum up, this is just one more example to the allure the word Free has on us consumers. In this case, at least 125,000 people fell to the free trap. Quite remarkable if you ask me. I wonder what will happen if you poll the different users of Groupshot – those who paid for it and those who didn’t. Who will report higher satisfaction? My hunch is the paid users (see cognitive dissonance, etc.).

 

What do you think? Are you reluctant to pay for apps as well? Are you more likely to use an app you purchased in comparison to an app you installed for free?

 

Image credit: Brad Stabler, CC by-nc-sa 2.0.

Essentially, this is a post about dead jellyfish.

Let me explain.

One of the most common questions I’m asked about crowdfunding is “How can I know I’m not giving my money to some scam artist?”. I can understand where this question is coming from. Many people have an understandable concern when giving away money on the internet; you don’t see the vendor, the product is intangible and presented in pixels. Therefore the procedure is obscure and somewhat disconcerting. But how big of  a concern should fraud really be when it comes to crowdfunding?

If you ask me, it should be very little, if at all.

Don’t get me wrong. Where there is money, there will be unscrupulous people trying to get some of it in unlawful and/or immoral ways. There have been (allegedly) a few fraudulent projects on crowdfunding platforms, and I’m sure there will be more. What I’m saying is that in my opinion, fraudulent activity doesn’t pose any real risk to neither the crowdfunding model nor to backers.

A little over a month ago, the Kickstarter campaign MYTHIC: The Story Of Gods And Men was exposed as a scam and consequently canceled. Before that, 83 people pledged a total of  $4,739 (an average of $57 per person), a little shy of 5% of the target goal. However, as suspicion grew, the folks at this Reddit thread tore the campaign to pieces, meticulously scrutinized each, and then ruled unequivocally that the project is a scam. No financial damage was caused, as funds were not charged anyhow since the campaign didn’t come to a finish. The only damage done is perhaps reputational: this incident might cause some people to be a little more suspicious and hesitate before contributing to the next project. There’s also a blow to the reputation of MYTHIC’s project creator, but he brought it on himself.

Another project worth mentioning here is The Tech-Sync Power System which raised almsot $28,000 from 419 backers prior to being canceled. There are some strong indications this project was scam as well (read here and here). Again, exposed and canceled before any damage was done.

What these two examples have in common is that in both cases the wisdom of the crowds did what it’s supposed to do. Eventually, whether it is after raising funds from 80 or 420 people, someone will raise his eyebrows and make his voice heard. Sure the wisdom of the crowd is far from perfect (e.g. http://www.facebookipodayclosingprice.com/) and can be gamed, yet at the end of the day I believe it will make the probability of a successful scam project minuscule. The bigger and more successful a scam project gets, the probability of calling it out increases. Moreover, imagine all the unheard of scam projects that didn’t make the news since nobody fell for it at the first place!

A more likely reason for backers not to get their money’s worth, and a reason harder to predict and expose, is incompetence.

Image by Robert Bruce Murray III, CC by-nc-sa 2.0. Link to original: http://omy.gd/0qinh

Image by Robert Bruce Murray III, CC by-nc-sa 2.0. Link to original: http://omy.gd/0qinh

 

As the saying goes, the road to hell is paved with good intentions. Anyone who ever managed a project knows there are no small projects. There are only relatively small projects. Even the seemingly simplest of projects sees unexpected bugs, errors, unplanned hurdles and so on. Things run over budget and fall behind schedule. Things that can go wrong ultimately do. Even the best intentioned creators can find themselves lagging behind, and yes – sometimes failing to deliver on what they promised.

 

Here are a few examples to consider:

 

Example 1: The i+Case (~$85,000 raised)

The i-Case is a cool iPhone case made from anodized aluminum. On the face of it, a pretty nifty housing to secure your precious iPhone. However, something funny happens when you put your mobile in an aluminum casing: it loses reception.  The creators also miscalculated shipping and at some point requested more money to ship the units to the backers. In my and other’s view, the real fiasco here is the creator’s reaction to the problems with their product. This great post by Matt Haughey tells the story. If you have a couple of spare hours, the comments are pretty insightful as well, and you should have a look at the project’s page at comments and updates tabs. Mr. Haughey has kindly agreed to let me use this photo he took, which I guess tells the whole story:

i+Case for iPhone, photo courtesy of Matt Haughey

i+Case for iPhone, photo courtesy of Matt Haughey

 

Example 2:

I saw this tweet from Chris Anderson a few weeks ago:

Chris Anderson - @chr1sa on Twitter

Chris Anderson – @chr1sa on Twitter

 

Many project creators offer t-shirts as rewards to backers (usually lower tier). Seemingly, a t-shirt is a pretty simple thing to deliver. There’s no technological challenge to it, and millions are printed, pressed and sold everyday. That’s probably the frame of thought project creators have. However, when was the last time a software engineer, a product designer or a film creator had to print a custom made t-shirt? Or 5,000 of them? Yes, it’s pretty easy to figure out how to work with fulfillment centers and it’s something creators need to plan for ahead of time, but it’s easy to fall to the “oh, it’s such a simple thing” trap and get lost with all the work a successful project brings upon. Personally, I remember my surprise when shipping the rewards to a campaign I was involved with took about three times more time than expected (and there were only 20 packages to send!).

(Note: I chose not to reveal the project Chris Anderson was referring to. The general point here is what’s important).

 

Example 3Coffee Joulies (~$307,000 raised)

Coffee Joulies work with your coffee to achieve two goals. First, they absorb extra thermal energy in your coffee when it’s served too hot, cooling it down to a drinkable temperature three times faster than normal. Next, they release that stored energy back into your coffee keeping it in the right temperature range twice as long.

(Taken from the campaign page, linked above)

The Joulies, a crowdfunding hall-of famer, should belong to a different list titled “Projects that went well, but…”.  They do what they promise to do, are pleasing to the eye and were shipped on time. There is a but, however. According to some bloggers that carried small(est) sample controlled experiments, the Joulies work just a well as rocks taken from the garden (read all about it here).

 

Example 4Desktop Jellyfish Tank (~$163,000 raised)

The project’s name says it all. A specially designed tank to keep small Jellyfish on your desktop (apparently, you can’t have Jellyfish in a standard fish tank because they have the unfortunate tendency to get sucked into the filtration intakes). I must say it looks pretty cool in the project’s page. I’d probably glaze at the tank myself for a good few hours had I had one. However, there seems to have been quite a few complaints from backers to the project. A blog post on BetaBeat describes that special design as a “Jellyfish deathtrap” (read all about it here).

 

 

Conclusion

These were just a few examples of good projects where something went wrong. The word incompetence was chosen to describe the phenomenon as a whole, and perhaps is a bit harsh for some of these (the Joulies in particular). The general idea still holds – sometimes things go wrong. It doesn’t mean the creators had ill intentions. The whole model of crowdfunding is based on is that funds are raised prior to the production of a product, in order to facilitate it. In the majority of product related projects, funds raised are actually pre-sales, and this makes the backers early adopters. And just like with any other product, early adopters accept some risk that the product they’re buying is not fully-baked. There’s little way for creators to anticipate the many things that can go wrong with the first version of their product when they become widespread without actually having them widespread.

I believe that with time, especially after the JOBS act comes into effect, we’ll see more and more businesses that will specialize in assisting and supporting the execution part of crowdfunding campaigns. Fulfillment centers specializing in handling the rewards, for example (I’m surprised I didn’t find any that do that already). Consulting agencies. Accountants. Lawyers. Manufacturers. We’ll also be seeing more and more “best practices” guides and dedicated websites from successful creators, along with support forums. The guys from the second example above are obviously clever but don’t know the first thing about t-shirts. They can get help with that. The Jellyfish Tank creator studied Marine Biology in Duke. I’m confident he’s brilliant and exceptionally talented. However, I’m not sure how much experience he has with large scale manufacturing.

 

To sum up this post, fraud is definitely not a threat to crowdfunding’s future. With time, and as the industry evolves, neither will incompetence be.

 

Next time I’ll write about ways to establish trust when setting up your crowdfunding campaign.

 

Update July 12, 2013: The guys behind the Kickstarted movie write
How We Uncovered the Biggest Fraud in Kickstarter History
and here’s the Hacker News discussion.

Hello all, time for another short post in my non-blog (I’m not really blogging, remember?).

Earlier this month, the Freakonomics Radio had an episode about commitment devices. Commitment devices are one of my main interests in behavioral economics. In fact, there are quite a few examples I collected over the past few months in order to share on my blog (however, seeing how I’m not really blogging, I haven’t come around to it just yet!). I’m intrigued by commitment devices (or commitment contracts) and have a few nifty ideas for apps and web services that are based around the concept.

Anyway, you can (and should) listen to the episode on commitment devices here.

Just yesterday (Feb. 14) Planet Money had an episode on public goods. Public goods just happen to be what I’m writing my thesis on.  So, with two of my favorite economic podcasts reporting on two of my favorite subjects, I’d say I had a pretty good week, at least in media-consumption terms.

Now, how do these two complement each other? 
Well, over at Freakonomics, Dubner et al. discuss murder as the highest form of a commitment device. Then, Planet Money makes the point that autopsies are a public good and ponder whether the government should provide them. In other words, after Freakonomics is done with the poor soul, Planet Money would tell you the cause of death.

And they call economics the dismal science…

3D printing revolution

January 26, 2012

Just a few days ago I stumbled upon this TED talk:

 

and while I was already aware of 3D printing, there was something about this talk that captured my attention & imagination. As I see it, the key statement Lisa Harouni made in her talk is that with 3D printing the economies of scale disappear. You can make just one of something. That’s disruptive.

However, even though the printers themselves are becoming increasingly more affordable and are expected by many to be a house hold item in the not so distant future and as ubiquitous as standard desktop printers with their disappointing two dimensions, there’s still a key ingredient for success. I wouldn’t buy a 3D printer right now even if I had the money and space to spare. The reason is quite simple – I wouldn’t have anything to do with one. What exactly would I print? I’m not a designer and in order to print a part you need a physible – a digital plan for an object the printer can read.

A few months ago, with the passing of Steve Jobs, I watched a few documentaries about the early days of the personal computer. What Jobs and his nemesis IBM understood back in the early 80’s was that the mass adoption of personal computers does not depend solely on an affordable price or ease of use. They needed a killer application, a software that would make the computer a must have in the office and all in all a hot commodity. For the Apple II it was VisiCalc and Lotus 1-2-3 was IBM’s killer app. 20 something years on, the same held true for the iPhone. It is arguably the fanciest gadget the world has ever seen, but how much success would it have gotten if Apple didn’t open app development to 3rd parties?

The point I’m trying to make is that in order for the 3D printer to become a product consumed en mass it needs to offer many physibles. It’s hard to say right now whether the business model will be more like Apple’s walled garden or Android’s open sphere (or maybe both), but if 3D printers take off, I’m sure we’ll see “design stores” where professional studios and skilled individuals offer their designs for free or a fee (small or hefty, depends on the complexity and the size of the target audience). Just as you can hire freelance graphic designers to design a logo, you’ll be able to get freelancers to build a model to suit your needs. I even think that there will be “do-it-yourself no design or experience required” services that would allow novices to build physibles with a simple drag-and-drop interface, just as there are services online right now that let you build apps without any coding.

Design sales will also become another stream of revenue for companies. A week or so ago a small piece of plastic broke in the refrigerator at my parents’ house, causing one of the doors to open up spontaneously. Apparently, replacing that small piece of plastic would cost an outrageous $75 for the part alone. Just as printer makers make their money on the ink or toner cartridges, I suspect the refrigerator manufacturer sees some nice revenue from parts replacement. In a 3D printing future, that stream of revenues will become a completely passive one – no need for actual manufacturing, shipping, handling suppliers etc.

Take the two paragraphs above an put them together. What do you think you’ll get? That’s right, pirating. The same way some of us download movies or music that fell from a virtual truck on the internet, or get paid apps for free for our phones, pirated physibles will be available out there on the internet too. After all, even if the cutting of costs mentioned above would lead to a lower price for a design, many people wouldn’t want to pay $60, or maybe even $6 to download it.

After zealously telling all of this to those around me in the days since watching that TED talk, I saw this article yesterday:

Forget MP3s: Soon You’ll Download Your Sneakers From The Pirate Bay

Here’s a small taste:

As a renowned hub for trading files, The Pirate Bay is in a perfect position to be the go-to place for free physibles, which it can facilitate while making money from ads. “We’re thinking of temporarily renaming ourselves to The Product Bay,” the announcement jokes, but hopefully it’s half-serious.

Need I say more? 🙂

Update Jan 29: As one courteous commenter noted, there is already a quite extensive depository for physibles: http://www.thingiverse.com/ . Furthermore, it appears there are diverse methods for 3D printing, especially when it comes to the materials used for the creation of the objects. My best guess is that much like processes we’ve seen with other innovative technologies (e.g. video-cassettes in the 80’s and high capacity discs twenty years on) it will take some time for the industry to converge upon a standard. We shall have to wait and see!

Update Jan 31: DMCA takedown notes for physibles, which are then found on the pirate bay.

The end to Bitcoin?

October 19, 2011

Interesting piece on the Guardian about the demise of the crypto-currency, or at least its value.

The value of Bitcoins … has plummeted across exchanges – to a level where it costs more to “mine” them than they are worth.

…part of the problem seems to be precisely what economists remarked on when its value began to spike as more and more people piled in: the appreciation in value was a speculative bubble, caused by people hoarding the currency, rather than the start of a new (or parallel) economy.

Previous post about Bitcoin over here.

Passwords Prevented

September 12, 2011

A nice quick read by David Prague over at Scientific American: Passwords Prevented. Allow me to give you a taste:

I was astonished when my daughter told me that her school has instituted a new security initiative. Student passwords must now be at least eight characters long, must contain letters, numbers and punctuation, and may not incorporate any recognizable English word. And the password must be changed every 30 days.

Can you guess what this password is meant to lock down? The fifth-grade homework-downloading Web page.

 

Even though the claims the writer makes seem so trivial, often they are not implemented. I strongly believe in KISSing and periodically remind myself the words of Antoine de Saint-Exupéry :

A designer knows he has achieved perfection not when there is nothing left to add, but when there is nothing left to take away.

Something to think about for you UX guys.

Cheers,

Alon

 

What is Bitcoin?1. Bitcoin has been making some serious noise lately on the internet. I admit I haven’t spent a lot of time to meticulously examine it, but I will say that for the time being I am both intrigued and skeptical. And I’m not the only one.

2. The founder Satoshi Nakamoto is a mystery man, and to my best understanding no-one, including the people who run Bitcoin, have ever met (some question his existence). These same people try to portray a very simplified economic system. So simplified that one might wonder how much thought was really given to it, especially regarding the way it will evolve and grow. Someone made a comment (can’t find the source) that suggested computer science graduates shouldn’t pretend to know everything, including economics. From my experience with founders that lack a suitable background, I tend to agree. Economies evolve and develop. What may work now, won’t in the future. No economic system can be planned fully in advance.

3. Jason Calacanis recently wrote a post titled Bitcoin P2P Currency: The Most Dangerous Project We’ve Ever Seen (thanks for not sugar-coating it). Here’s what he had to say:

After month of research and discovery, we’ve learned the following:

1. Bitcoin is a technologically sound project.
2. Bitcoin is unstoppable without end-user prosecution.
3. Bitcoin is the most dangerous open-source project ever created.
4. Bitcoin may be the most dangerous technological project since the internet itself.
5. Bitcoin is a political statement by technotarians (technological libertarians).*
6. Bitcoins will change the world unless governments ban them with harsh penalties.

4. I got word on Calacanis’ post from boingboing. First comment there mentioned Flooz. As it happens,

“Flooz.com was a dot-com venture, now defunct, … the company attempted to establish a currency unique to Internet merchants…” (wikipedia)

And here’s the interesting part:

Evidence indicates the company was at least partly brought down by fraud. In 2001, Flooz.com was notified by the Federal Bureau of Investigation that a Russian organized crime syndicate was using Flooz and stolen credit card numbers as part of a money-laundering scheme, in which stolen credit cards were used to purchase currency and then redeemed. (wikipedia)

In other words, where there is money, there will be those that will try to abuse the system. If Botcoin’s main mechanism against fraud will be based around keeping BTC face value so low it won’t appeal to abusers, it will not appeal to the masses as well.

5. Either way, I’m sure we’ll hear a lot more about Bitcoin in the months to come. In the meanwhile, here’s Bitcon’s intro video:

And Jason Calacanis’ interview with Gavin Andresen (Bitcoin’s technical lead) and Amir Taaki (founder of BitcoinConsultancy.com) on This Week In Startups:

 

Update 9-11-11:
James Surowiecki about Bitcoin on MIT Technology Review (here).
And Krugman has a few words to say too.

First post

May 16, 2011

A few words of introduction.

 

T B D 🙂