Is crowdfunding replacing corporate R&D?
Click around crowdfunding sites and you’ll find campaigns to fund vacations, make documentaries and build 3-D printers.
GE isn’t the only large company raising money through sites like Kickstarter and Indiegogo, normally places where people fund pet projects, and startups test their first products.
In the last few years, Honda used Indiegogo to fund upgrades for technology at drive-in movie theaters, networking hardware firm Securifi raised more than $855,000 on Kickstarter for a router, and a Sony program took in nearly $65,000 for an Internet-connected do-it-yourself device.
While individuals and small firms turn to crowdfunding because it’s a convenient way to drum up cash, companies like General Electric — which is more than a century old and generated $148.6 billion in revenue last year — usually aren’t doing it for the money.
The Paragon appliance is made by General Electric’s FirstBuild, which was started last July as “an online community dedicated to conceiving, engineering and building the next generation of major appliances.”
Backers who pledge $199 or more can submit advance orders for the appliance, and there’s a forum where people can test a related mobile app and give feedback and ideas.
Why should corporate giants — that have entire departments dedicated to research and development — need to solicit funds from would-be customers?
Corporations are moving to crowdfunding at a time when large companies are growing increasingly wary of competition from startups.
Because they are smaller, startups often have better communication with customers and understanding of their desires than big companies.
“If you’ve got a product where maybe you’re not ready to manufacture it at scale but you want to get feedback from consumers, it’s just a more efficient way than running a focus group,” said Siegel, who worked for GE from 2004 to 2007.
Traditionally, the process of market research, including focus groups and product testing, can take 12 to 18 months.