I agree with you. When a product or working prototype, it gives more confidence in the successful completion of the project. After all, before the ICO to create a prototype, the company worked and found investments, it means that it really works, has experience, knows the weak points of the project and will overcome them.
ICO without product are like a scam
I think the reason behind it is the fact that there is a product that will be bought rather than just investing in an idea. People like seeing tangible things or products that have specific use. I think another consideratio is if the product being promoted in the ICO is a new product or at least an improved one because if it has been there before, then the market that would support it would be less, especially if there is nothing special about it.