Reminder: the initial budget secured was supposed to be for Act 1 & 2. Not just Act 1.
I personally liked Act 1 (even if the puzzles were a tad simple) and I'm really looking forward to the Act 2.
Now, I personally see backing on Kickstarter as Patronage. I'm giving money to artists because I like what they've done in the past or because I think that they should do well but I'm not looking on a return of investment. For me, I'm giving money in order to support arts that I like and in the hope that more of the kind of arts that I like is produced but I fully acknowledge the risks and the fact that I'm paying a lot more as a backer than if I just waited to pick up the game on sale a few month later.
When they got ten times as much funding, it came along with hundred times larger expectations which caused the scope to grow a hundredfold equivalently. Tim's fear to meet those expectations caused him to make the game he wanted and knew people expected instead of the one he pitched. Scope grew to include hand-painted art, professional voice overs, orchestral music score, and a much larger team for a longer time so they could make a longer, more polished game. On the first few documentary episodes their struggle to match perceived expectations with the actual budget is clear, and the wishful thinking on estimates and plans also clear in hindsight.
All this because it turns out that, after all, $3M is not a large budget for a triple-A game, specially when you remove kickstarter and amazon's processing fees, rewards costs and shipping, and the costs of the documentary. Consider a team of developers, designers, artists and animators that are needed to build such game, each costing a conservative estimate of US$100k+/year to the company, then add all external assets and services. The burn rate is big for a project on that scope.
All in all, I'm fairly happy on how it turned out so far, and looking forward to part 2. I back independent games on Kickstarter to encourage the shift on the stagnant producer-driven market and don't treat it as a pre-order. Broken Age turned out to be one of the better ones I got (Book of Unwritten Tales 2, Wasteland 2 and Shadowrun Returns were the best ones, Takedown was probably the worst, glad I skipped on Clang).
In fact, I think the documentary alone is worth the $30 I dropped in the pledge. If you haven't seen it, it's available for purchase for $10 and they started releasing episodes publicly for free recently: https://www.youtube.com/playlist?list=PLIhLvue17Sd7F6pU2ByRR...
If software development or game design are things that interest you, go see it now, it's very good.
Basically, they shifted the risk of the game never being finished from themselves and their investors onto their customers, and their customers got shafted and ended up paying money for a game that was abandoned, unfinished, in a state that was apparently really unfun to play because there just wasn't much to do.
I haven't played the game, so I can't judge each side merits on the controversy, but it seems to me that a major issue were people expectations of Steam's Early Access model. You are buying an unfinished game, under development, to fund it. It's not a pre-order. It's not a model Double Fine created, they just experimented with it using DF-9.
People seem to expect from this model frequent releases with shiny new content for an indefinite amount of time. The most popular early access games deliver on that, with a release date that never comes and frequent patches that don't necessarily have the goal to finish or polish the game for release but always adding new things.
Failure and the game being cancelled should be an outcome expected from this model, as well as from the Kickstarter model. A game being released that don't meet your expectations is another, and it should be factored in your decision of buying a game that's under early development.
It's a bit more complicated than that. The biggest outrage doesn't stem from their half-assed "release" (which in itself feels more like an attempt to cash in on a failed project) but from their lack of transparency with regard to the project's funding.
As a consumer the funding appeared to work a bit like this: they got some initial investment to get them to a proof-of-concept demo they could put on Kickstarter; they then raised a large sum of money via crowdfunding on Kickstarter; then they put the game on Steam Early Access for some additional funding to carry the project for the last mile.
Going by the various analyses posted after the cancellation/release, it seems the actual funding worked like this: they secured an initial investment to create a something they could advertise on Kickstarter; they then used the Kickstarter money to pay back the initial investment, effectively putting their balance at zero; then they released the game on Steam Early Access to fully fund the ongoing development of the game; the sales didn't work out as they expected, so they effectively ran out of money and were forced to terminate the project.
So basically from most players' point of view their balance during the Early Access phase looked like this: initial funding + Kickstarter money + Steam sales. But in effect, it actually worked out like this: Kickstarter money - initial funding + Steam sales. The crowdfunding didn't fund the game, it paid back the initial investment. Very few players were aware that Doublefine entirely relied on the monthly Early Access sales numbers to keep the project alive (and that those sales numbers weren't even remotely close to the actual money they burned through at that time).
As for the so-called "release", the game was at alpha stage before it was canned. A lot of the originally planned gameplay hadn't yet been implemented and the features that were already there often suffered from game-breaking bugs. The final update was mostly a last-ditch attempt to weed out some of the bugs and make the game appear less obviously unfinished.
Personally, I think the game is a victim of mismanagement and overconfidence. Doublefine's other games have mostly been extremely successful and well-received. They are known to pay a lot of attention to detail and generally deliver a very polished style. But they treated DF-9 the same despite it being an entirely different genre.
DF-9 was very visually polished from the early Kickstarter onward. Most of its problems are in AI and the simulation aspects of the game. It tried to be a space sim / construction / management game but instead seems to have spent a lot of resources on graphics. This is even more obvious if you compare it with successful crowdfunded games in related genres like Rimworld or Prison Architect. These games have very rudimentary graphics but the actual gameplay (i.e. AI and simulation aspects of the game) was much more powerful at a much earlier stage.
Additionally, the project seems to have been much more expensive. The Early Access sales had to pay for the regular full-time salary of each employee working on the project. This means the project had a very large fixed monthly cost the sales had to cover entirely. Solo developers can try to cut their expenses to accommodate bad sales, established employees need to be able to expect being paid a consistent salary.
DoubleFine is still considered an indie developer. But it's important to understand that it no longer operates like one. It's a business with employees and project teams. Rimworld (Ludeon Studios) is effectively developed by one guy. Prison Architect (Introversion Software) was initially developed mostly by one guy. Minecraft (Mojang) was initially developed by one guy. In each of these cases that one person wasn't an employee assigned to the project by a company that paid him a salary, it was the founder or a co-founder of the company itself. Actual employees (with fixed salaries) would only come into it fairly late into the development (I think Ludeon Studios still is a single person).
There was a kickstarter for Massive Chalice but that's a different game.
What I seem to find is that the first two weeks of sale on Early Access sales paid for the investment [1], which may be what you are thinking about.
Anyway, I agree with your final point - in this model sales must pay for the salary of the team working on the project plus additional development costs, and that's much easier when you are a single indie developer. Double Fine seems to be too big for that.
I still maintain my position that, if you're paying to get in the alpha of a game, you should be prepared if it develops to be of a different genre of what you are expecting, if it focuses on different things, if it's cancelled, or if it's simply bad. You can get frustrated, sure, but not surprised.
[1] http://indie-fund.com/2013/11/spacebase-df-9-recoups-investm...
I only became aware of DF-9 when it had already been on Steam for a while, so I am basing most of this on what I have heard from those who were there at the start.
The Kickstarter thing seems to be a conflation of the first two weeks on Early Access thing you mentioned and DF having done at least one Kickstarter for an unrelated project in the same timeframe.