The following is a guest post by Miles Grimshaw (@milesgrimshaw), an investor at Thrive Capital. This post originally appeared on his blog in June 2014.
Crowdsourcing has been a hot topic for many years, but over the past few years we have seen a number of platforms emerge to try and harness the crowd for collaborative innovation. The open source software community has been doing this for decades, but more recently companies have focused on crowdsourced innovation of consumer products.
Quirky has led this movement and created a platform and process that enables anyone to contribute to the development of new consumer goods. And by all easily accessible metrics Quirky is wildly successful. The company has raised $175M in the past 4 years from top tier investors like Andreessen Horowitz, Kleiner Perkins, RRE Ventures, General Electric and others. Update: Quirky has filed for bankruptcy and accepted a $15M bid for its Wink business from Flextronics.
But how does the business of crowdsourced innovation really work under the hood? I was poking around on Quirky’s site and found that every product has a unique product page, on which Quirky exposes a variety of data including:
- Number of units sold each month
- Payouts to the product’s inventor community each month
- Total number of influencers
- Distribution of the crowd’s vote of what they will pay
Quirky has 823 products on the site, that break out across a variety of different product statuses, including ‘In Development,’ ‘On Sale,’ ‘Started Development’ etc. Of the 823 products Quirky has approved, 13.24% are currently on sale.
Cumulative Revenue and Community Payouts
According to the public data, Quirky has generated $51.32MM in total revenue from 3.58MM sales, and paid out almost $6.78M to the community. Quirky’s monthly revenue appeared to peak in December 2012 at almost $7M.
Hit Driven Revenue
Product sales on Quirky have an unmistakable long-tail distribution. Pivot Power, Quirky’s best performing product, has generated 36.28% of Quirky’s total revenue to date. The top 5 products on Quirky have generated 53.54% of Quirky’s total revenue.
The classic 80/20 principle is also true for Quirky; the top 20% of products (25 products) have generated 83.78% of Quirky’s total revenue.
If we look at what the community has earned per product, we find the same long-tail distribution. Pivot-power has generated 20.40% of the community’s earnings. The top 5 products generated 46.15%, and the top 20% (25 products) generated 73.93% of the community’s earnings2.
Quirky has 3 main categories of products: 1) Electronics and Power 2) Home & Garden and 3) Kitchen3. Over 80% of Quirky’s revenue has come from the electronics category. Quirky’s founder, Ben, has a long history of producing electronic consumer products.
For each product sold Quirky makes payments to the community for their inputs on the idea, development etc. Quirky pays out the smallest percentage of revenue for electronics: 12.85% vs. up to 17% for kitchen products.
If you are thinking of contributing to the development of products on Quirky though, electronics have the best return. The average pay per influencer of an electronics product is almost $80, almost 5x that of products in the home and kitchen categories.
If we exclude Pivot Power, Quirky’s most successful product, Quirky pays out 8.26% of revenue to electronics and the average pay per influencer is $56.
Electronics are the highest priced category of items ($35 vs. ~$16 for home and kitchen items).
For some products, Quirky runs a consumer vote, asking consumers what they think they would be willing to pay for the item. What is particularly interesting is that Quirky prices electronics significantly higher than the median consumer vote. On average, Quirky prices electronic items $32 higher than the median price voted for by the community. For home items and kitchen items, on average Quirky prices them in line with the median consumer vote.
Consumers have a higher variance in the price they are willing to pay for electronics vs. home and kitchen items; on average, the 25th to 75th percentile range is $7 for electronics vs. ~$4 for home and kitchen.
I outline a few caveats to the data below, but assuming the data is directionally correct for their direct sales, it is fascinating that despite trying to tap the crowd and de-risk the volatility of consumer demand for a new product, Quirky has only produced 1 breakout success since launch. The data suggests the crowd doesn’t really know what they want.
You can find the script I wrote to collect this data as a Gist here.
You can find the excel with this data and analysis here.
I am not certain the data is consistent. For example, I previously ran an older version of the script in February and got $59.73MM (vs $51M) in revenue and $5.95MM (vs. $6.78M) in payouts.
- Quirky also sells products through retailers, which I am confident are not included in this data. ↩
- This may be a more accurate metric to assess the hit driven nature of Quirky’s revenue. I am not entirely confident that the revenue data accounts for offline retail sales. However, given that Quirky relies on the community to generate and refine product ideas, I am confident that the amount paid out to the community is accurate. While community earnings are likely affected by the number of contributors etc. the 80/20 distribution of earnings that is roughly in line with the revenue distribution per product further supports the hypothesis that consumers don’t know what they want. ↩
- They also have ‘Health & Fitness’ and ‘Travel & Adventure,’ but these two categories have very few products. ↩