Thursday, January 31, 2008

Underdogs winning America's Challenge

Here is a nice article from Stephanie Strom in today's NY Times about the dynamics behind the America's Giving Challenge. Strom notes that "Fledgling charities...are among the leading contenders for prizes in an experimental online fund-raising contest."

The Challenge is backed by Case Foundation and Parade Magazine, and is being run by GlobalGiving, Network For Good, and Facebook. The Challenge, which ends at 3 pm today, is awarding prizes to those causes that can mobilize the largest number of online donors.

Strom points out that smaller (often newer) organizations are often outmaneuvering the larger, more established organizations, with much better results. For example, Amnesty International had raised only $540 as of Wednesday, while a group of former Peace Corps Volunteers called Friends of Burkina Faso had raised over $21,000 from over 1,300 donors. Atlas Service Corps, another new group, is at the same level, and a few other small groups have mobilized even more donors and money. Even a UNC student has raised over $6,000 from 380 donors for scholarships for Latino students.

The point is not that the smaller groups are necessarily better than the larger, more established groups. The point is that this online giving Challenge is leveling the playing field for all concerned, including the underdogs. The underdogs include international groups, which have typically received only a small portion of philanthropy. They are doing exceptionally well in the Challenge relative to their traditional share of the pie.

Well functioning online giving marketplaces create a more level playing field by reducing the marginal cost of marketing well below the costs of direct mail and other traditional methods, and by increasing transparency about where the money is going and the impact it makes.

This is an important development in the non-profit sector, which has been characterized by sluggish innovation in the past. As I noted in an earlier post:
The non-profit sector faces a number of challenges that both inhibit growth and impede allocation of resources to their best use. Consider the following. Of the Fortune 500 companies that started among the top ten in 1990, only three remained in the top ten by the end of the decade. Open competition meant that successful newcomers displaced the rest.

But in the non-profit sector, the picture was reversed. Seven out of the top ten non-profits not only stayed in the top ten but increased their share of the market during the decade. So much for competition! And according to Jed Emerson and Paul Carrtar, only 6% of non-profits accounted for four fifths of all revenues in the sector.