Effects of community’s monetary engagement on the quality of the final product The game development on Kickstarter MASTER PROJECT THESIS WITHIN: Informatics NUMBER OF CREDITS: 30 PROGRAMME OF STUDY: Information Architecture AUTHORS: Vojciech Sobolevski & Gözde Meydan JÖNKÖPING 05 2021 Master Thesis in Informatics Title: Effects of community’s monetary engagement on the quality of the final product Authors: V. Sobolevski and G. Meydan Tutors: Ahmad Ghazawneh and Osama Mansour Date: 2021-05-22 Key terms: Platform, crowdfunding, game development, Kickstarter. Abstract Kickstarter is a relatively new platform that has risen from coordinating a group of friends and like-minded people to finance some niched and highly unique projects, to the platform, where strangers from all around the world, finance the work of their favorite creators in hundreds of thousands or even millions of dollars. The academic literature and general focus of the public was concentrated to find what makes a campaign successful, advantages of the platform and its origins. We, the authors of this paper, believe that Kickstarter is continuously evolving, which raises some new questions, not of its history and use, but rather of its future potential and what happens, when the campaigns are won. We will look into how backers interact with the creators through monetary engagement and if these creators are able to deliver quality products when provided with much more resources. Our focus on the game industry allows us to see if Kickstarter performs well within the market, where big players exist with experience and lots of funding. If Kickstarter’s developers will be able to keep up with the industry leaders, using financing through crowdfunding, the platform might become a serious financial player similar to venture capitalists or angel investors. i Table of Contents Table of Contents .......................................................................... ii 1. Introduction ........................................................................ 1 1.1 Problem ..................................................................................................... 2 1.2 Purpose ..................................................................................................... 3 1.3 Research question .................................................................................... 3 1.4 Delimitations.............................................................................................. 3 1.5 Definitions ................................................................................................. 4 2. Literature Review ................................................................ 6 2.1 Video games industry ............................................................................... 6 2.2 Crowdfunding ............................................................................................ 8 3. Theoretical Framework..................................................... 12 3.1 Fixed and Marginal costs in the gaming industry .................................. 12 3.2 Network Effect ......................................................................................... 13 3.3 Porter’s Generic Strategies .................................................................... 15 3.4 Price Discrimination ................................................................................ 16 4. Method .............................................................................. 18 4.1 Empirical part .......................................................................................... 18 4.2 Variables of Interest and Data Collection ............................................... 18 4.3 The Regression Model............................................................................ 23 4.4 Other considerations ............................................................................... 23 5. Results and Analysis ........................................................ 25 5.1 Regression Results ................................................................................. 25 6. Conclusion ........................................................................ 32 6.1 Future Research ..................................................................................... 33 7. Reference list .................................................................... 34 7.1 Books ...................................................................................................... 34 7.2 Articles:.................................................................................................... 34 7.3 Sources on the Internet .......................................................................... 37 8. Appendix ........................................................................... 41 8.1 Heteroscedasticity Output ...................................................................... 41 8.2 Correlations between Rating on Steam and X1 and X2 ......................... 41 8.3 Regression Data ..................................................................................... 42 ii 1. Introduction In the new millennium, the Internet has changed significantly how the business is managed and became a part of a new trend of not only digitization, but also digitalization. New methods of doing day-to-day activities have substituted the old ones and new products and services emerged in cyberspace. (Panourgias et al., 2014) The excitement for the Internet was huge, which led to overconfidence in Internet companies and the eventual collapse of the stock market, also known as the dot-com bubble. (Brown, 2021) While big companies rose and fell trying to address the demand for new services that people needed, there were other companies that tried to create platforms for people to come together and communicate problems and solutions. Companies like Uber that connected drivers and people in need of transportation, or Monster.com, the company that helped employers and employees find each other. (Uber, 2021; Monster.com, 2021) One of the companies that has quite impressively utilized the increasing numbers of Internet users combined with the simplification of digital money transfer was Kickstarter. The company has helped connect people with creators and their ideas, looking to finance their projects through crowdfunding. Since the launch in 2009, Kickstarter has, as of 22 January 2020, allowed 4 742 065 861 dollars to be pledged to different projects, of which 176 388 were successful. 17 326 058 backers have given different amounts of money to the projects that they liked, helping creative people all around the world to pursue their passions. (Kickstarter, 2020) The platform has many categories: Arts, Comics & Illustration, Design & Tech, Film, Food & Craft, Games, Music and Publishing (Kickstarter, 2020). However, these categories are expanded even further if one looks through the Kickstarter search engine. While the platform was designed thinking mostly about small and middle enterprises and independent projects, some of the big companies have used the platform as well. They have started their own campaigns to raise awareness about their new products, gather feedback, test the novelty on a small scale, minimize the risk, and save a lot on market research. (Econsultancy, 2020) Despite that, thousands of small companies and creators have found their source of capital on the platform. (Calic & Mosakowski, 2016) Kickstarter helped them not only get the capital needed for the realization of the project, but also it allowed creators to leverage the willingness of their backers to promote it and give valuable feedback (Mollick, 2016). While success stories of Kickstarter (Forbes, 2016) attracted many people into trying out their luck, there were a few projects that did not make it on the platform. Some projects have failed due to the fact that the product was solving a problem that was not really there or created a product that at best could be used as a joke. A website called Flopstarter was even created to work as a platform for really bad ideas (FastCompany 2018). However, while some projects went under before they could enter the market, some creators were actually able to secure the funding needed for the project and present it to the backers and the public. As one would expect, some projects did not deliver what was promised (Miller, 2019), which raised the question: how does one 1 measure the success of such endeavors and is there a limitation to the type of projects it can support? In this paper, we will analyze the category of video game projects that were financed and investigate their success in making a good product that would satisfy the expectations of not only the backers, but also the general public. 1.1 Problem The literature review, provided in the following section, will investigate critical fields of interest for this paper: video game industry and crowdfunding. Both gaming (Ruggill and McAllister, 2001; McDonald et al., 2020) and crowdfunding (Parhankangas, Mason & Landström, 2019) have been quite extensively researched by academics and those outside of academia. Literature has been focused mostly on how to manage a crowdfunding campaign and succeed in raising the necessary capital (Cecere, 2017; Cha, 2017; Steigenberger,2017; Kappuswamy, 2017). While this knowledge is priceless for the individual developers and creators, we wanted to see what happens after the money is raised, which is something that literature often omits. The questions about the