In early December 2024, the crowdfunding platform Ulule announced the acquisition of its competitor, KissKissBankBank (KKBB). This merger between the two most prominent players in the market marks a significant turning point in the French crowdfunding industry, which has been experiencing continuous growth for about a decade. Together, these platforms bring together an impressive community of 9 million people and have enabled the financing of more than 80,000 projects for a total of 480 million euros collected.
Crowdfunding in France
As a reminder, crowdfunding is a fundraising method that allows many people to financially support projects via online platforms. This system, which has developed with the rise of the Internet, offers an alternative to traditional financing methods by allowing creators and entrepreneurs to directly appeal to the public to finance their initiatives. Ulule and KKBB are active in the reward-based crowdfunding segment, in which contributors receive a non-monetary reward in exchange for their monetary contribution; these rewards are generally related to the funded project and may include early access to a product, exclusive items, or unique experiences.
The French reward-based crowdfunding market currently resembles a duopoly: far behind Ulule and KKBB, there are a handful of tiny platforms that operate either in niche segments (such as MiiMOSA in agriculture) or in specific regions (such as Kengo in Brittany). This duopoly is similar to the reward-based crowdfunding market in the United States, which Kickstarter and Indiegogo dominate. Therefore, the announced merger in France will lead to a highly concentrated market.
Network Effects and Positive Spillovers Across Projects
Market concentration is a common phenomenon in the world of digital platforms, where self-reinforcing effects reign supreme. Powerful positive network effects are indeed at work on crowdfunding platforms (see Belleflamme, Omrani and Peitz, 2015). In particular, participants on both sides of the platform reinforce each other: the more entrepreneurs present on the platform, the more contributors can find projects and rewards that motivate them; the more potential contributors on the platform, the more entrepreneurs have the possibility of reaching their funding goal. We understand then that a platform that manages to attract more participants than its rivals acquires a competitive advantage that is likely to snowball until complete market domination.
However, a contrary force can come to jam this dynamic. To the extent that they compete to attract funds from contributors, entrepreneurs might be less inclined to join the platform if it already has many entrepreneurs; this is referred to as a negative network effect.
In an article recently published (in open access!) in the Journal of Economics and Management Strategy, we show that the opposite is actually happening. Using data from Ulule covering the funding decisions of more than 1.3 million contributors on about 24,000 entrepreneurial projects between 2010 and 2016, we demonstrate that projects presented at the same time by a platform reinforce each other: the more one contributed to a project yesterday, the more one contributes to other projects today. Our empirical estimates allow us to quantify these positive spillovers between projects. In particular, the number of contributions generated daily by a project is about 1% higher when the number of contributions within the same category is doubled; the effect rises to 4% when comparing projects from different categories (for example, Film & Video and Music). We, therefore, see that the positive spillovers across projects outweigh the competition between entrepreneurs, ultimately creating positive network effects within the group of entrepreneurs.
The Crucial Role of Recurrent Contributors
Another striking result of our study is that recurrent contributors - who provide funds to different projects over time - serve as a transmission belt for these positive spillovers. On the one hand, thanks to the experience they acquire, these contributors are more likely to spot projects that have a chance of reaching their funding goal (and, therefore, of delivering rewards). On the other hand, these contributors intervene on average earlier in funding campaigns. To the extent that Ulule and KKBB reveal the contribution history of each contributor, we have all the ingredients for recurrent contributors to initiate a process of social learning: occasional contributors have good reasons to follow the choices made by recurrent contributors.
Therefore, our analysis suggests that a critical factor influencing the growth trajectory of crowdfunding platforms is the retention rate of recurrent contributors. Figure 1 below presents the total monthly contributions made on Ulule (panel A) and KKBB (panel B) during their first six years of existence. Both platforms experienced a noticeable increase in contributions over time, with most of these contributions coming from occasional contributors (blue line). The number of recurrent contributors (red line) also increases over the period, but at a different pace for the two platforms. Ulule has a larger share of recurrent contributors than KKBB. Although both platforms were launched around the same time, the data shows that the number of recurrent contributors per project increases more rapidly on Ulule: the compound annual growth rate during the sampling period is 33.1% for Ulule compared to 3.0% for KKBB. Figure 2 presents the evolution of the difference in the total contributions between the two platforms. We can clearly see that the gap is widening between Ulule and KKBB. Together, the two figures suggest that recurrent contributors partly explain the divergent growth trajectories of Ulule and KKBB.
In summary, our results provide additional evidence that reward-based crowdfunding markets are inherently prone to single-platform domination. The announced merger between Ulule and KKBB confirms this. Beyond the French context, Ziegler et al. (2021) report an increasing concentration of the crowdfunding market globally.
Managerial Implications
Beyond the lessons for competition policy, our results also have significant implications for crowdfunding platforms’ management and competitive strategy. A key element for crowdfunding platform managers to remember is the distinct behaviour of recurrent contributors, who are recognised as social influencers. Our research shows that projects with a higher proportion of recurring contributors tend to generate more contributions, suggesting that retaining existing contributors is more profitable than acquiring new ones.
Our analysis also indicates that a crowdfunding platform's success depends on the combination of projects launched simultaneously on the platform. Given the complementarities between projects, as shown by positive spillovers across projects, platforms can increase total contributions by selecting an optimal combination of projects.
Finally, our study highlights the importance of providing information on the funding decisions of recurrent contributors. Platforms like Ulule and KKBB take advantage of this by publicly sharing this information, thus distinguishing themselves from other major platforms like Kickstarter and Indiegogo.
Authors:
Paul Belleflamme, Professor of Economics, Catholic University of Louvain
Thomas Lambert, Professor of Finance, Erasmus University
Armin Schwienbacher, Professor of Finance, SKEMA Business School - Université Côte d'Azur
This article was first published in French on The Conversation.
During the preparation of this post, the authors used GenAI tools to collect ideas and improve the expression. After using this service, the authors reviewed and edited the content as needed. They take full responsibility for the publication's content.
Royalty-free photos from Pexels.com.
