How NPOs Can Use Internet Technology to Earn Revenue, Part 4

6. Customer Relationship Management Software--for Donors, Activists, and Clients

What It Is

Among nonprofits, Customer Relationship Management ( CRM) software might more aptly be called "client" or "stakeholder" relationship management software. CRM software can help organizations track and manage relationships with external customers and vendors--funders, members, partner organizations, government agencies--by integrating reporting, communications, membership, programs, and service delivery throughout an organization's functional areas. CRM tools basically help organizations extract meaningful information from their databases and design communications to best motivate those people to act--to renew their credit card, make a donation, email Congress, or go to their follow-up appointment with their case worker.

Who's Doing It?

Customer Relationship Management (CRM) software has long been a significant business application. The Internet and email have given the sector a shot in the arm. As the Internet made it easier for consumers to switch their loyalties, it has become more important than ever for businesses to retain existing retail customers. The same goes for B2B customers. The relative transparency of pricing on the Internet means that vendors must rely on quality of service and strong relationships to keep their business customers happy.

The CRM market is huge. CRM was a $19.9 billion market last year and is expected to reach $64.3 billion by 2005. Market leaders include Siebel Systems, Oracle, Peoplesoft, Vignette, and Broadvision. The Internet created demand for CRM solutions that integrated email and other features that would allow businesses to better serve their customers through the Internet. Some of the big winners in the online CRM market include e.Piphany, Kana Communications, and eGain. As businesses move to integrate their customer service, the traditional players are adding "e" to CRM services in anticipation of the growth of the market.

Most of the ill-fated Internet business start-ups, initially launched as charity portals for consumers, are now CRM tools for managing donors and activists. According to the Kellogg Foundation's ePhillanthropy v 2.001 report, there are still many small e-philanthropy sites attempting to be either charity portals or providing online fundraising tools, but the more ambitious models like CharitableWay and GreaterGood and have gone out of business or have been sold. Convio, a venture capital backed start-up, is developing CRM software specifically for nonprofits. Etapestry and Kintera are another pair of privately financed companies in the same market, and there are many small businesses that provide limited or spec tools for social service agencies to better manage and track their clients.

Nonprofit Innovators

The closest example of a pure nonprofit CRM software model is ebase, a free database program from the nonprofit TechRocks, which facilitates every thing from grant reporting, to communications, to online activism, to membership. Get Active, mentioned earlier as an ASP, provides CRM technology for membership organizations and advocacy groups. Foothold Technology, another ASP, is developing CRM applications for tracking clients of a nonprofit or government agency.

The Upside

The CRM opportunity in the nonprofit sector appears to be enormous, though the market is littered with failed e-philanthropy tools. Yet, every nonprofit has (or needs) a database, and almost no nonprofits know how to effectively extract value from that database, whether it is for tracking social service clients or inspiring a constituency to action. Since it does not appear that there is going to be significant commercial investment around nonprofit-specific CRM anytime in the near future, there may be significant opportunities for a nonprofit or nonprofit spin-out take advantage of opportunities in areas like client tracking systems for social service and government agencies. Effective CRM technology could streamline social service delivery, document client data, and generate better advocacy tools for advocates and government agencies.

The Risks

There's going to be lots of competition once big businesses realize there is money to be made in the nonprofit sector. The few online fundraising companies that survived are still trying to expand their modestly successful fundraising tools into full-blown CRM applications. And smaller start-ups like Get Active--which has half a dozen strong competitors including Grassroots/Issue Dynamics, Capitol Associates, and CTSG--have solid products that seem to be getting market traction by pursuing niche markets like advocacy online. For-profits now targeting the small-business market will likely adapt their products to the independent sector over the next few years. The market for CRM in the social service arena is highly fragmented and serviced by many small, existing software providers, which will likely lead to lots of competition and marketplace confusion.

The Bottom Line

There are currently no nonprofits or businesses that have taken an online client tracking system to scale, though there are several nonprofit spin out businesses trying to do so. Given the potentially stiff competition--and potentially high rewards--this is a market for nonprofits with ample capital and ambition. There is likely an opportunity for a nonprofit to develop lower end products and sell them at a discounted rates in markets for-profits have overlooked.

7. Online Training and Education

What It Is

This huge market encompasses training, technical assistance, professional development, and education--all delivered through the Internet. Recipients could include social service clients, nonprofit staff, commercial customers, students, adult learners, schools of all types--and so on. The two largest market clusters for nonprofits are K-12 education and professional training for nonprofit organizations themselves.

Who's Doing It?

Some say the biggest potential market for nonprofits using the Internet is online training and learning. The market for corporate training and traditional education is enormous. The education market--including K-12, college education, and corporate training--is estimated at $800 billion a year, or eight percent of GDP. This market is almost entirely dominated by commercial enterprises. The K-12 market is being aggressively targeted by businesses large and small. Major players include commercial publishing houses like Pearson PLC, Harcourt (recently acquired by Reed Elsevier), and Scholastic; life-long education businesses like Sylvan, Kaplan, and Princeton Review; and start-ups of all shapes and sizes. The professional development market is likewise filled with commercial businesses, many of which are adapting existing e-learning platforms for the nonprofit sector.

A recent analysis of the e-learning market by technology magazine Red Herring noted that "firms aimed at the K-12 market face a number of problems, including public school bureaucracy, long sales cycles, and low price points. Many K-12 businesses were built around portals for parents, students and teachers, which means an advertising based revenue model, which these days means not enough revenue." Instead, analysts point to the corporate training as the real market opportunity. "Corporate training (i.e., marketing courses to companies that want to upgrade workers skills) is e-Learning's fastest growing segment, estimated to teach $23 billion in 2005," the article states. Goldman Sachs reports that in 2000, 198 private e-learning companies received more than $3 billion in venture capital. Corporate e-learning businesses collected 41 percent of that, and companies focused on higher education received the next highest sum.

The potential of the nonprofit market will likely be tapped first by one of several public companies such as Digital Think, Saba, or SmartForce, all of which currently serve the corporate e-learning market. As broadband access becomes cheaper and more widespread, these businesses are likely to switch their attention to the K-12 market and the independent sector. And for good reason: in an economic slowdown, education is a far more dependable source of revenue than most commercial markets. In the meantime, dozens of for-profit start-ups are targeting the technology needs of the K-12 market.

Nonprofit Innovators

Unbelievably, almost no nonprofits are pursuing online learning. Few of the nonprofit technical assistance organizations offer online learning, and even fewer social service organizations--from mediation centers, to youth development organizations, to literacy groups--are attempting to deliver their curriculum online. One of the few exceptions is Compass Point, a California nonprofit training and technical assistance organization that is working with a start-up business called Smarterorg to deliver online courses in nonprofit management.

Several nonprofits have spun out or participated in for-profit efforts. Fathom seeks to bring Columbia University's coursework online, one of many efforts by institutions of higher education to license educational content or partner with business to generate additional Internet-based revenues. Jump Start for Children spun out a for-profit called School Success, which developed tools for parents to track their children's learning. School Success was recently sold to the Learning Network for an undisclosed amount, but it was not a financial success for Jump Start.

The Upside

The huge and growing E-Learning market holds significant opportunity for nonprofits targeting the K-12 market and independent sector. While competition from start-up and established businesses is emerging rapidly, nonprofits may be able to carve a space for themselves, most likely by moving educational programs for constituents online, or by delivering training and technical assistance to the independent sector. Nonprofits may also consider partnering with for-profit businesses. Businesses like Digital Think (which has partnered with Smarterorg) and Smartforce (which has partnered with One Economy) don't yet have independent sector specific coursework and often have difficulty gaining access to the nonprofit market.

The Risks

Unlike their counterparts in the corporate world, most nonprofits lack the financial resources and technology infrastructure needed to develop an online training business. It's expensive to build and manage the technology. If a nonprofit social enterprise is going to compete in the K-12 market, it must have an extraordinary product and significant capital to gain market share from the publishers, education companies and private equity funded start-ups.

As importantly, it's still hard for many in the sector to distinguish from online reading--posting articles and curriculum online--and real online training and education--courses that are designed and delivered online. Since many buyers won't know the difference, sellers of real (and costly) online training and education might find that the market is not ready to pay for its products.

The Bottom Line

Any nonprofit organization pursuing a scalable business model in these markets will have to develop a profitable business model or raise enough capital to compete with bigger players. More realistically, nonprofits will partner with these for-profit competitors. But for social service agencies, organizations serving local schools, and nonprofit technical assistance providers, e-learning holds enormous potential--if they can find the capital necessary to move their courses and curriculum online. The best opportunities for building scalable businesses lie in partnering with successful corporate e-learning companies, helping them to adapt corporate executive training models for nonprofit executives.

Conclusion

The Internet has changed the way Americans live and work, and it will have as dramatic an impact on how nonprofits operate. While littered with obstacles, there are pathways for some Internet driven social enterprises to earn revenue for their organizations. We hope this report will help you evaluate which ones will succeed, make some existing efforts more successful, and perhaps save or reduce the losses of some that might be on the path to failure.

While reasonable expectations for social investors are critical, it is clear that there are opportunities for nonprofits to use established consumer Internet tools--email, web publishing, and community applications to earn revenue through the following business models:

Consumer Advertising and Sponsorship.

A giant market opportunity, but difficult to earn significant revenue unless a nonprofit has a dedicated audience for its web site. The current advertising recession makes achieving significant revenue through any consumer advertising and sponsorship efforts a long-term strategy but not a realistic short-term goal. Classified ads can often be the best bet to create new revenue streams.

Paid Membership/Subscriptions for Consumers.

It is also difficult to earn significant revenue unless there is an existing base of members, but nonprofits should actively seek to move their offline members online in pursuit of that goal. Online memberships and subscriptions are a critical long-term strategy for nonprofits, combining efficiency of membership management with an opportunity to earn new revenue by up-selling members online on new or improved products and services. This is primarily an efficiency play, unless a nonprofit has valuable proprietary information that could be easily commoditized.

Consumer E-Commerce.

A great chance for nonprofits to earn incremental revenue based on an existing line of products, or a low-risk way to introduce new products to a targeted market. Again, reasonable expectations are the key. In short, the Internet provides an efficient platform for the marketing and distribution of mission-related products to a wider audience at a low cost--if executed correctly.

At the same time, there are new kinds of business-to-business products and services that help nonprofits use technology to increase their efficiencies. In some cases, they can also help the sector as a whole develop new ways of doing business. Nonprofits may be able to earn money if they move swiftly within highly specialized niches and are aware of the competitive nature of the markets they enter. Here are the best opportunities:

B2B Commerce and Services.

B2B activity presents great opportunities for niche products and services to be sold online. Because some business are already pursuing these opportunities, a nonprofit effort in this area must be well capitalized, aggressive in developing partnerships, and use its nonprofit status to compete with such enterprises. A high-risk high-reward nonprofit social enterprise may lie with online vertical portals or exchanges for the sector--if backed by the right intermediaries and supporters.

Internet Software for the Independent Sector (Application Service Providers).

There is high potential for nonprofits building ASPs to meet the specialized information technology needs of the independent sector. Again, there are several small but viable for-profits competing in his area, and providers of small-business software may jump into the market. Nonprofits should develop products for a highly specialized niche, which might not be big enough or profitable enough for a for-profit to pursue. Be prepared to compete with an aggressive and well-capitalized business if the organization chooses to move up the ASP food chain to serve larger markets.

Customer Relationship Management Software for Donors, Activists and Social Services Clients.

This is another great opportunity for a nonprofit ASP or software enterprise to earn revenue. There is enormous potential here on the low end of the markets or within specialized niches, and there is little for-profit competition. No business is likely to tackle the market to serve very small grassroots organizations (organizations with less than 5-10 employees and budgets below a few hundred thousand dollars) with CRM tools. If nonprofits create products for mid-range organizations or markets with large bases of government funding driving their IT needs, they must be aware of larger database and CRM companies discovering the potential of this market. Nonprofit social enterprises competing in these areas might seek to partner with their for-profit competition as a value-added add-on or service provider. The CRM business for donor/activist tools is crowded, and the best bet is to partner with an emerging business winner and build complementary products.

Online Training and Education.

Because online education is a crowded market, it isn't advisable to try to build a large, scalable business unless a nonprofit has significant capital. However, it could be a great place to earn incremental revenue if a nonprofit can invest in moving existing educational programs online. Partnering with bigger and extremely well-capitalized corporate e-learning businesses is the best way to ensure a chance at scalability. Nonprofit management training assistance is the best opportunity here.

Foundations, philanthropists and social investors interested in funding Internet-based social enterprises shouldn't be discouraged by the downturn in the public markets for Internet businesses and some of the disappointments with nonprofit social enterprises and socially responsible businesses. There remain many opportunities for nonprofits to take advantage of the Internet to earn revenue and therefore many opportunities for funders to make grants, loans and investments to them with the following strategies:

• Using all the tools in the philanthropic tool box, especially program related investments;
• Building internal capacity to evaluate and support social enterprises; and
• Changing external behavior to facilitate a capital market for social enterprises.

As a funder, one should look for Internet-based social enterprises that meet the following criteria:

• Have clear social and financial goals;

Undertake a thorough planning process before they build a social enterprise;

• Develop appropriate pricing for their products and services based on their revenue goals;
• Create a proper legal and management structure based on financial need; and
• Make sufficient investments in organizational capacity.

An exhaustive study of the e-philanthropy field by the W.K. Kellogg Foundation concluded that:

"Despite the useful, clever, and ingenious aspects of online services for nonprofits, the sector is still awaiting "the big one." Somewhere out there are the great leaps that--through a combination of human innovation and artificial intelligence--will unleash the efficiency, deep knowledge, and strategic coordination that is latent in the civic sector, yet eludes the sector's day to day work."

In closing, it bears reiteration that philanthropists that support nonprofit social enterprises take on tremendous risk. However, there are also good reasons to believe that breakthrough Internet social enterprises can be developed. Like eBay and other successful Internet businesses, these breakthrough organizations will wildly exceed investor and analyst expectations, but they will need significant investments along the way to have that chance to succeed. Hopefully this report will help social investors bring more successful Internet based social enterprises to fruition.