How does Online Trust Influence Crowdfunding?
The Effects of Online Trust on Consumer Behaviour
Regarding Crowdfunding Platforms
Amsterdam, 5th of June, 2014
Breeuwer, Sander - 10008349 Thesis Seminar Business Studies Supervisor: Dr. G.T. Vinig Academic Year: 2013 – 2014 2nd Semester, 3rd block
Contents 1. Introduction 3 2. Literature Review 4 2.1 Trust 4 2.1.1 Consumer Trust 5 2.1.2. E-Trust 6 2.1.3. Effects of Trust 7 2.2 Crowdfunding 7 2.2.1. Financing Systems 8 2.2.2. Crowdfunding Platforms 9 3. Conceptual Framework 10
3.1. Business Model CANVAS 10
3.1.1. Customer Segments 10 3.1.2. Value Propositions 11 3.1.3. Channels 12 3.1.4. Customer Relationships 13 3.1.5. Revenue Streams 14 3.1.6. Key Resources 15 3.1.7. Key Activities 15 3.1.8. Key Partnerships 15 3.1.9. Cost Structure 16
3.2. CANVAS E-Trust Model for Crowdfunding Platforms 16
4. Discussion 17
5. Results 19
6. References 21
7. Appendix 27
1. Introduction
Over the last decades e-commerce has given rise to different approaches to marketing and innovative ways for businesses and buyers to fulfil transactions. Traditionally, the role of consumers was that of the buying party, but a relatively new trend in e-commerce has started to shift this role. A concept – called crowdfunding – has made its way as being one of the largest trends in e-commerce. Crowdfunding is a term which originates from the broader term of crowdsourcing. The term crowdsourcing was first used by Jeff Howe (2006), who described it as “The act of a company or institution taking a function once performed by employees and outsourcing it to an undefined (and generally large) network of people in the form of an open call. The essential part of which is the use of the open call format and the large network of potential labourers”. Crowdfunding continues on that definition by narrowing it down to the collection of finance. Therefore, it promotes a new way in which project developers can request funding from individual consumers, rather than through traditional routes (Mollick, 2014). Belleflamme (2013) defines crowdfunding more specifically by adding that aside from a financial donation there can also be the promise of receiving the future product or some form of reward for the financial aid given by individual consumers. This new trend in e-commerce has caused changes for two parties. Firstly we have the funds seeking party, the project developers. Through crowdfunding platforms, entrepreneurs can raise money directly from individuals (Schweinbacher, 2010) rather then through corporate routes such as lending money from banks or having large investors who will own a large part of the company. Secondly, the trend of crowdfunding means that rather than just being customers, individuals have the ability to become micro-investors into products that they find interesting or promising (Ordanini et al., 2011).
In March 2014, news in the crowdfunding community has predominantly concerned the Oculus Rift. The Oculus Rift - a project concerning virtual reality gaming - was highly successfully funded by consumers on the largest crowdfunding platform, named Kickstarter, and obtained nearly 10 times as much as their pledged funding goal (Kickstarter: Oculus Rift, Sep 1, 2012). Even though it seemed to become a successful project, Oculus Rift joined Facebook after a $2 billion acquisition (Oculus joins Facebook, Mar 25, 2014). The takeover by Facebook created a lot of negative responses by their consumer investors, called crowdfunders (The Globe, Kickstarter Crowdfunders, Mar 27, 2014). Another example of news which raised negative responses regarded a band called ‘The Dangerous’. After a successfully funded Kickstarter project, they failed to complete their promised documentary
and no possibility for the crowdfunders to get their money of a total of $14,000 back (PoZ: The Dangerous, Jan 12, 2014).
These two incidents shows possible issues within the crowdfunding community regarding trust. These issues may have long-lasting, detrimental consequences regarding behavioural intent of consumer investors. While there has been extensive research on online trust for different categories and customer groups (Yakov, 2005) and studies regarding the dynamics of crowdfunding (Mollick, 2014), there is no research that specifically aims at the way trust interacts with users of crowdfunding platforms. Because of this apparent gap in literature, this study will focus on the influences of trust and its effects on crowdfunding with the following research question: What are the possible factors that contribute in changes in
online trust on crowdfunding for crowdfunding platforms?
The focus of this paper is of theoretical, conceptual nature. To go further into the conceptualising phase of this thesis there will first be an extensive analysis of existing research in the literature review to provide insight in the topic. The analyses of the existing literature will be processed in the conceptual framework. In the conceptual framework this research will aim to apply the theoretical knowledge into a conceptual model for possible applicability for usage in crowdfunding platforms. After the conceptual framework, the discussion will return its attention to the research question along with discussing possible implications for managers and possibilities for future research. Finally a conclusion will be given regarding this thesis and the development of online trust in the crowdfunding platform.
2. Literature Review
Before the conceptual framework can be addressed, the current contents of the literature need to be studied as to further define the research problem. The first thing that needs to be addressed is the concept of trust. Here, different types of trust will be discussed following with the consequences of trust. In the second part, crowdfunding will be discussed the participating groups will be presented an analysed. Secondly, the nature and role of trust within marketing is expanded upon, both the general term and applied to the online environment.
2.1 Trust
Trust is defined by the Oxford English Dictionary as a “firm belief in the reliability, truth, or ability of someone or something”. This definition uses the word ‘belief’, which
implies uncertainty. Deutsch (1958) was the first researcher to identify risk as a precondition for the need of trust. This means that trust is only applicable in a situation where risk is involved, indeed if there are no doubts about the outcome, there is no risk, and therefore no need for trust. In the setting of trust in an organisational environment, there are two parties involved; a trusting party (trustor) and a party to be trusted (trustee) (Scott, 1980). These two parties may consist of people, organisations, and/or products. Trust changes based on the actions of each party, influenced by the ability of the trustee to fulfil the desired product of the trustor and the trustor’s change in degree of trust based on the trustee’s performance (Wang, 2005). Mayer (1995) further expands on this view of trust in its role with risk by stating that trust is “the willingness of a party to be vulnerable to the actions of another party based on the expectation that the other will perform a particular action important to the trustor, irrespective of the ability to monitor or control that other party”.
2.1.1 Consumer Trust
Now that the basics of the concept of trust have been explained; trust in respect to consumers will be explained. Consumer trust is described by Kotler (2012) as “the extent to which consumers believe a firm can design and deliver products and services that satisfy their needs and wants” and has been identified by researchers as being one of the most important items of relationship marketing to establishing long-term relationships with customers (Berry, 1996; Doney & Cannon, 1997; Dwyer, Schurr and Oh 1987; Sirdeshmukh, 2002; Spekman, 1988). Concurring with this, Morgan (1994) determined that trust also shares a positive correlation with relationship commitment and loyalty of consumers. Meaning that with higher levels of trust, a consumer is more likely to maintain relations with the trustee.
Mayer (1995) states that consumer trust is determined by the factors; ability, benevolence and integrity and that it influences the amount of risk a consumer is willing to take to engage with a trustee. These determinants of trust have been further broken down into sub-parts where perceived ability is determined by perceptions of knowledge and expertise; perceived benevolence by perceptions of concern and care; and perceived integrity by perceptions of transparency and honesty (Peters, 1997).
The general terminology of trust from the literature gives us multiple characteristics of trust. (1) The respective roles of the trustee and trustor show differences between the positions that each party is in (Mayer, 1995), meaning that the trustor is the party with the inherent (2) vulnerability, and uncertainty (Rousseau et al., 1998). This means that when a trustor has
enough trust in the trustee, there are (3) produced actions, which means that there is level or risk-taking behaviour (Gambetta, 1998; Bart et al., 2005). Finally, risk in itself is a (4) subjective matter. Wang (2005) states that trust is “directly related to and affected by individual differences and situational factors”. The characteristics of trust given by the literature concerned consumer trust in its traditional sense. Crowdfunding, however, is focused on the electronic platform, the internet.
2.1.2 E-Trust.
There are consistent differences in the characteristics of online trust compared to that of traditional consumer trust, with the first being the particular entities that fulfil the role of trustor and trustee. According to Bart et al. (2005), the object of online trust is usually the web site, the internet, or the technology. The role of the trustor here is usually fulfilled by a consumer partaking in e-commerce (Wang, 2005). Vulnerability is very different in online trust compared to offline trust due to, rather than just the trustor position of needing trust, concerns of consumer about the loss of privacy (Friedman, Howe and Kahn, 2000). It is perceived by consumers that web sites may make use of cookies from consumers using the internet, stated by Gefen (2002) that “even when online consumers only examine a web site without purchasing from it, data may be automatically collected about their activities and later misused or distributed without their consent or knowledge”. It is also stated that due to anonymity that comes with e-commerce, there is certain unpredictability in behavioural manner of e-merchants which creates risk uncertainties (Wang, 2005). Traditional actions of consumers consisted mostly of making actual purchases, but as previously mentioned by Gefen (2002), the usage of internet cookies allows e-merchants to gain data from potential customers as well. The previously mentioned concern of consumers about loss of privacy applies to actions taken by consumers because of possible hesitance when having to provide credit card and personal information at the merchant’s web site (Wang, 2005).
Gefen (2002) puts the three factors: ability, benevolence, and integrity by Mayer (1995) in an e-commerce perspective. The author describes ability as “the belief about the skills and competence of the online merchant to provide good quality services”. Benevolence is described as the belief that an e-merchant acts on the best interests of the consumer, rather than just making a profit. Finally, integrity is stated as being the belief of the kept promises by e-merchants and their adherence to stated rules.
2.1.3 Effects of Trust
Trust has been shown by Shankar, Urban and Sultan (2002) to have effects on the behavioural intent of consumers. The authors state that behavioural intent as further participating in a website with actions such as clicking further into a web site, downloading files and ultimately increasing the likelihood of purchases made on the site. Behavioural intent is not the only way that trust influences the likelihood of sales; it also reduces the consumers’ perception of risk uncertainty in the web site, which in its turn influences the purchase intentions (Jarvenpaa, Tractinsky, and Vitale, 2000). This is in line with Berry (1996) where, according to the author, trust can create competitive advantages over other e-businesses which can have long-term effects. Higher levels of trust have shown to be positively correlated with consumer loyalty and that trust in an e-business increases the willingness of customers to share personal information needed for buying products (Reichheld and Schefter, 2000; Schlosser et al., 2006; Sirdeshmukh et al., 2002). This implies that purchase intentions increase with higher levels of online trust (Sichtmann, 2007).
Prior research has shown large influences of risk uncertainty and privacy concerns (Friedman, Howe and Kahn, 2000; Gefen, 2002; Jarvenpaa, Tractinsky, and Vitale, 2000; Wang, 2005). According to Hoffman, Novak, and Peralta (1999), the most important factor on which consumers base their purchase intentions on is whether or not they trust a company, and is rated much higher than other factors, such as prices. This shows the importance of trust within the e-business environment.
2.2 Crowdfunding
The most used definition of crowdfunding by literature is from Belleflamme (2013) who states that crowdfunding “involves an open call, mostly through the internet, for the provision of financial resources either in the form of donation or in exchange for the future product or some form of reward to support initiatives for specific purposes.” Mollick (2014) argues that this definition is still not sufficient because there are possible ways of financing which would be considered crowdfunding, but are not supported by this definition. The author cites Lin and Viswanathan (2013) on the concept of internet-based peer-to-peer lending as an example of a type of crowdfunding that does not fit within the boundaries of the given definition by Belleflamme (2013). It shows the diversity of crowdfunding where widely varied forms of compensation are offered to providers of said financial resources.
2.2.1. Financing Systems
Crowdfunding originates from the concepts of micro-financing and crowdsourcing and expanded it into its own financial construct (Mollick, 2014). There are two important differences to be pointed out in this in terms of gathering finances between crowdfunding and other ways of raising funds. First, crowdfunding is characterized by small contributions coming from a large amount of – often anonymous – individuals (Schwienbacher and Larralde, 2010). This is greatly in contrast to the traditional way of financing which often has very large contributions by only a few or even just one party. Second, in crowdfunding each individual has insight in the contributions already made to the project by other individuals (Kuppuswamy and Bayus, 2013). This means that a backer can determine on forehand if a project has a high chance of success and decides whether or not the backer will contribute based on this information. The literature defines four different financial constructs used within crowdfunding, but is theoretically not limited by just these four types (Mollick, 2014).
The first type is reward-based crowdfunding. It is the most widespread type of crowdfunding in which financial pledges made by crowdfunders in return for some form of reward which can either be of monetary value or non-monetary (Belleflamme et al., 2013; Kuppuswamy and Bayus, 2013). Rewards with monetary value can be the finished targeted product or special products like t-shirts or autographed objects as token of appreciation. Recognition would be an example of a non-monetary reward (Schwienbacher and Larralde, 2010; Ordanini et al., 2011). According to data from 2011, 43% of crowdfunding platforms were based on some sort of reward-based crowdfunding, making it the largest type (Belleflamme et al., 2013).
The second type of crowdfunding is equity-based crowdfunding. It is concerned with the funding of a company where the crowdfunders receive some equity of the firm in change for their investment (Ordanini, 2012). This type of crowdfunding is not as large as the other types of crowdfunding, especially reward-based, and amounted to 15% of crowdfunding platforms in 2011 (Belleflamme et al., 2013). The authors state that this is due to legal difficulties that exist regarding restrictions of the amount of investors a company may have. This changed in the United States in 2012 with the JOBS Act (Stemler, 2013). The author states that the act “enables entrepreneurs and small business owners to sell limited amounts of equity in their companies to a large number of investors via social networks and various internet platforms. Stemler (2013) further states that it is still difficult for equity-based
crowdfunding to expand, because it would only allow funding from a very limited amount of countries due to most countries still having the restrictions on the amount of investors. In Europe, for instance, equity crowdfunding is generally restricted to a maximum of €100,000 (De Buysere et al., 2012).
Thirdly there is the donation-based crowdfunding. This type of crowdfunding is mostly popular with art, humanitarian and public goods projects (Mollick, 2014; Kuppuswamy and Bayus, 2013). In this type, the projects follow a patronage model where the funders do not expect a direct return on their investment (Mollick, 2014). According to literature, a considerable portion of crowdfunders do not expect any returns (Belleflamme et al., 2013). The authors state that in 2011, 28% of crowdfunding platforms were donation based.
The fourth and final type is called lending-based crowdfunding, also called peer-to-peer lending. Similar to reward-based crowdfunding, this type of crowdfunding results in crowdfunders receiving something in return for their investment, in this case it money itself (Belleflamme et al., 2013). Funds are provided on a temporary basis with expected repayment. It must be noted that in this type of crowdfunding interest is not always promised in terun for their loans, sometimes contributors only receive the initial amount of investment (Bradford, 2012).
2.2.2. Crowdfunding Platforms
The previously mentioned types of crowdfunding all come together on a large amount of websites, called crowdfunding platforms. The business model under which crowdfunding platforms fall is called the brokerage model (Rappa, 2010). The author states that the brokerage model is a business model where the broker (website) operates as a “transaction facilitator”. This means that it facilitates a place for buyers and sellers to come together and the broker charges a fee or commission for transactions that take place on its website. Kickstarter, for instance, charges a fee of 5% of total funds, but only when the projects target funding amount is reached (Kickstarter, 2014). Fundable charges a fee of 3,5% of total funds raised, as well as a monthly fee during the time the project is running (Fundable, 2014).
Schwienbacher and Larralde (2010) identify three types in which crowdfunding platforms interact with crowdfunding participants: (1) donations, (2) passive investments and (3) active investments. The first type is the previously explained donation-based
crowdfunding. The other two types split up crowdfunders in a different way than previously explained. For most projects, it is not possible for investors to partake in any involvement in the project. The authors argue that active participation might provide projects with potentially viable feedback, giving project creators more insight in market demand and preferred product characteristics.
3. Conceptual Framework
This part of the thesis will use the literature to create new insights regarding the interaction of online trust with crowdfunding. It has been decided to make use of the Business Model CANVAS since it allows for analysing the moderators and influences of trust from different segments of the business model of crowdfunding platforms and therefore structuring the analysis. At the end of this part the findings through the analysis using the Business Model CANVAS will be implemented in a model signifying the implications each building block has on particular parts of online trust.
3.1 Business Model CANVAS
The Business Model CANVAS is proposed and described by Ostenwalder and Pigneur (2010) through “nine basic building blocks that show the logic of how a company intends to make money. The nine blocks cover the four main areas of a business: customers, offer, infrastructure, and financial viability.” The template is viewable in model 1 in the appendix. Each segment of the Business Model CANVAS will be applied to the segments of crowdfunding website. The three factors of E-Trust as described by Gefen (2002) – ability, benevolence and integrity – will be compared to see which factor(s) is (are) applicable to each building block.
3.1.1. Customer Segments
The Customer Segments Building Block defines the aim of an organisation. It specifies which groups of people or organisations they try to reach (Ostenwalder and Pigneur, 2010). Crowdfunding consumer behaviour shows more aspects of emotional based behaviour compared to behaviour in a regular business-to-business setting (Puzakova, Kwak and Rocereto, 2013). Kuppuswamy and Bayus (2013) state that crowdfunders have a sense of responsibility towards the projects they finance. The authors also say that this same feeling of responsibility diminishes whenever plentiful support already exists for the project they support. The crowdfunders assume then that the necessary funding for the project will be
completed by other individuals (Kuppuswamy and Bayus, 2013). Gerber, Hui and Kuo (2012) state four more factors that influence crowdfunders in their consumer behaviour: (1) sympathy and empathy; (2) guilt; (3) happiness; (4) identity. In accordance with the literature, this thesis will assume the customer base of crowdfunding to be of an emotional rather than a rational nature.
The nature of crowdfunding platforms is that of an intermediary. It means that they do not have complete control over the projects available for crowdfunders to pledge funds to and neither does a platform have any control over the decision making process of developers of a project has been funded through their website. The example of the Oculus Rift in the introduction applies here as a problem. Due to the emotional nature of crowdfunders, they might not agree with the project they backed becoming part of a multibillion corporation like Facebook, thus lowering the perceived integrity of crowdfunding platforms (Gerber, Hui and Kuo, 2012; Gefen, 2002; The Globe, Kickstarter Crowdfunders, Mar 27, 2014).
3.1.2. Value Propositions
The Value Propositions Building Block aims to specify which products and/or services create value. Specifically it aims at the creation of value targeted to the defined customer segments (Ostenwalder and Pigneur, 2010). There are numerous variations in the way crowdfunding platforms create value for their customers.
The first way crowdfunding platforms create value comes from the different financing systems used by crowdfunding platforms. This thesis divides two main aspects of value creation made through the different financing systems used by crowdfunding platforms: (1) monetary value creation and (2) non-monetary value creation. The monetary value creation resolves around equity-based; peer-to-peer lending-based and monetary reward-based crowdfunding (Belleflamme et al., 2013; Mollick, 2014). According to Gerber, Hui and Kuo (2012) some crowdfunders anticipate receiving rewards. The authors further state that with reward-based crowdfunding, crowdfunders were especially motivated to fund money if they’d receive the product before others or obtained a limited edition of the work. Monetary value creation does not only apply to the adding of monetary value, but also the prevention of value loss for crowdfunders. Kickstarter, for instance, uses an all-or-nothing model which means that the money invested by crowdfunders is refunded if a project was unable to reach its funding goal (Kuppuswamy and Bayus, 2013). This reduces risk uncertainty because it allows
crowdfunders to pledge funds to projects of which there is uncertainty about whether or not the project will reach its funding goal (Jarvenpaa, Tractinsky, and Vitale, 2000).
The non-monetary value creation includes donation-based and non-monetary reward-based crowdfunding. Crowdfunding projects have the ability to play into the four emotional factors described by Gerber, Hui and Kuo (2012) by addressing the humanitarian nature of a project (Mollick, 2014). Projects might also choose to show recognition towards crowdfunders who pledge to fund above a certain amount (Schwienbacher and Larralde, 2010).
Ostenwalder and Pigneur (2010) describe newness as one of the possible ways to add to the creation of value within a business model. The authors state that this is not just restricted to technology, giving ethical investing as an example. In the context of crowdfunding, this thesis identifies the value creation through newness to be present in the form of novelty. Ordanini et al. (2011) state that crowdfunders can in some cases be classified as showing ‘novelty-seeking’ behaviour.
Brand familiarity can also be used to add value to a business model (Ostenwalder and Pigneur, 2010). Projects creators do not only try to raise enough funds for the initial start of their project but also to increase awareness for the future product itself (Cialdini et al., 2001; Gerber, Hui and Kuo, 2012). Crowdfunding platforms often promote projects on their front page that they deem to have high potential. Familiarity with a website and brand strength increases the purchase intentions of customers (Gefen and Straub, 2004; Bart et al., 2005). Applying this to crowdfunding platforms it might cause crowdfunders to be more willing to pledge funds to projects. Gefen and Straub (2004) further argue that it increases the perceived level of ability as described by Gefen (2002) of crowdfunding platforms because it increases the quality of service, thus increasing the potential level of trust.
3.1.3. Channels
The Channels Building Block is described by Ostenwalder and Pigneur (2010) as the way that companies reach out to its customer segments to deliver the value propositions. Crowdfunding platforms all have their website as their main channel. Other channels include social media such as Facebook, Twitter and LinkedIn. Positive networking is linked by literature to have an increase in perceived customer value, as well as a positive relation to customer loyalty (Amit and Zott, 2001; Srinivasan, Anderson and Ponnavolu, 2002). One of
the most important points of channels in terms of crowdfunding platform websites is the predictability. Predictability can be achieved by standardisation of procedures (Gefen and Straub, 2004). For crowdfunding platforms this means standardising the template with which projects provide information and the way in which crowdfunders can fund projects. Kickstarter, for instance, has a standard set of information provision steps that they must follow in order to be put up on the website (Kickstarter, 2014). These standardised ways of channelling information to crowdfunders creates value through efficiency and increases trust by consistently meeting consumers’ expectations (Amid and Zott, 2001; Gefen en Straub, 2004; Bart et al., 2005). Bart et al. (2005) further states that trust is an important moderator for behavioural intent in relationship with websites.
3.1.4. Customer Relationships
The Customer Relationships Building Block concerns the way in which a company actively seeks to communicate with their customer segments and what type of relationship they want, which can range from automated to personal (Ostenwalder and Pigneur, 2010). The importance of maintaining good customer relationships is supported by (Srinivasan, Anderson and Ponnovolu, 2002) who have shown positive correlation between customer care and customer loyalty.
For the projects themselves, the role of relationships with customers changed in crowdfunding compared to the original sense of the word. This is because – depending on the financing structure – customers can now also become benefactors, lendors, stockholders and/or promoters. The expansion of what customers are for a project changes the way a project should interact with these customers. Crowdfunding platforms themselves are not part of needing direct money through fundraising in order to achieve proficient funds to create a company or project; they live indirectly off of the crowdfunders’ investments. In this sense, crowdfunding platforms could both view the project developers and the crowdfunders as their customer base. Each segment requires different ways of communicating and establishing different types of relationships. Aiding project developers could provide an increase in the perceived average quality of projects. Mollick (2014) states that perceived project quality included ‘preparedness’ and is associated with the success of projects.
Crowdfunding platforms have multiple ways to strengthen ties of interaction with project developers. The first being personal assistance. Ostenwalder and Pigneur (2010) state it in the traditional sense of customer communications with customer representatives through
multiple possible media, such as through call centers, by email or face-to-face. In the crowdfunding environment it would mean that there is help and guidelines available for project developers to further develop their concept. Kickstarter has an extensive, standardised FAQ site available for project developers with the option of e-mailing representatives about questions about projects and their viability and the large crowdfunding platform Rockethub offers similar options (Kickstarter, 2014; Rockethub, 2014).
Upholding Customer relationships with crowdfunders requires different ways of interaction compared to the customer relationships that crowdfunding platforms have with project developers. Belleflamme et al. (2013) states that crowdfunding is mostly associated with community-based experiences. The authors further state that creating a sense of community for crowdfunders, who expect to in the future use products of projects that they have financially supported, can create more active participation from crowdfunders and potential future customers in following the development of the project/product. Kickstarter, for instance, organises festivals to connect with their stakeholders and customers (Kickstarter, 2014). A festival is used by Kickstarter in this way as a channel to increase the sense of community and cultivation. Srinivasan, Anderson and Ponnavolu (2002) have found that there is a positive correlation between cultivation and consumer loyalty.
3.1.5. Revenue Streams
The Revenue Streams Building Block consists of what your customers pay for the created value that you offer (Ostenwalder and Pigneur, 2010). As mentioned by Rappa (2010), crowdfunding platforms use the brokerage model and commission a brokerage fee on transactions made through the website, a portion of the profits that the project will be making and/or in some cases also a monthly subscription fee for the duration that the project is running.
Online trust that concerns revenues in general has an ethical or moral basis, mostly addressing corporate social responsibility (CSR). CSR, however, usually concerns with either giving back revenues towards goals with a strong, positive ethical image or making sure that cutting in the cost structure doesn’t have a negative impact in, for instance, countries with low wages. In the field of crowdfunding platforms, online trust can be connected with revenue streams through risk uncertainty (Ordanini et al., 2011). There are different systems that crowdfunding platforms use to raise revenue. Kickstarter uses the all-or-nothing system, which decreases risk uncertainty because it gives the assurance that crowdfunders will receive
their pledged money back if a project is unsuccessful in funding its financial target. Another large crowdfunding platform website, called Indiegogo, does not offer an all-or-nothing system, meaning that the money that crowdfunders supported projects with, will not be returned without consideration whether a project was sufficiently funded or not.
3.1.6. Key Resources
The Key Resources Building Block concerns the most important assets with which a business works (Ostenwalder and Pigneur, 2011). Key resources do not have to be physical, as they can also be financial or intellectual in nature.
The most important key resource that crowdfunding platforms use, are the projects they offer to crowdfunders to pledge their funds to. The nature of the projects can be incredibly diverse which, as mentioned by Ordini et al. (2011), attracts a wide variation of potential crowdfunders. Crowdfunding platforms can influence the quality of projects available for crowdfunding, increasing the general quality of the projects to have a higher chance of achieving sufficient funds for their financial tagert and possibly increasing levels of trust through the concept of perceived ability (Gefen, 2002; Mollick, 2014).
3.1.7. Key Activities
The Key Activities Building Blockis stated by Ostenwalder and Pigneur (2010) to describe the core activities a company must fulfil in order to make its business model work. Most crowdfunding platforms do not partake in any physical production and solely focus on their platform and networking as key activities. In order to maintain operations the websites of crowdfunding platforms need to be looked after and updated constantly. Bart et al. (2005) states that the way websites are laid out has influence on online trust with one of the drivers being the absence of error. According to Gefen (2002) this constitutes as adding to the perceived skill and competence of the crowdfunding platform, which in turn influences Mayer’s (1995) factor of ability as a moderator of trust.
3.1.8. Key Partnerships
The Key Partnerships Building Block describes all the business-to-business connections that a company has in order for the company to obtain/maintain its key resources and fulfil its key activities (Ostenwalder and Pigneur (2010). The authors state that
partnerships are useful for reducing perceived risk in a competitive environment due to lessening uncertainty.
Partnerships can be a way to increase trust when a crowdfunding platform teams up with a supplier or partner widely perceived as being trustworthy. Gefen and Straub (2004) argue that perceived integrity of an e-commerce’s digital platform influences the willingness of crowdfunders to pledge funds. Kickstarter uses partnerships to maintain this integrity in the eyese of the crowdfunders by outsourcing their financial activities to Amazon payments (Kickstarter, 2014). As previously mentioned, Schlosser et al. (2006) mentioned that there is a hesitance in e-commerce from customers to share personal information, such as credit card data. Due to Amazon being such a large business in e-commerce, most customers partaking in online spending will be comfortable with Amazon holding such information.
3.1.9. Cost Structure
The Cost Structure Building Block is defined as noting all the important costs that a company incurs with its business model in operation (Ostenwalder and Pigneur, 2010). One key aspect in which cost structures within crowdfunding platforms may have any influence on online trust for the individual investors is that the majority of crowdfunding platforms use pledges which only get captured in the case of successful projects (Ordanini et al., 2011). Aside from reducing risk for the cases that money is collected but projects have not reached funding goals, this ensures the crowdfunding platforms that failed projects are free of cost since no transactions have yet taken place.
3.2. CANVAS E-Trust Model for Crowdfunding Platforms
The CANVAS E-Trust Model for crowdfunding platforms is a combination of the trust model from Mayer (1995), expanded by Gefen (2002) and the Business Model CANVAS Building Blocks by Ostenwalder and Pigneur (2010) (model 2).
The model shows where each component of the CANVAS Building Blocks influences specific moderators of trust. The model starts with the concept of trust. Trust influences risk taking in relationship. This means that the amount of trust that a crowdfunder has will influence his behavioural intent. The behavioural intent then influences the outcome of the model. The outcome in this means the funding of a project through any of the financing systems explained in the literature review. The influence of trust on risk taking in relationships is affected by perceived risk from the crowdfunder. Trust is influenced by 3
factors in accordance with Mayer (1995) by ability, benevolence and integrity. These three factors are moderated by the trustors propensity. The trustors propensity signifies the trait of an individuals generalised level of expectation about the trustworthiness of others (Mayer, 1995). This means that each individual crowdfunder might have its own perceived level of trustworthiness in crowdfunding platforms or crowdfunding projects. The three factors of ability, benevolence and integrity each consist of what customers perceive these factors to mean (Gefen, 2002). Ability is seen by the customer as “as “the belief about the skills and competence of the online merchant to provide good quality services”. Benevolence is described as the belief that an e-merchant acts on the best interests of the consumer, rather than just making a profit. Finally, integrity is stated as being the belief of the kept promises by e-merchants and their adherence to stated rules.
Each Building Block of the Business Model CANVAS influences certain parts which then influence trust. The Customer Segments (CS) Building Block influences the perceived integrity through the belief of customers in crowdfunding platforms keeping promises. The Value Propositions (VP) Building Block influences perceived risk and the ability factor through the crowdfunders belief in crowdfunding platforms being able of providing good quality products and services. The Channels (CH) Building Block influences the integrity through keeping promises. Customer Relationships (CR) influences both ability and benevolence. Ability is influenced through the ‘providing good quality products’ and benevolence through the level of belief of crowdfunders that the crowdfunding platform acts in the best interest of the customers, rather than just trying to generate profits. Revenue Streams (RS) influences the level of perceived risk through financing methods, due to a higher or lower perceived level of risk uncertainty. Key Revenues (KR) influences the perceived ability through both skill and competence and the belief in providing good quality products and services. Key Partnerships (KP) also influences ability through the ‘providing good quality products’ segment, but has no influence on the perceived skill and competence. They also influence the integrity of crowdfunding platforms perceived by crowdfunders through the belief that they adhere to stated rules. Finally, Cost Structure (CS) maintains integrity through adhering to stated rules.
4. Discussion
This thesis started with a couple of recent news articles regarding a possible trust problem within crowdfunding. It led to the research question that stated “What are the
possible factors that contribute in changes in online trust on crowdfunding for crowdfunding platforms?” The results from the conceptual framework show that there are many ways that
trust interacts with the crowdfunding environment. The literature review gave a lot of insight into the ways that crowdfunding platforms act as businesses and insights of the aspects of trust and specifically online consumer trust. The literature did not contain any models that applied both online trust and crowdfunding. By using the Business Model CANVAS this research hopes to give concept onto possible future research can build to further shape and operationalise the model and increase the understanding of trust interaction with crowdfunding platforms. The model is created for ultimately operationalised purpose which the basis lies at taking apart trust as the entity of the concept and specifying its’ components to existing aspects of business structures, making it possible to aim for improvements in aimed parts of crowdfunding platforms. An example as to how the model might be used this thesis will give an example of how it might benefit Kickstarter. It must be noted that due to lack of information of multiple building blocks about Kickstarter this part will focus primarily on the financial aspects of Kickstarter as a crowdfunding platform and cannot be used as a complete analysis without being able to fill in all the blanks of which only Kickstarter itself has the data. The financial aspects of Kickstarter are approached through the Revenue Streams Building Block and through Graph 3 in the appendix which shows the distribution of amount of successful projects per amount of funding raised. The Revenue Streams can be divided into two major categories. The graph shows that the 2% of successful projects, which each raised at least $100.000, represents 43% of total revenue (Quartz: Kickstarter, 2014). This leaves 98% of all other successful projects that together raise the remainder of 57% of Kickstarter’s revenue. This distribution is called a ‘long-tail’ economy. In Kickstarter, the long-tail end is generally based around categories of artistic endeavours whereas the short end of successful projects with high funds primarily resolves around movies, games and technology (Kickstarter Statistics, 2014). Kickstarter could focus on increasing the success rate of these projects which have funding targets above $100.000. Focusing on short-tail end rather than the long-tail end seems more attainable considering that according to the statistics web page of Kickstarter only 1330 out of 63,092 successfully funded projects gather more than $100.000. This much smaller amount of projects might allow for a specific approach for each single project with high reward through increasing activity of the Consumers Relations Building Block. Openly providing extra guidance for larger projects might also increase crowdfunders’ perceived level of ability of Kickstarter through the belief that Kickstarter’s service in large projects will increase the percentage of projects’ chance of reaching funding
goals. As mentioned earlier, large projects often revolve around technological concepts, creating the need for the Key Partnership Building Block. Kickstarter would need to create partnerships with advisement bureaus and attract a network of funding, skills and experience suitable for each project.
The managerial implications of this thesis would be that this offers a potential guideline for managers to maintain or increase levels of trust in their respective crowdfunding platform. The proposed model can potentially be used for both small changes in just a single segment, or larger ones which affect multiple building blocks. The model can serve to enhance the business models of crowdfunding platforms to tackle issues of trust to increase the willingness of crowdfunders of pledging funds to projects in areas applicable in their respective enterprise.
There are a couple of limitations to this research that need to be noted. The first limitation is the absence of answers on how to solve the trust issue mentioned in the introduction of this thesis. Reward-based crowdfunding platforms generally are not shareholders of completed projects. This means that they have not any say in what project developers decide to do with their projects after they have received sufficient funds for it on a crowdfunding platform. It is preventable with equity-based crowdfunding where project developers have to adhere to the meanings of their crowdfunders who are also their stockholders. The second limitation would be the explorative nature of this thesis. A small number of aspects on the proposed model by this thesis had to be made through untested hypotheses. This is due to the limited availability of trust research in regards to crowdfunding platforms. The third limitation is not having inside information from companies themselves. There are possible ways that crowdfunding platforms anticipate and react on trust issues which may have been overlooked in this thesis due to this lack of access.
These limitations are the cause for numerous suggestions that can be made for future research. First of all being the conduction of field work to solidify the theoretical aspects of the proposed model. Secondly would testing the validity of the models construct by applying the model in tested environments. To provide more insight in the general topic of how trustworthy crowdfunders believe crowdfunding websites to be, it may be beneficial to conduct both closed questionnaires and open interviews to further explore the concepts and aspects of what moderates online trust in the crowdfunding environment. This thesis has put its focus around the crowdfunding platforms as point of interest. Specifically it aimed to aid
the crowdfunding platforms in dealing with online trust issues for the individual consumers. Aside from these consumers, there are also the project developers. It is unknown if the drivers and moderators that influence online trust and consumer behaviour for these project developers are the same as for the individual consumers. Crowdfunding platforms do not only compete with each other in the individual investors, but also compete to attract promising projects. Future research could focus on this part of possible online trust influences.
Another unknown factor is the role of online trust in equity crowdfunding. This research has focused on the theoretical views of online consumer trust and applying these theories to the conceptual CANAS model. In equity crowdfunding, the individual consumers effectively act as micro-investors. Investors might behave differently regarding the used drivers and moderators of trust. It makes their behavioural decision making possibly different since they might not act solely as consumers but also as investors.
Out of the discussed possibilities of future research this research suggests two possible routes to focus on. The first being an empirical study following the theories of Yakov (2005), regarding the empirical study done on the differences of online trust moderators for different product categories, and Mollick (2014) for applying the aspects of crowdfunding in empirical research. Secondly this research suggests a further analysis on the dynamics of online trust moderators within crowdfunding platforms by further exploring the application of the CANVAS model on the online trust model of Mayer (1995) and Gefen (2002). This future research could include adjusting for applicability to project developers as increasing depth of understanding of the model by attaining possible data from crowdfunding platforms themselves.
5. Conclusion
The main intentions of this study were to expand on existing literature on the concepts of e-trust within the crowdfunding environment, to provide a more comprehensive understand of the influences that e-trust has on crowdfunding. Following this focus the research made an attempt to lay down a basis for future research to By focusing on crowdfunding platforms, it allowed the research to focus on the individual investors as the most important party within the crowdfunding world. Literature has shown that although there is a lot of research on the dynamics within crowdfunding and online trust separately. There was no literature that combined these two subjects to solely focus on the moderators and influences of online trust on the crowdfunding environment.
The concept of Crowdfunding platforms is difficult subject to touch upon due to another aspect of crowdfunding, which is the size of Kickstarter’s revenue compared to other crowdfunding platforms. There is a large disparity between Kickstarter as the largest crowdfunding platforms and smaller ones such as Indiegogo and Rockethub. This may influence drivers and moderators of online trust within the crowdfunding environment, meaning that rather than the general drivers for online trust of individual investors in crowdfunding as a whole, it is possibly skewed to the behavioural intent of Kickstar’s crowdfunders. It will be difficult to make any generalised assumptions regarding behavioural intent about crowdfunding itself without collecting some form of empirical data.
Crowdfunding is a relatively new way in which new ventures attain financial funds and its sustainability has yet to be tested. Long term trust issues outside of the influence of current crowdfunding platforms might pose a problem, but these issues might be lessened through equity-based crowdfunding. Since equity-based crowdfunding is the newest funding system within crowdfunding it could still grow a lot, maturing the market and changing crowdfunders into micro-stockholders. There is still much research to be done in these field of crowdfunding and the way that trust interacts within these platforms may change a lot over time.
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7. Appendix
Model 1 – Business Model CANVAS
Model 2 – Proposed CANVAS E-Trust Model for Crowdfunding Platforms
Graph 3 – www.Quartz.com, financial data used available at www.kickstarter.com
