After accelerating for more than a year, digital philanthropy is braking for some bumps and shifting gears. Software-makers and Web services targeting charity have flooded the market, testing investors’ limits and making it tough for nonprofits to sort through competing vendors and products.

"There will be a shakeout in this industry and there will be a few survivors," said nonprofit tech advocate Marshall Mayer, a principal of the Philadelphia-based Technology Project, an arm of the Rockefeller Family Fund in New York City. "There will be a lot of consolidation. I don’t think a lot of the business models are sustainable."

Experts believe the shakeout will benefit nonprofits. E-philanthropy firms that survive, the experts said, will be those with solid products and services geared to their nonprofit customers’ needs.

E-philanthropy has been on a growth binge. In March, a report by the W.K. Kellogg Foundation in Battle Creek, Mich., identified at least 140 philanthropic Web sites and concluded that nonprofits and foundations alike had a lot of work to do to make productive use of the Web.

Now, however, like their e-commerce counterparts, e-philanthropy sites are finding that generating revenue on the Web requires heavy traffic, which in turn depends on enormous investments in marketing.

To avoid those heavy costs, some charity portal sites are revamping their business strategies. A key change that’s emerging is to back-pedal efforts to acquire visitors outright through marketing and instead to team up with groups that already have branded themselves on the Web.

Seattle-based Charitableway, for example, which raised $10 million to build its company, has moved its online fundraising focus from donors to charities and businesses that run workplace-giving campaigns.

The initial strategy didn’t work because charities that e-philanthropy firms teamed up with were not prepared to manage data about online donors, said Peter Mountanos, Charitableway’s chairman, CEO and founder. "Companies have started up to try to help charities do Internet fundraising," he said. "That will shake down because all of us were too early. The charities weren’t able to be a partner in that."

Internet and fundraising consultant Michael Johnston said the e-philanthropy industry simply is saturated, with few, if any, companies generating enough income to survive.

Many early players that have struggled to survive now could be targets of major firms in the financial software market that will "feed off the mistakes" of the first wave, said Johnston, president of Hewitt and Johnston Consultants in Toronto and author of The Fund Raiser’s Guide to the Internet and The Nonprofit Guide to the Internet.

A big change in the industry, he said, is the coming of "application service providers" that deliver software to nonprofit clients over the Web on a leased basis. Nonprofits also will be looking for online tools to help donors manage their wealth and make planned gifts, he said. "It’s going to be incredibly profitable and important for nonprofits online," he said.

E-philanthropy is a broad industry. Software products and Web services range from those that help donors find and contribute to charities to those that help nonprofits process transactions, make sense of data on donors and build relationships with them.

Jeff Hallett, vice president for strategy at AppNet, an e-commerce firm in Bethesda, Md., with a large nonprofit practice, said e-philanthropy, like e-commerce, has fielded more players than it can sustain.

"There’s a massive amount of learning going on," he said. "It’s just reflective of the extraordinary amount of innovation, creativity and competition. And, it does make it very confusing for the charities and the donors right now."

Jason Scott, managing director of Double Impact, a San Francisco-based Internet business consulting firm, said consolidation in e-philanthropy – as in e-commerce – reflects a "lemming mentality" among investors fearful of industry glut. The expected shakeout "will simplify the marketplace a little," he said. "It’s a complex marketplace now with constantly changing business models and pricing. It’s hard to tell who will still be around."

And, as in e-commerce, e-philanthropy is moving from a business-to-consumer model toward a business-to-business model. Consider Shop2Give as an example. Launched in November, 1998 as a charity mall that teamed up with retailers and nonprofits to generate contributions from online shoppers, the Los Angeles-based firm now has retooled.

"We don’t rely exclusively on shopping," said Ami Kassar, the firm’s founder and CEO.

Shop2Give, which secured investment of more than $2 million, now has developed a news and fundraising site — thecommunitysite.com – that it markets to local United Way affiliates. The company charges a one-time fee to local United Ways – the affiliate in Rochester, N.Y., is its first customer – and expects to generate the bulk of its revenue from monthly fees charged to corporate sponsors.

"The shopping businesses that rely exclusively on shopping revenue, in my opinion, are not sustainable," said Kassar. "All we’re doing here is broadening the scope and reach of our business so we can ultimately service the nonprofit world better.

Nonprofit tech experts are hopeful that the e-philanthropy shakeout will result in solid choices for nonprofits and donors alike. But they caution that nonprofits must work harder to learn to use technology, while e-philanthropy firms must pay closer attention to the needs of nonprofits and donors.

"The upside is that talent and resources are being focused at a community that traditionally has not necessarily been served, or had adequate access to technical talent and resources," said Rob Stuart, managing partner of the Technology Project.

"The downside is that the community being served may or may not be ready to utilize those services, and the services that are coming forth may or may not be grounded in what the community needs."

Hallett of AppNet said e-philanthropy will evolve through "survival of the most useful." In five years, the philanthropic community "will be served the way the investor community is served," he said.

"The current and potential audience of philanthropists and individual donors," he said, "will just find it very natural and very easy to be a more active philanthropist using Internet-based tools as part of what they do."

 

Todd Cohen is editor and publisher of Nonprofitxpress, an online newspaper at www.npxpress.com. His email address is [email protected]