Are AV Manufacturers Finding Success Via Crowdfunding?

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Are AV Manufacturers Finding Success Via Crowdfunding?


An increasing number of AV device makers are turning to crowdfunding to raise funds for new projects, and at least some of them have found success with such initiatives. However, this trendy funding route is clearly not for every company because there are just as many potential drawbacks as there are advantages--especially for inexperienced manufacturers and consumers who are footing at least part of the bill to get crowdfunded devices off the ground.

Ross Rubin, principal analyst at Reticle Research, has been closely following the sector as both analyst and publisher of Backerjack.com, a Website devoted exclusively to crowdfunded products. According to Rubin, the three Cs that crowdfunding offers any company are cash, coverage by the press, and community--in the form of an interested group of backers. "Crowdfunders tend to have disposable income, and the platforms are good avenues to explore new product categories." But he cautions, "Particularly for new companies, fulfilling rewards can be overwhelming if they don't have experience producing products."

Indeed, many products--AV or otherwise--"fail between being funded and trying to get past that first cohort of backers, even if they manage to ship the first products," Rubin pointed out. For an example of that, one can look at Toronto-based Mass Fidelity, which successfully crowdfunded a high-performance wireless speaker system called The Core on Indiegogo.com in 2014. The crowdfunding campaign raised more than $1.5 million for The Core, allowing the product to be "2,379 percent funded" as of November 3, 2014, according to Indiegogo.com. However, that company was "recently shuttered," Rubin told us. Mass Fidelity didn't respond to requests for comment.

PSAudio-Sprout.jpgFirst Time's the Charm
On the other side of the fence, PS Audio is an example of a company that enjoyed success through the crowdfunding of its Sprout amp--which we highlighted in a prior story. PS Audio sought about $36,000 for Sprout and wound up hitting about $418,000 by the end of its Kickstarter.com campaign, PS Audio Sales Director Scott McGowan told us. It was the first time that the company sought crowdfunding for any of its products.

Explaining why PS Audio decided to give crowdfunding a try, McGowan said that Kickstarter provided his company with "a venue to get our story out and allow customers to be part of something bigger than themselves and the amplifier." He added: "We also really utilized the long lead time between a successful campaign and delivery of product. This was truly crowdfunding having its effect: the KS campaign funded our tooling and our initial order."

With crowdfunding, "you get to reach an interested group and actually hold [its] interest for 30 seconds (an incredible thing)," and you also get the financing if the effort is successful, McGowan said. Kickstarter also "does a fine job training their customers that it's okay to wait a few months if you're getting what was promised." He added, "That level of patience doesn't exist in the regular marketplace ... typically."

Negatives of the Sprout crowdfunding experience were "hard to come by," he said, but there was "difficulty in procuring the funds until every final issue on each of the 827 orders was hammered out." The big takeaway from the experience for him was this: "Kickstarter backers are shopping customers. They are not donors. This is not charity. Yes, they may love your idea and be totally sold on your personality and your story and your ethos. [But] don't forget people are shopping just like they were when they were looking at Amazon and just like they were when they were looking at Kauffman Mercantile ... No matter how altruistic or cool your project is, you are taking pre-orders, and [you have] the hard task of asking customers to open their wallets."

Despite the positive experience with Sprout, PS Audio hasn't crowdfunded any additional products. McGowan told us that the company may use crowdfunding in the future for a new hi-fi product at a lower price point; however, when the company launches new hi-fi gear with suggested retail pricing of $5,000 or more, "the higher price points would seem to preclude using Kickstarter and the like."

More Success Stories
Rubin hasn't seen quite as many crowdfunded AV products as home control products, but there have been a few standouts among AV devices--"some more ambitious than others," he added.

An example of one successfully crowdfunded product that made it onto retail store shelves was True Bloom's Sideclick, a small add-on for Roku and Apple TV remotes that enables control of a TV's volume. More than 2,000 backers pledged $108,667 via Kickstarter to successfully fund that project.

Damson-S-Series.jpgOn the higher end, U.K. audio company Damson Audio crowdfunded a compact home theater system called the S-series last year. More than $71,000 was raised as part of its successful Indiegogo campaign. "In general, crowdfunding is a great platform for smaller companies to gain publicity, reach a large audience, and gain product validity at the same time as achieving pre-orders," Damson CEO James Talbot told us.

The S-series marked the third time Damson successfully launched a product on a crowdfunding platform, following a virtual reality headset and active noise-canceling headphones. Since the S-series, the company has launched three more products on Indiegogo, and "all have been successful." Talbot added, "The most surprising campaign for us was Cisor, which is a small portable speaker with a difference to mainstream speakers in that it uses vibration to amplify the sound." That campaign raised more than $350,000 and got a lot of positive comments from the backers, Talbot said. "We managed to ship everyone their perk by the promised shipping date, as well."

Despite this success, Talbot said that Damson is reviewing its pre-order strategy and is "likely to be shifting away from crowdfunding sites to our own site, as our company is pretty established now and we want to see what we can do on our own."

AV Still in the Minority on Crowdfunding Platforms
Of the hundreds of innovative connected technology projects tracked by Reticle Research in 2016, "fewer than 20 were in the connected home AV space," Rubin said. Indiegogo didn't supply any data on AV products that used its platform, and Kickstarter didn't have any statistics on crowdfunded AV products because, spokesman David Gallagher told us, they don't have a separate category for them. But he added, "Such products seem to do quite well on Kickstarter ... innovative headphones do especially well."

"One hurdle for creators of AV projects is making very clear to backers that they are funding the creation of something new, not buying a retail product," Gallagher said. "Backers can sometimes get frustrated when creators run into delays in development, as often happens with complicated products. The upside, though, is that backers get to follow the development process of products that are often truly new and innovative, and they get to be the first people to try them out. There's a lot of innovation in this area, and our backer community really responds to that."

Three TV-related crowdfunded projects Rubin tracked that collected more than $500,000 were: Jide Tech's Remix IO, an Android-based 4K set-top box that raised $598,268 via Kickstarter; RetroEngine Sigma, a retro game console that sought Indiegogo funding and wound up raising $628,069, making it 2,854 percent funded as of January 13 of this year; and Lightpack 2, which provides ambient TV lighting and raised $508,525 via Kickstarter. The Remix product was eventually canceled, and the funds that were raised are apparently going to be refunded, according to the Kickstarter site for the project. Several consumer complaints are posted on the Kickstarter page.

One of the more unique AV products to seek crowdfunding was Nativ, a high-resolution touchscreen audio control system by newcomer Nativ Sound. As far as Rubin was aware, Nativ was the most successful connected music product to seek crowdfunding, with $352,000 collected from 361 backers--although "a few portable audio product products, in contrast, collected over $1 million."

Covering the Bill for Materials Cost
According to CEO Michael Li, Nativ Sound opted to try crowdfunding for three main reasons: funding, "market validation," and product development. As he explained, "Building a high-end product requires a lot of capital to fund" the Bill of Materials (BOM) and tooling, "on top of the considerable costs for the software development." The biggest goal Nativ Sound had for the Indiegogo campaign was to cover the BOM and tooling costs.

Launching a campaign on Indiegogo also allowed his company to "evaluate if there is a market for our product and the potential market size," he went on to say, adding: "Considering that this is a pretty expensive product for a crowdfunding campaign, we were excited that we met (and exceeded) our goal so quickly."

On the product development front, he pointed out that the market for digital audio solutions is "constantly changing and disrupted by new technologies"; so, "using crowdfunding allowed us to tap into the vast experience of our supporters and improve the product quickly and add new features."

Li warned that it "sometimes can be very difficult not to lose focus and ensure that you do not try to do too many things at the same time ... Saying 'no' to some ideas from supporters that you think do not fit in the long-term strategy of the company can be hard."

Although it took longer than expected to ship the first Nativ units, "we believe that, without the early and extensive feedback of our supporters, our product would not have turned out nearly as good." Although backers "obviously were not thrilled about the delays," he told us they were "extremely supportive during the whole process and now seem to be pretty happy with their product."

Nativ Sound hasn't used crowdfunding since the Nativ launch, and "we have no immediate plans" to do so, he told us. "But our experience with Indiegogo was very positive, so I do not want to rule [it] out ... for other products we have on the roadmap."

Another success story among recent crowdfunding efforts by AV device makers was Liberty+, wireless earphones that generated more than $1 million in backing on Kickstarter.com in just six days. More than 25,000 backers wound up contributing a total of $2.8 million to fund that product.

A Retail Opportunity?
It remains to be seen if crowdfunded AV products present an opportunity for CE retailers. After all, few of the major CE manufacturers dabble in such funding campaigns, and many dealers tend to avoid carrying products from little-known startups.

Crowdfunded AV products are "not a bad idea at all for many new companies [that] need capital for product development, production, packaging, and shipping," said Chad Taylor, a buyer at Abt Electronics in Glenview, Illinois. He called it a "great way to get the product into the market." However, one negative about crowdfunding is that products are sometimes funded but "never arrive," making it "seem like gambling on a product."

Abt hasn't carried any crowdfunded AV products that he was aware of. Whether it tries to carry one in the future will "depend on the product more than anything else," he said, adding he still saw "many more" crowdfunded products never come to market than successful products that "make it past the initial production."

However, if more established vendors that AV retailers are familiar with try crowdfunding, dealers may need to start thinking about carrying at least the more successful projects. That will be especially true if any crowdfunded AV devices are as successful as the early crowdfunded CE device Ring, which is widely available at stores today.

Have you contributed money for any AV devices via crowdfunding campaigns? If so, please share your experiences with us.

Additional Resources
Have You Attended a Listening Event Recently? at HomeTheaterReview.com.
The Top Mistakes That Electronics Retailers Keep Making at HomeTheaterReview.com.
Inventory Matters in Specialty AV at HomeTheaterReview.com.


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