Crowdfunding has proven successful in helping independent entrepreneurs create a variety of products and fund all sorts of artistic ventures. But established software companies like London-based Canonical, which attempted to raise $32 million online to produce a smartphone, haven’t yet perfected the formula.
Canonical’s fundraising campaign on Indiegogo — an online platform allowing large groups of small contributors to donate to projects and receive non-financial rewards — was one of the Internet’s most ambitious. Funds would be used to create Ubuntu Edge, a smartphone which could function as a PC when connected to a monitor and run on Canonical’s open-source operating system.
After a month, 27,488 contributors had pledged about $12.8 million to Ubuntu Edge, about $19 million short of the enterprise’s goal. Canonical’s founder, Mark Shuttleworth, decided it would be “all-or-nothing” — meaning since the goal wasn’t met, funds were returned to contributors.
Despite its ultimate failure, Ubuntu Edge raised more than any other Internet crowdfunding campaign. The next highest was Pebble Watch, a digital watch capable of running Internet apps, which raised more than $10 million on Kickstarter.
It likely failed because donors were hesitant to pledge hundreds of dollars to a technology which didn’t yet exist, industry analyst and founder of Massolutions, a crowdfunding research firm Carl Esposti said. Contributions to Ubuntu Edge ranged from $20 to $80,000, with rewards such as recognition, T-shirts, pre-orders of the phone, or the largest — a bundle of 115 smartphones for businesses. A pledge of $695 pre-ordered donors a smartphone, less than its eventual market price.
If donors wanted a piece of the technology, they’d have to contribute several hundred dollars — much more than many other consumer products campaigns, Esposti said. “I would suspect that the crowd is more confident when technology is more proven.”
Canonical decided to crowdfund the phone instead of pursuing more traditional investors because “[n]ew technologies are available but do not have a trial ground to be proven before making it into volume phones,” chief executive Jane Silber wrote in an e-mail. “Crowdfunding is a great approach to rally a community of savvy users that are hungry for new technologies and look forward to test-drive them.”
Without sufficient funds, Canonical will likely not produce the phone. “We were clear from the start that the level of demand from consumers would decide the fate of Ubuntu Edge — not a big investment from one person or company.”
In a Reddit question-and-answer session, Shuttleworth told readers, “[l]ots of folks have speculated I might close the gap if it’s close. But I think that would not be in the spirit of the project; rather I would hope someone smarter than me will come up with a better concept that DOES get greenlighted, because I really believe in the idea of crowdsourcing the signal to innovation.”
More businesses are using crowdfunding as a way to test demand before releasing a product, Esposti said.
“We’re seeing Fortune 200 enterprises using it as a way of validating market receptivity,” he said — as opposed to more traditional methods such as focus groups.