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Point, Click, Give: Internet Fuels Philanthropic Fundraising Revolution
Quick. What does the word philanthropy conjure up? Large foundations? Well-heeled patrons? Reams of direct mail? How about nimble start-ups, passionate entrepreneurs, and powerful technology? Thats the new world of philanthropy, one the Internet is fast transforming.
Leading the shake-up is a host of Web-based social enterprises (WEBSEs): nonprofit information hubs, online giving directories, click-to-donate sites, workplace-giving centers, charity shopping malls and auctions, and volunteer clearinghouses. These start-ups are mobilizing philanthropic funds in entirely new ways, according to The e-Philanthropy Revolution, a recent working paper by HBS professor James E. Austin. His study of more than 150 WEBSEs illuminates the dynamics, challenges, and strategies of this nascent industry that links potential donors to good causes.
While both for-profit (dot-com) and nonprofit (dot-org) WEBSEs populate e-philanthropy, Austin found that dot-coms dominate. They can more readily attract the venture capital and technical talent vital to Internet companies. Imagine a start-up dot-org asking a major foundation for $35 million, one entrepreneur explained. Absolutely not.
WEBSEs confront several hurdles besides raising money. To channel donations, many need to create links to nonprofits and often face mistrust. Some dot-com CEOs said they were perceived as Internet robber barons, out to take advantage of the nonprofit community. WEBSEs must also contend with weak Internet infrastructures common in nonprofits, as well as frequent culture clashes. Eight months in nonprofit time is about a morning in Internet time, one Web executive noted. Technical challenges, such as incorporating a charitable aspect into e-commerce transactions, and legal issues further complicate many WEBSE business models.
To succeed, Austin argues, WEBSEs must execute effective strategies in three key areas. For driving traffic to the site, he uncovered two primary models: WEBSEs can generate the traffic themselves, or individual nonprofits can assume that responsibility. The charity shopping mall GreaterGood.com, for example, uses traditional advertising to draw visitors to its site. Charity mall iGive.com, in contrast, relies on its nonprofits to publicize its fundraising opportunities. Most WEBSEs use some combination of the two approaches.
The second strategic issue involves the size of the database the WEBSE offers users. Whether a WEBSE is operating an online giving directory, workplace-giving center, or any other transaction-based service, it must decide how many nonprofits will be eligible for the service. Some, such as the AOL Time Warner Foundations Helping.org, use the entire IRS database of almost 700,000 nonprofits. Its leaders believe this strategy helps democratize the giving process. Others, such as Working Assets, include a much smaller number of organizations.
How to capture revenue is the final strategic issue. Austin outlines five revenue models: transaction fees, advertising fees, application services fees, partnering revenue, and cross-subsidization (using revenue from selling applications to subsidize other components of the business). This is often the most difficult aspect of e-philanthropy; Austin unearthed only one WEBSE earning a profit.
Given all the challenges, what motivates the e-philanthropy entrepreneurs? Dot-com creators relish the business opportunity but are also energized by the social purpose of their enterprises. Ive never worked at a place more passionate about doing good, reported an iGive executive. Its incredibly refreshing.
Many also believe their enterprises can achieve greater good as for-profits. Rea Callender, a former schoolteacher who cofounded Schoolpop.com, a charity mall for K12 schools, concurs. The company has raised $50 million and snagged Readers Digest Association, Inc., as an investor. As a nonprofit, I think wed be in fifty schools in Silicon Valley versus fifty thousand schools across the country, he said.
WEBSE efforts are paying off. Austin reports that they are connecting donors and nonprofits more effectively, increasing access to information, and making giving easier. WEBSEs are also leveling the field between brand-name and smaller nonprofits. Nonetheless, dot-coms in the philanthropic space are experiencing the same downturn as their Internet counterparts on the commercial side. About forty have closed or merged during the last year, and Austin expects further consolidation as capital becomes even scarcer. Yet, he notes, thirteen new ventures have emerged during the same time period. These e-philanthropy enterprises have irreversibly altered the landscape, he says. Ultimately, they have the potential to stimulate more giving.
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