Peer Giving's Slow Climb to Sustainability
The latest edition of the Chronicle of Philanthropy provides an update on the philanthropic sector's top "peer giving" sites, and the prognosis appears to be that slow progress is being made toward having fees on each donation generate enough excess funds to cover the organization's full operating costs.
Peer giving is the name being given to the nonprofits that create Internet-based marketplaces that connect funds from donors with organizations or people in need.
Peer giving organizations are funded mostly by foundations like the Omidyar Network and the Kellogg Foundation and others that love the idea that the Internet effect can be brought to philanthropy and make peer giving self-sustaining over time. A secondary source of funding is transaction or administration fees charged for each donation made on-line.
Here the technology tail does not wag the dog because these sites require basic Internet "matching" functionality plus a bit of social networking capability, combined with an e-commerce function. However, the technology costs have not been insignificant because when most of the organizations that are highlighted in the article started several years ago, such software functionality was not off-the-shelf like it is today.
Yet the real cost to peer giving is in building a critical mass of users, in particular donors, and donation flow. Whether these organizations charge administrative fees or how much those fees are, which is the thrust of the article, is somewhat academic. The answer the article gives is that most peer giving organizations feel that charging any kind of administration fees or even just enough to cover direct costs will turn donors off and impede progress toward gaining a critical mass of users and triggering the Internet effect for philanthropy. The question is academic because these fees are nowhere near covering the organization's costs.
There are more fundamental questions to be asked about peer giving. The first is: Why is it taking so long for these organizations to get an Internet effect? It is not for lack of quality or effort -- anyone will tell you that two of the coolest nonprofits in the country are GlobalGiving and DonorsChoose, with great people, great product, great technology, etc. It's not about pricing -- many of these sites provide free transactions and research shows donors feel pricing is down the list of priorities behind engagement and other key factors.
The second and crucially important question is: Will foundations stay the course of providing operating support funding to allow peer giving organizations time to flourish? Realistically, until they know the answer to the first question, foundations perceive these as risky grants that as each year goes by are less "new" and "cool."
It took AOL ten years before it became "an overnight sensation," according to Steve Case. Is it just a matter of time for these peer giving organizations and is success right around the corner? And will funders keep them afloat to get them there? We'd love to hear our reader's views.