This Moat is unlike what we’ve known so far, it is one of the most counter intuitive and illogical moat yet it is very real and that what makes it such a powerful moat. I’m talking about the moat surrounding Kickstarter, Linux, Wikipedia and maybe even Medium.
You can call it Open source, Crowdfunding or whatever name. The main thing is that it defies all preconception of logic and self interest. You have very intelligent people working very hard to publish content or write code on Wikipedia/Linux not to become a famous author, not to become wealthy nor even earn a living from it. Then you have billions of dollars being donated not for humanitarian aids or charity causes but for creative projects, products or any other interesting idea, just to see it to fruition without asking for anything in return.
The internet has enabled software, ideas, content to be made so cheap that it can be given for free. This creates a whole new marketplace that gives any economists goosebumps. Yet herein lies one of the strongest moat we have seen since the industrial revolution. How do you out compete for market share for a website that has its content generated by millions of intelligent people and has gives out its content for free? I say you don’t, because i doubt you can do a better job than one million people combine. It is a thing of good. Then what about all the donations that people give to fund a project on kickstarter ? Aren’t the people who are donating losing out since they are getting nothing much in return.
Capitalism as defined by Webster dictionary;
An economic system based on corporate ownership of capital goods, with investment determined by private decision and with prices, production and the distribution of goods and services determined mainly in a free market.
Crowd funding as donations vs. crowd funding as investments
In “The price of FREE”, Dan Ariely notes that when something costs nothing the psychology behind the purchase or decision making changes drastically.
When someone “backs” the project on kickstarter the intention is purely to see the project come alive whether or not they get something in return is less important. However when someone intends to profit from the project the relationship between the backer and the creator becomes a business relationship.
How is crowd funding as investments compared to traditional stock exchanges.
In essence both platforms are leveraging on the power of the crowd, however here are some difference
- Secondary market: Looking for someone to buy your interest in the start up that you seed invested is not being made any easier at the current options available now.
- Internet: No regulation, no boundaries, no countries and no limits. The reach is wider and the possibilities are diverse.
- Start-ups: Investments through Crowd funding platform, naturally are companies or products that may not even exist yet. This is a red flag for any value investor. Promises and predictions are tools of the trade for the speculator.
look for value anywhere you can find it.
We can now rephrase the question to should we invest in start-up companies listed on crowd funding websites?
Can you predict which music streaming company will withstand the onslaught on competitors trying the break their moat and grab a piece of their market share?
It doesn’t matter whether it is crowdfunding or stock exchanges, as long as there is a mis-priced bet we must be open and willing to take it. But the most important question to ask “ Is there value?”