2014-03-28

Co.Labs

Is The Oculus Rift Acquisition A PR Disaster For Kickstarter And Facebook?

In this week's News Scrum, the staff debates Minecraft developer Markus Persson's reaction to the deal, and whether the outrage will (and should) be contagious.




Today's discussion: I don't want to work with social. I want to work with games. Markus Persson, founder of Mojang, talks about his frustration about Facebook buying Kickstarter-backed project Oculus Rift. Is Kickstarter just a way of cheating angel investors out of equity? Will this create a backlash in the open source community against Facebook? Should it?


It's A Swedish Game Developer Thing

Persson’s company Mojang is mission-driven. Facebook is not. That’s why he sees Oculus Rift’s sale to Facebook as selling out. Persson’s mission was to create an independent games studio (Mojang’s founders are its only investors), a utopia for game developers and their community of players. Mojang’s CEO Carl Manneh describes it thus in an interview with VentureBeat:

What we try to do is have the games drive the company and not the other way around. Whatever makes sense for the players, for the community, for the games, takes the lead over business decisions. All the deals that we make, we have to make sure that the business relationships don’t affect how the games are developed.

This isn’t something you would expect from Facebook and that’s exactly Persson’s point. Mojang sees its game designers as creative artists, much in the way that Electronic Arts pioneered the idea of developer as artist in the 1970s. Manneh continues:

Game developers, like any artist, they want to show off their creative work. When you work at Mojang, and you make something and put it out, millions of people are going to use it. That’s what people are excited about. The money is just something that follows."

There’s a hidden element behind this company culture clash; Persson and his cofounders are Swedish. Scandinavian countries are famously egalitarian. Venture capitalist Sarayu Srinivasan argues that Nordic countries tend to create "equitable technologies" which level social, technological, and commercial playing fields—think Skype and Linux rather than Apple and Microsoft. Being openly driven by personal gain is anathema to Sweden's law of Jante. "You might say it’s pretty much the exact opposite of how we think as Americans," observes Srinivasan.

In Mojang’s first year, Persson gave away his entire dividend of about 25 million kroner, or $3.84 million USD, to his employees. Persson’s Kickstarter contribution was not motivated by financial gain but by the possibilities of VR technology itself and the idea that a community can bring it into being, much as Minecraft is built largely by its players. Maybe the best you can say about this acquisition is that no animals were harmed in its making. Ciara Byrne

Kickstarter Isn't The Only Game In Town

If you think Kickstarter and Indiegogo are unfair for not offering ownership to backers, they aren't the only game in town. New models of crowdfunding are in development. A San Francisco startup called Inkshares is one example that I have written about for Fast Company. It's a platform for writers to publish print and e-books, and the company plans to let fans contribute to projects and take a portion of profits if the work is a success—think of it like a return on investment. This idea is still in nascent stages, but this could be huge, and a model for others. With crowdfunding laws in flux after last year's passage of the JOBS Act, we will continue to see more change. Adam Popescu

The Laws Need To Change

While Kickstarter has served as a springboard for such grassroots techies, it has increasingly become a mainstream way in which video games are funded and made. In 2013, Kickstarter amassed $57 million in funds just for games, and video game funding on the site shot up by 30% last year alone. So it shouldn’t surprise anyone that Silicon Valley giants want a slice of the projects that come out of crowdfunding—it's big business.

Does that potentially screw investors out of equity? Yes—if you're talking about the United States. German crowdfunder Seedmatch allows backers to actually receive shares of the startup in return. That’s not possible in the U.S. yet, but the JOBS Act is on track to change that.

It’s easy to sympathize with Persson’s disapproval. At least there are plenty of people sharing his disdain for Facebook in this situation. Bryan Lufkin

Just Calm Down! Everything Worked Out All Right

There is no way the Oculus team could have ever dreamed of being bought out by Facebook for $2 billion—much less had it planned. It’s just a very fortunate something that happened for the team.

But here's another point: What successful Kickstarter proprietor only wants small-scale success? Of course every company looking for crowdfunding hopes to go on to become the next Pogo, Pebble, or, yes, Oculus. If you dream big enough to actually get a product to the Kickstarter stage, you dream for the long haul. Believing the people you are supporting don't have bigger dreams makes me wonder why you are support in them in the first place.

Persson got everything he was promised by donating to Oculus’ Kickstarter campaign—a developer kit and a trip to their headquarters. He also got the added benefit of supporting a promising team of engineers with a great idea. But to be angry over their acquisition by Facebook just because he fears what Facebook might to with the technology down the road is silly. To that, I say: Calm down. After all, how much has Instagram changed since Facebook bought it? Not much at all. Mike Grothaus

Look To Germany For A Solution

Persson must know that the most one can expect to gain from contributing to a Kickstarter campaign is a feel-good prize. But this type of funding is changing in Europe. The German crowdfunding site Seedmatch just opened up the terms of its equity-based crowdfunding contracts this week, allowing greater donor contributions than ever before. But the cost of maintaining such heavy legal agreements means that not just any startup is accepted onto the Seedmatch platform. Instead, Kickstarter lets anyone take a crack at funding. So, giving up your say might be the price you pay for a platform that allows anybody, regardless of her pitch, to start her own fundraising campaign. Tina Amirtha

This Just Proves Platforms Like Alphaworks Will Succeed

The success of companies like Oculus Rift on Kickstarter is a sign that there’s pent-up demand for "micro" angel investing, but it doesn’t mean that Kickstarter has been "cheating" project backers out of equity. Rather, it’s a sign that the ecosystem is primed for the imminent arrival of platforms like Alphaworks that allow non-accredited investors to play ball at the earliest of stages.

Until the new platforms launch, Kickstarter is in the awkward position of being an imperfect proxy for this kind of activity. The startup is explicitly for "creative projects," and grew out of a belief that it should be easier for artists, musicians, and others to make—and own—their work. Kickstarter’s founders were motivated by a desire to combat the idea that creatives need to sell out in order to survive; maintaining full control of the creative work produced is central to the company’s philosophy.

Nick Chirls, who is launching Alphaworks on behalf of its parent, Betaworks, believes that in the future Kickstarter campaigns will coexist alongside other forms of crowdfunding.

"A lot of hardware companies I’m talking with are starting to think about Alphaworks as a complement to Kickstarter," he says. Some backers will want first access to the product, along with Kickstarter-style schwag; some will want equity; and some will want both, or so the theory goes.

Of course, on the equity side of things, micro-angels will probably face better terms when it comes to investing in a neighborhood restaurant, with no aspirations to scale, versus a technology platform like Oculus. But if you’re a betting man, your options are about to get more diverse and interesting than ever before. Ainsley O'Connell

[Image: Flickr user Sergey Galyonkin]




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3 Comments

  • Markus Persson ‏@notch :

    "@ID_AA_Carmack I'm just gutted that the new blank slate, the base of all future human interaction, is in the hands of mega corporations."

  • Ab Contador

    Facebook has proven to be the biggest disappointment in Silicon Valley -- not only do they make (mostly) useless products, they have proven to be destructive and stifling. If I were a dev I would be embarrassed to say I worked there.