Special Report: Tsunami Put Donor Management Software To The Test

September 1, 2005       Ted Needleman      

It has been an interesting year in the donor management software market. For many of the vendors who sell donor management software, the big news this last year wasn’t a new technology. Rather, it was a tragedy — the tsunami that devastated large areas around the Indian Ocean and killed thousands of people.

Response to this tragic event was both instantaneous and worldwide. The increased worldwide penetration of the Internet made it easy for caring people and organizations to pitch in, regardless of their location or time zone.

Dan Germain, vice president of product management at Sage Software in Austin, Texas, sees the response as a good thing for the nonprofit market as a whole. “Our customer base at large is reporting increased donations overall,” he said. “I think the tsunami probably was the catalyst event to get people who had become a little shy about donating the past two or three years as a result of world events and current economic slowdown. I think they are coming back to the table.”

Sage’s Senior Vice President Marc Griffin concurred with Germain and added, “The challenge that has been given the fundraising community is that they have that opportunity, now how do they address it? How do they make it easy for the person that wants to donate?”

The Internet has dramatically expanded the quantity and quality of impressions nonprofits can have with donors, volunteers, and even employees. “The dramatic outpouring of support in response to the tsunami provided a tremendous example of how organizations are more prepared to receive online gifts,” according to Robert J. Sywolski, CEO at Blackbaud, in Charleston, S.C.

“But online donations are only a part of the picture — albeit a highly measurable one,” Sywolski continued. “I would argue that some of the most interesting advances have been in the dramatic increase in the use of the Web for advocacy and personalized relationship building.”

According to Harry Gruber, chief executive officer and co-founder of San Diego-based Kintera, it is important that the nonprofit have the ability to react quickly and take advantage of the giving impulse. Not all software and organizations are set up to actually accept large donations on a fast basis. “[The donor] wants that instant gratification and giving,” he said.

Gruber noted that in some cases, the procedures of the receiving organization separate the name of the donor from the amount for security reasons. “The accounting department is sitting there with two million dollars for a gift, and they don’t know who it is from until the donor calls up anxiously wanting to make sure the organization received it and angry because the receiving organization hadn’t called to thank him.”

The communications enhancing potential of the Web and donor management is vast, according to Sarah Hoddinott, product marketing manager for Advanced Solutions International in Alexandria, Va. “The expansion of social networking online using tools such as blogging and podcasting provides nonprofits with a good tool to reach both their donors and constituents,” she said.

In-house or Web-based

The increasing pervasiveness of the Web, coupled with a growing base of broadband adoption by nonprofits, is having another effect on the industry. Many of the vendors are moving to supply their software in both in-house and hosted solutions. Of course, vendors such as Kintera and eTapestry, which are strictly Web-based, have been touting the benefits of providing access to software over the net for years.

One of the less obvious benefits of a nonprofit selecting a hosted solution was pointed out by Indianapolis-based eTapestry’s President and CEO Jay Love. “When the software is running on our servers, with the client’s permission, we can work alongside of them. This lets us guide them through operations that they may be having trouble understanding, and is terrific when on a support call. If they are having a problem, we can see it as it occurs and many times show the client the solution running their own data. We like to think of the process as collaborative support.”

Both in-house and Web-based solutions have their supporters. Those vendors that are entirely Web-based tend to emphasize only the benefits of hosted solutions. Other vendors, such as Advanced Solutions’ Hoddinott, see both approaches as having pluses and minuses.

“Most of our customers prefer to run their system in-house, since they are concerned about the ownership of the most valuable asset, their housefile (names in their database). Those that prefer to have a hosted system feel that it is an easier implementation since they do not need to maintain and support the infrastructure required to run their own in-house solution.”

Jay Malik, president and CEO of Serenic Software in Lakewood, Colo., is also split on the subject. While Serenic will eventually offer an ASP solution, it currently does not. “We are currently focusing on mid-to-large nonprofits where the customer is not asking for ASP models. These customers can also accrue major operational efficiencies by implementing a donor product which is tightly integrated with their financial solution,” Malik said.

Perhaps the big news in the industry this year isn’t really news at all. Software and other applications for the nonprofit segment of the market tend to lag behind other market segments. It’s a Catch 22 — nonprofits are often slow to adopt new technology, so software vendors are hesitant about spending the development time and money to implement the newest technology into current products.

That might be changing, according to Jon Biedermann, vice president of DonorPerfect Online by SofterWare in Fort Washington, Pa. “Everything has started to get mainstream. With this industry, there is a lag time effect for people to adopt something as basic as email,” said Biedermann. “I think we’ve seen that in the nonprofit area, it’s not just the organizations, but the donors themselves who are getting up to speed and are more comfortable using the Internet tools. These are the more advanced tools that for-profit businesses sector have been relying on for the last five or six years.”

If that observation proves to be true, the next year or two will be interesting. The donor management software industry appears to be ready to take advantage of the current advanced state of technology, and in many cases have implemented this technology in the form of integrated email and even XML formatting of reports.

Bringing smaller nonprofits into the technology fold

Another area of intense interest on the part of vendors is reaching the smaller nonprofits. The Internal Revenue Service (IRS) has more than 1.8 million organizations with exempt status. Many of these are very small, with technology budgets to match. The situation is further complicated by a lack of formal IT staff in many of these nonprofits.

Even though many of these possible consumers of donor management technology are initially unprofitable, largely due to limited budgets and more extensive support needs, they still represent a large untapped and attractive market. Many vendors are reaching out to these smaller nonprofits with the idea that while they may initially be unprofitable, by using donor management and fundraising software effectively, there is a definite potential that they will grow into a loyal and profitable customer.

Vendors take different approaches to this group of potential customers. In some cases, smaller nonprofits get preferential pricing to enable them to afford the product and get started using the technology. For example, eTapestry lets nonprofits use its software for free, as long as the number of donor records remains less than 500. As the donor record base grows, so does the monthly charge for its Web-based application.

“We’re proud when we get to start charging a formerly ‘free’ client,” Love said. “And the clients don’t mind a bit, because the software has let them grow the donor side of their operation to the point where they are not only happy to pay for the technology, but able to pay.”

eTapestry also participates in the TechSoup.org Stockroom program, which gives it great exposure to the nonprofit segment it wants to reach. Blackbaud has participated in TechSoup.org in the past. Some other vendors, including DonorPerfect, are in discussions with TechSoup to offer reduced price versions of their applications. Campagne Associates in Manchester, N.H., has participated in TechSoup’s TechFinder program in the past, and is investigating again participating in the program.

Some vendors are concerned with the amount and level of support that often is required at the very entry-level. With TechSoup’s vendor contributed offerings usually provided for a minimal administration fee, there’s the potential for participation turning into a substantial resource drain for a well-meaning vendor.

While TechSoup.org is of increasing interest, it’s not the only initiative that vendors are pursuing to make the technology more financially accessible. Many of the software vendors are trying to appeal to smaller nonprofits with a preferred pricing structure.

Kintera offers usage-based pricing in addition to its other pricing schedules. “We have some programs that are basically just transaction-based. You can use the tools, and if you raise money, great. If you don’t raise money, you don’t pay us anything,” Gruber said.

Special financing programs are another way vendors are helping nonprofits afford technology. For example, while Sage’s donor management software starts at $2,900, the vendor has partnered with American Express to help a nonprofit finance the purchase and support fees with zero percent financing. Campagne Associates also offers a zero interest financing program. “They can pay for it on a monthly basis for $59 to $79 dollars a month, depending on the length of time they want to take to pay. That allows them to get started without having to put that $1,800 cost up front,” Campagne’s co-founder Craig Ahlquist said.

Advanced Solutions also offers special pricing promotion for smaller nonprofits and is undertaking a different tack, as well. “We are launching a Web template gallery for not-for-profits that wish to extend their business online,” said ASI’s Hoddinott. “The template gallery offers a series of design templates so that an organization does not have to go through a lengthy and expensive design process.”

Even high-end Serenic Software has plans to help smaller nonprofits reap the benefits of technology. “As Navision (the software base on which Serenic is built) releases their three-tier, thin client technology next year, we will be able to deploy all our functionality using ASP (Application Service Provider) models to help service smaller organizations,” Malik said. “The ASP model will use subscription and user-based pricing models to make the applications more affordable.”

DonorPerfect’s Executive Vice President Frank Chudnow sees another approach to bringing smaller nonprofits to the table — reducing the costs of dealing with them. “We are getting requests from nonprofits all over the world, and we’re using the same [Internet] technology to respond to our prospects that our customers are using to respond to their donors,” he said. “The key for us is being able to deliver meaningful services to the organization and still remain profitable. Part of the way we are hoping to achieve that is by providing a much more automated purchase, support and training process utilizing a lot of these tools we have available on the Web.”

Come together, right now

One area where for-profit business applications still excel is in highly integrated suites. This is starting to change in the nonprofit market as more vendors expand their offerings. Many already provide tightly integrated accounting and fundraising suites, and some vendors which do not currently offer such a suite are moving in that direction.

Other vendors take a “best of breed” approach, preferring to offer software only in areas where they feel comfortable in their expertise. eTapestry “plays well with others” but currently provides only the donor management/ fundraising aspects online. eTapestry’s Love put it succinctly, “We do this really well, and for at least the moment, we’ll stick with what we know.”

For other vendors, a complete suite is in the works. Kintera’s purchase of Fundware from Intuit provided them with an accounting technology that they are in the process of rolling into their Web solution. Still, until this suite is ready, Kintera is committed to providing data sharing with other vendors’ accounting offerings.

Having a complete integrated suite of applications to offer a nonprofit customer provides a benefit beyond data sharing. As Campagne Associates’ Ahlquist put it, “I think another big benefit is unified support, or said differently, working with one vendor. We’ve all heard the nightmare stories — you call one vendor for support and they send you to the other vendor. It just becomes a finger pointing contest. Dealing with one vendor makes life much easier.”

A different take on exactly what integration means to the nonprofit is pointed out by DonorPerfect’s Chudnow. He emphasized that implementing a donor management application shouldn’t require a nonprofit to abandon the existing applications, such as a Web site, that they have already invested a lot of time, effort, and money in. “If the Web site has been serving the nonprofit so well, why should they have to completely scrap it to get integration [with other applications] when we can offer the integration as a tool?” he asked.

No crystal ball

Another area where the donor software market is making some progress is in helping nonprofits predict and optimize gifts. It’s not magic, but rather integration of the donor management software with services offering wealth identification and other donor data. For example, Kintera recently released its PIN — Prospect Information Network. This application and service gets donor data from several services and provides a three-part score on a donor — Propensity (i.e.– do they give?), Affinity (interaction on an organization’s Web site and with the organization’s fundraisers), and Capacity (what are their liquid assets, income, real estate holdings, and the like?).

Business intelligence tools are another technology that many fundraisers find useful. These are essentially summaries of important ratios, events, and specific accounts. Many of these use the dashboard analogy—instead of a speedometer and gas gauge, the software’s “dashboard” displays data such as donor pledges that are overdue, and progress towards fund goals. These dashboards are becoming common in accounting software, and the technology is beginning to migrate over to the fundraising side.

While predictive modeling based on statistical analysis does not seem to be in the cards, some vendors do try and implement some analysis of donor behavior based on past actions. For instance, Campagne Associates has a “Prospect Rating System” that allows an organization to set up a series of rules and parameters. Donors are assigned numerical ratings based on these organization-decided rules, and as donors react in a positive or negative way, this information is fed to the development staff in the form of alerts about “Rising Stars” and “Falling Stars”, donors who have given more or less than in the past. The development staff can then use this data to thank those donors who have increased their donations, or to troubleshoot the reasons for reduced donations.

All of the experts we spoke with agreed on one thing — software is never going to take the place of a fundraiser who knows the donor, and can establish a good personal relationship. The best software and technology is that which supports and enhances this personal approach.

Where Does The Money Go?

While the prospect of Sarbanes-Oxley type legislation is hanging over the nonprofit community, it is having some fallout on the donor management software market, as well. In this case, it’s not the internal control aspects of SOX and proposed similar legislation, but the accountability issues. Just as corporate management is being held increasingly accountable for the proper recording and use of revenue and expenses, nonprofits are more frequently being monitored by donors who want to be sure that their gifts are being used for the programs they intend to fund, and not disappearing into general and administrative overhead.

Donor management software vendors are very aware of this push for increased transparency. “We issued a new white paper this year called Accountability Matters: Without the Public Trust Nonprofits Wouldn’t Exist,” said Blackbaud’s Sywolski. At the same time, DonorPerfect’s Chudnow, warned that the onus for transparency is entirely on the nonprofit organization, not the software vendor. “We feel it is our responsibility to offer our customers the tools so they can be compliant. We are not out there policing our customers, or enforcing any of this.”

Campagne Associates’ Ahlquist concurred with Chudnow. “How they make this data more transparent to their audience is up to them. The technology is in place. Our role is making sure that our clients have 100 percent safety and that all the information that they put forth is accurate.”

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