How NPOs Can Use Internet Technology to Earn Revenue, Part 2

2. Paid Membership/Subscriptions for Consumer Content

What It Is

Charging consumers, clients, or organizational members for access to Internet-based content.

Many web sites measure their growth by how many people become free members of their sites. Although membership varies from site to site, members usually fill out an online form, which at a minimum consists of submitting a name and email address and at most includes detailed demographic information. Very few web sites charge for membership or charge a subscription fee to access content on the site.

Commercial Models and Market Opportunity

Very few dot-coms have been successful with a paid membership or subscription-based business models. Microsoft-owned Slate, the highly touted web magazine of politics and culture, initially charged subscribers $19.95 per year when it launched 1996, but the site soon switched to an advertising and e-commerce revenue model. Some online publications like CBS Sportsline.com and theStreet.com have created free and paid versions of their sites, but neither is profitable nor have they hit their estimates for paid members. The most successful paid subscription business for online content is the Wall Street Journal's online effort-a traditional bricks-and-mortar media company that successfully leveraged its existing advertising base and brand to create a successful, although not necessarily profitable, web Internet business. According to industry analysts, subscriptions will become more common over the coming years as consumers become accustomed to paying for web content.

Nonprofit Innovators

Subscriptions and memberships can be a solid source of revenue for nonprofits that have a large off-line membership or subscriber base. Nonprofits with research archives or proprietary data are also prime candidates for subscription revenues. The consummate example is Consumer's Union, which sells online subscriptions for the product evaluations published in Consumer Reports. The Foundation Center likewise sells access to its online grants database. Benetech is soon to launch Booksense, a nonprofit Internet platform for the blind to access digitized books on tape for a subscription fee.

At the same time, membership dues are the bread-and-butter of many nonprofit organizations, and the Internet offers an effective tool to provide unique content to members in ways that are more sophisticated and potentially valuable than just sending them a newsletter. The World Wildlife Fund, the Humane Society, and the ACLU all provide unique online content to their members, but no nonprofit has yet executed a pure online membership organization. Overall, it is best to think of online membership and subscription strategies as efficiency tools enabled by the Internet rather than as a whole new line of earned-revenue.

The Upside

Online membership and subscriptions have the potential to be excellent tools for building and maintaining membership. These Internet tools are cheaper than direct mail or other traditional nonprofit marketing methods. Indeed, building the ability to improve and manage relationships with members on the Internet should be a priority for organizations. If well-executed, the Internet can provide special benefits to loyal supporters analogous to what organizations provide off-line through gifts, special information, and events. Information-rich organizations may be able to generate consistent earned-revenue by selling subscriptions to their archives, now easily available for distribution through the Internet.

The Risks

Memberships, and subscriptions that function like consumer magazines and news services, are difficult business models for even the best capitalized companies like theStreet.com and CBS Sportsline. It will be even harder for nonprofits to tap the mass audience necessary to break even. When focusing on building an online membership component, beware of limiting access too much-potential members may be turned away if a crucial piece of information is for members only.

The Bottom Line

Although few nonprofits have been successful with online subscriptions and memberships, they must pay attention to the membership strategies used by dot-com businesses. While the League of Women Voters with 150,000 members and the NAACP with 500,000 have had trouble growing and attracting new members, iVillage (started in 1995) has 6 million free members. Meanwhile, Blackplanet.com has several hundred thousand registered users, with 1.5 million unique visitors per month looking at 437 million pages of content and spending 3 minutes on the site per visit. A site targeting the same market started by older, better known, and better-funded media company, Black Entertainment Network, had only 600,000 unique visitors, 27 million page viewers, and averages 30 seconds per visit. It stands to reason that even if these businesses are not competing for membership dollars they are competing for the time and attention of similar constituent base. A free online membership strategy should be a central part of every nonprofit's Internet strategy, even if it is not a revenue strategy. Nonprofits would then be wise to start experimenting with new online membership strategies: migrating online many of the offline privileges that accrue to members, or charging for premium content or unique services that can only be updated and delivered online. But the fundamental goal is efficiency, not revenue. At the same time, organizations with extensive and potentially valuable archives may have a better shot at turning membership or subscription fees into revenue. But memberships and subscriptions are unlikely to generate significant revenues for nonprofits until an organization has a substantial base of loyal users who might pay for expanded or premium Internet content.

3. Consumer E-Commerce

What It Is

Selling products over the Internet.

Commercial Models and Market Opportunity

After Internet advertising reached its zenith in mid-1999, electronic commerce, or "e-commerce," emerged as the next big thing. Launched in 1995, Amazon.com was the first significant and best-known online retailer. After Amazon.com, retailers for every imaginable kind of product soon appeared online. Wall Street hailed e-commerce as the savior of Internet publishers, and soon sites like Yahoo!, Cnet, and America Online, began a push for e-commerce revenues.

The business case for e-commerce as stand alone businesses was straight-forward: Internet retailers could provide lower costs to consumers because they would have lower overhead costs and hold less inventory than traditional bricks-and-mortar stores. In the 4th quarter of 2000, even in the midst of the dot-com implosion, U.S. e-commerce sales totaled 8.7 billion dollars, crossing 1 percent of total U.S. retail sales of $868 billion. Goldman Sachs estimates that e-commerce sales could easily exceed those of catalogue shopping, which constitute 4.4 percent of retail sales.

Nevertheless, while Amazon.com and other online booksellers have certainly taken significant market share from Barnes and Noble, Amazon.com is not going to put Barnes and Noble, much less Wal-Mart, out of business. As it turned out, e-commerce isn't so easy. E-commerce sites have to spend incredible amounts of money to acquire customers, and turning a profit proved harder than anticipated. Conventional wisdom-now a popular punch line for jokes about dot-coms-held that what a dot-com lost on each transaction it made up on volume. The same simplicity that gave consumers the ability to go anywhere and buy anything at the click of the mouse also made competing online retailers slash prices in an attempt to win customer loyalty, and time ran out before they could make those loyal customers profitable. Many e-commerce sites grew too fast and had too few managers capable of executing the complex business operations involved in managing inventory and distribution systems. Still, e-commerce is here to stay, although it appears that its biggest beneficiaries will be existing retailers like Toys'R'Us and Wal-Mart, not etoys.com and Amazon.com. For nonprofits, however, e-commerce will never be more than an incremental way to increase revenues.

Nonprofit Innovators

Whether by ignorance or design, nonprofits never really jumped on the e-commerce bandwagon in a way that lost lots of money, as was certainly possible. For nonprofits, the simplest extensions of existing commerce activities seem to work best: the Metropolitan Museum of Art has an online version of its popular stores. Save the Children, which has a longstanding offline commercial presence, has an easily navigable site. The New York City Ballet has taken its ticketing process online, as have dozens of their event-based organizations. Most nonprofits are simply using e-commerce to make existing processes and earned-revenue streams more efficient.

The American Red Cross has shown extraordinary proficiency with another important e-commerce tool-online donations. In fact, perhaps the greatest e-commerce innovation to come out of the Internet revolution was the capability for nonprofits to accept online donations. Helping.org, now a part of Network for Good, has been one of the most successful aggregator of online transactions-far more successful than the dozen or so for-profit businesses that offer the same services.

The Upside

For organizations that already have a consumer commerce revenue stream, a reliable online audience, or a geographically dispersed constituency, e-commerce can marginally augment existing commercial revenues. The entry barriers are low: vendors can help a nonprofit set up an online store for several hundred dollars per month, though costs associated with digitizing catalogues and management systems can reach into the several thousands of dollars. Selling products related to the organization, but not produced by it, is even easier. A nonprofit can simply join an affiliate program, such as the one that Amazon offers, where organizations can link the Amazon's site to find a specific product and get a percentage of the transaction if it is completed.

The Risks

Doing e-commerce can take a tremendous time and resource commitment if an organization creates its own products and sets up and manages its own e-commerce business. Do not underestimate costs of site maintenance and supply chain maintenance (the off-line part). The costs may not be worth it: even if a nonprofit is successful in marketing, it has to deliver the goods.

The Bottom Line

E-commerce is here to stay, but taking an existing base of products and selling them on-line-making an organization's existing e-commerce strategy work better-is the best strategy. When done judiciously, e-commerce can generate a marginal increase in revenues by expanding existing commercial activities. The backlash against e-tailing in the market should not prevent nonprofits from trying to benefit from online commerce's low marketing costs and the ability to reach a broader, potentially global, customer base. But wise nonprofits will regard e-commerce chiefly as a way to marginally increase already existing revenue streams from product sales.

Continue to Part 3: How NPOs Can Use Internet Technology to Earn Revenue, Part 3