IBackPack: Crowdfunding or Crowdfrauding with Digital Marketing

1. Introduction: iBackPack crowdfunding scam on Indiegogo/Kickstarter

1.1 Case – iBackPack scam

IBackPack used digital diagrams, promotion videos, social media posts, self-owned websites to attract lots of millennials to spread the campaign on Indiegogo. The idea is to build a smart backpack with Wi-Fi, Bluetooth, batteries, USB and car chargers to target anyone from age eight to eighty, turned out to be a huge success. IBackPack raised more than $650,000 on Indiegogo in 2015 alone, plus $76,694 on Kickstarter with the idea of IBackPack 2.0 in 2017.

However, none of the campaigns delivered products to the backers. IBackPack vanished. The company's Facebook page, website, videos, company emails were shut down.

Lots of unhappy backers were left behind, and they formed a group on Facebook to gather evidence.

In 2019, the US Federal Trade Commission (FTC) sued the founder of iBackPack for deceiving backers and misusing funds.

Crowdfunding campaigners with attracting digital marketing promotions are ideal for delivering products to their backers on time. However, when they are unable to live up to their promises, the crowdfunding campaigners only leave backers with angry feelings and empty wallets. IBackPack, the most notorious case on both Indiegogo and Kickstarter, will be the case with a critical literature review method in this essay, to research why iBackPack’s deception is not ethical and how we should deal with digital crowdfunding marketing fraud. The analysis and recommendations will be under empathy perspectives with various ethical theories for the company and stakeholders.

1.2 Relevance – Digital marketing standard

Codes of ethics coming from professional associations and combined with specific training may help educate inexperienced marketer and raise their awareness about ethical marketing issues they may face in the future (Eagle et al., 2013). Therefore, it is essential to check whether iBackPack broke the codes of conduct from the American Marketing Association since the case is conducted in America. It may also help raise the awareness of digital crowdfunding marketing fraud scandals in the industry.

In the fairness part of ethical values, American Marketing Association (2020) stated that precisely represent products in selling, advertising and other forms of communication; this includes the avoidance of false, misleading and deceptive promotion. However, iBackPack posted deceptive advertisements on its digital channels. Then, communications almost ceased entirely and no more updates about the delivery of products. The company founder claimed there were no safe battery chargers to finish the product as his defence, which turned out to be a lie. It was confirmed that the batteries had no specific problems after backers' investigation.

2. Ethical Analysis: The deception of iBackPack digital marketing

According to the American Marketing Association (2020), the marketing campaign cannot harm and needs to adhere to all applicable laws and regulations. However, the FTC sued iBackPack for the crowdfunding scam. Also, marketers need to avoid deception in communication to foster trust in the marketing system. However, iBackPack created fake contents to cheat on crowdfunding websites, Facebook page, owned website and YouTube videos. That's why the crowdfunding scandal was so problematic.

2.1 Deontological approach - iBackPack used backers as the tool

Deontology (based on the work of eighteenth-century philosopher Immanuel Kant) is a framework that focuses on intentions and holds that there are ethical 'absolutes' that are universally applicable, with the focus on means or intentions (Eagle and Dahl, 2015). Under deontology, any deception would be considered morally wrong since the intention is corrupt. However, iBackPack created fake digital marketing promotions to gain crowdfunding funds from the backers while never delivering the products. According to FTC (2019), the manipulative posts about the status of products include "contributions would go to develop, produce, and distribute the product by March 2016", "the POW Cables are on their way here" or "done/finished/shipped over with" or "would be received within six weeks." By calculations and deceptions, the company is keeping from being kicked off crowdfunding platforms rather than rewarding backers as promised.

Based on the categorical imperative, we cannot use people as the tools or instruments for our gains to be morally free because people have dignity and deserve respect. According to Andrew Smith, Director of the FTC's Bureau of Consumer Protection, in the crowdfunding industry, the company does not need to guarantee the idea will work but needs to use money from backers to work on the campaign's idea rather than personal use (FTC, 2019). However, the founder of iBackPack did not use the funds for the promised products but spent most of the money buying Bitcoin and fake marketing campaigns to raise additional funds. It proved that the company used backers as tools to get funds and did not work on the idea to respect backers' supports.

2.2 Rights approach - iBackPack violated backers’ privacy and safety

Social Contract Theory (Kimmel et al., 2011) indicates that an implicit contract exists between the state and/or organisations and individuals or groups regarding rights and responsibilities as a member of society. Today, people understand rights as socially constructed and as constant work-in-progress. There is a wide range of business and human rights standards to refer to.

According to the American Marketing Association (2020), a marketing campaigner needs to protect the private information of customers, employees and partners. However, iBackPack sold backers' data, leaving backers with unexpected marketing communications (FTC, 2019). As privacy and safety are legally binding entitlements that are granted unconditionally, iBackPack violated backers' rights without respect, including allegedly threatening backers. The founder of iBackPack even told one customer that he knew where they lived and had their personal information (FTC, 2019).

3. Materiality Analysis

3.1. Stakeholder analysis – the stakeholders affected by iBackPack scam

IBackPack: There's always a chance of losing money when it comes to all kinds of investment. Crowdfunding is a form of financing, and with it comes risks of fraud. The notorious crowdfunded companies raise as many funds as possible and run to cause deception. IBackPack seems to have done the same with fake updates on digital marketing channels and sold customers' data to gain profits from backers on Indiegogo (2015) and Kickstarter (2017). IBackPack has betrayed the trust of its backers and cannot crowdfund again due to FTC's permanent injunction, and it is not possible to seek investment from angels or VCs (FTC, 2019). That is the bad influence iBackPack brings to the company itself.

Backers: IBackPack on Indiegogo (2015) and Kickstarter (2017) still exists and has been inundated with 4,133 comments from angry backers. One recent comment said: "So tired of people taking advantage of those who contribute to their campaigns! It is now very rare that I participate in crowdfunding anymore. I have lost way too much this way!" Consumers have also voiced their disappointment requiring their money back, citing Kickstarter's terms of use. Kickstarter website indicates that project creators are required to fulfil all rewards of their successful fundraising campaigns or refund any Backer whose reward they do not or cannot fulfil. With kind hearts, backers want to support ideas to come to life with funds to the campaigners. In other words, they want products delivered but being deceived by iBackPack. Therefore, backers felt there was no respect and were being used as a tool by iBackPack, which was not fair for backers who spent money and invested passion in the campaign. In the short term, these backers would stop supporting crowdfunding campaigns due to the unpleasant experience.

Campaigners: Other campaigners seek crowdfunding funds would be influenced secondly. They need funds to finish the product prototype and deliver the products to the customers. With fewer backers to support funds, it is not fair for the ethical campaigners to take the blame for the bad reputation created by the iBackPack scam.

Indiegogo/Kickstarter: Indiegogo and Kickstarter create a platform for the transactions between campaigners and backers. In the long term, these crowdfunding platforms will gain fewer profits due to the most massive scandal caused by iBackPack. Eventually, shareholders may decide to lay off employees due to the brand crisis (The Verge, 2020).

FTC: The FTC seeks refunds for backers legally and gives a "permanent injunction" that would prevent iBackPack founder from ever using crowdfunding again (FTC, 2019). It shows that state and federal authorities want to catch crowdfunding fraud caused by fake digital marketing communications to offer justice, but under criticism from iBackPack crowdfunding loophole currently. Janet (2019) suggested that the crowdfunding industry needs law enforcement, including delivered product quality and product's harm to customers.

3.2 Recommendations – how iBackPack should do better to avoid scam

IBackPack: IBackPack should deliver products as promised ideally to avoid a crowdfunding scam, but they failed and vanished on digital marketing channels after getting funds. Backers felt scammed due to the lack of transparency and decided to bring iBackPack to the court.

It is crucial to run a crowdfunding campaign with in-time communication and high-level transparency. IBackPack should be honest about their business situations and production process while also maintaining consistent updates on social media and website. As for iBackPack's Indiegogo campaign updates, the company started with a loud voice and created tons of updates but fell off dramatically. The last updates have also been short, one sentence with embeds of YouTube videos that have since been removed. Eventually, iBackPack shut down its website, social media and corporate emails. The lack of communication scares the backers, who are the campaign's most prominent advocates.

The best-case scenario for iBackPack and its backers is that the company should finish and deliver its product no matter how delayed in the past. As the damage has been proved by FTC's investigation recently, iBackPack should return money to the backers rather than use the money for the personal purpose by the company's founder, which is illegal (FTC, 2019).

Indiegogo/Kickstarter: Kickstarter and Indiegogo may have started crowdfunding with good intentions to help dreamers, but crowdfunding campaigns like iBackPack failed to deliver promises. When it comes to utilitarianism approach, Indiegogo and Kickstarter should consider what the consequences of their inaction on backers' supports are, as discussed in the last section (Payne and Pressley, 2013). A recent comment on Indiegogo said, "I love that the FTC is suing you, and I hope they make Indiegogo just as guilty for letting this continue without protecting their customers." It shows that crowdfunding platforms should get involved to take responsibility for crowdfunding scam as well.

Discourse approach suggests companies need to include the people affected by their decision. Therefore, Indiegogo and Kickstarter should offer a certain percentage of refunds to iBackPack backers, and provide legal support in the process, rather than only support campaigners to gain platform fees and ignore backers’ contributions. As instrumentalist argument suggested, investing in ethics means short-term financial loss, but long-term gain in reputation. They cannot overlook backers' comments on social media and websites as well. It is vital to reply with support to save reputation and solve the PR crisis (Mitchell et al., 2010).

4. Conclusion

4.1 Opinion

The founder of iBackPack took a recent interview to claim that $800,000 isn't enough to warrant a scam, and his business failed outside of his control. He doesn't understand why the FTC and the backers are angry about iBackPack (the Verge, 2020). His statements proved how important for the company it is to establish ethical standards. Let's recap the pros and cons of the iBackPack digital crowdfunding marketing campaign.

On the one hand, iBackPack did advertise the backpack as the bag of people's dreams through high-quality videos on YouTube, strong-voice Facebook posts, and SEO friendly websites, which means the company did a successful digital marketing campaign. On the other hand, iBackPack failed to deliver products and ceased all digital communications after getting funds. At the same time, the founder of iBackPack used the money to buy bitcoins and other personal expenses rather than product development, which is both unethical and illegal. Deception always concentrates on marketing communications; over a long period, a vast majority of people have believed advertising was fake (Calfee and Ringold, 1994). Under the investigation of FTC, an irresponsible business with lies is on the lawsuit paper.

As discussed before, Indiegogo/Kickstarter need to take responsibility for the digital crowdfunding marketing fraud as well. Most of these harms don't happen because of bad intentions but lack of empathy, which means crowdfunding platforms need to put themselves into backers' shoes. On the one hand, they do offer a platform for entrepreneurs to raise money to work on brilliant ideas. On the other hand, they bring campaigns like iBackPack to backers without verifications, which is risky for all the stakeholders. They must seek refunds and legal supports for the backers.

4.2 Limitations

Due to limitations within the essay process concerning time, and resource constraints, these insights are not based on a representative study, but an explorative essay instead. It is essential to bear in mind that due to the very nature of critical literature review; these findings should be approached with caution as an improved knowledge to understand the ethical reasons and solutions behind digital crowdfunding marketing scam. The essay does not offer definitive results with quantitative or qualitative methods.

4.3 Further Research

There is a need to research which types of digital marketing ethical recourses would benefit all levels of marketer during marketing strategy and decision processes. It would also be helpful to research cross-cultural marketing ethics when it comes to the global crowdfunding market, rather than the American market only as of the standard. Last but not least, the author has the interest to apply ethical theories mentioned in the essay into the social marketing area, including deontological approach, rights approach, utilitarianism approach, and discourse approach, to examine how to change behaviours for good in the society (Lee and Kotler, 2015).