Software Industry Shake-Up

Families Moving Forward, an emergency shelter in Minneapolis, devoted a lot of time and energy to

its search for new software to manage its donor records. When the organization finally selected a new system, Leslie Frost, the group’s executive director, thought it was one task she would not have to face again for many years.

But just three years after the purchase, the software program the group had chosen was acquired by another company, which notified her it would no longer update or improve the package.

“My first reaction was I was angry,” says Ms. Frost. The organization had paid $8,000, a significant sum for Families Moving Forward, to purchase GiftMaker Pro. And it had specifically ruled out Raiser’s Edge — the primary fund-raising software offered by Blackbaud, the company that purchased GiftMaker Pro — on the grounds that it had “more power and complexity” than the small organization needed or could easily handle.

“I almost immediately began receiving e-mail and phone calls from our account rep at GiftMaker, who was now trying to get us to switch to Raiser’s Edge,” says Ms. Frost.

After reviewing the options, Families Moving Forward has selected another product that Blackbaud had recently acquired, eTapestry, to help keep track of its donor records.

Web-Based Software

A series of mergers and buyouts in the fund-raising software industry over the last two years has left nonprofit officials like Ms. Frost scrambling to sort out the impact — and wondering if their program might be next.

Some nonprofit technology experts think consolidation among companies has already started to seriously limit the selection of software available to charities.

Others, however, believe the mergers have allowed companies that haven’t been part of the buyout rush to go after new types of customers. At the same time, increasing numbers of charities are moving to Web-based fund-raising software programs, which have the potential to relieve charities of some of the burden of maintaining complex servers and backing up their data.

And the real wild card in the evolution of the fund-raising software industry, many nonprofit technology observers say, is the entry of Salesforce.com — a powerhouse in the corporate realm — into the nonprofit market.

“It’s a changing industry,” says Laura S. Quinn, director of Idealware, a nonprofit group in Portland, Me., that publishes reports on software designed for charities. “It’s never been totally stable, and it continues to morph and change.”

Industry Leaders

Blackbaud, by far the biggest player, has bought three rival software companies — first Campagne Associates, which made GiftMaker Pro, in 2006, and then Target Software and Target Analysis Group and eTapesty in 2007. The Charleston, S.C., company’s purchases seem designed to bolster its position as market leader and to extend the range of charities using its products. With the recent buyouts, the number of organizations using Blackbaud products has climbed to more than 19,000.

Convio, in Austin, Tex., purchased rival GetActive Software early last year, bringing its total number of customers up to more than 1,300.

Both companies offered Web-based software designed to help charities communicate with their supporters and raise money online.

The short-term effect of these moves is that nonprofit organizations have fewer choices when they shop for fund-raising systems, says Douglas Schoenberg, chief executive of SofterWare, a company in Horsham, Pa., that makes DonorPerfect fund-raising software. But he says he is concerned that the longer-term consequences of consolidation might be more serious.

“Variation and competition spur innovation,” says Mr. Schoenberg. He says that the rate of innovation in fund-raising software has been accelerated by the breadth of companies offering products for charities. With fewer players jostling for customers, he worries that companies won’t have the same incentive to improve their products and develop new features.

He attributes the recent increase in acquisitions to the influx of venture capital into fund-raising software companies and to some of those companies going public. (Blackbaud and Kintera are both publicly traded, and in August, Convio announced its intention to hold an initial public offering.)

Mr. Schoenberg expects the consolidation to continue. “The public market has historically been driven by companies’ showing very high rates of growth,” he says. “It’s really hard to grow 50 or 100 percent a year organically. You get that strong incentive for acquisitions.”

Charities like Families Moving Forward, whose fund-raising systems are discontinued as the result of an acquisition, are in a tough spot, says Steve Jacobson, chief executive of Jacobson Consulting Applications, a company in New York that helps nonprofit groups select and put in place fund-raising software.

“Many organizations just can’t afford to plunk down a significant amount of money to acquire a new fund-raising package,” he says. “They made that decision to go in a certain direction, and they spent a significant amount of money to acquire those software licenses.”

Mr. Jacobson says that the cost of buying and installing new software, transferring data, and training employees can end up being higher than what the organization spent when it adopted its original software — even taking into account the discounts that acquiring companies usually offer to customers of companies that they have purchased.

And the new software may not be as good a fit as the system the organization originally bought, he says.

Being forced to switch software systems is traumatic for individual charities caught in the middle of a buyout, but so far, acquisitions have not really changed the overall composition of the fund-raising software industry, says Robert L. Weiner, a consultant in San Francisco who helps nonprofit organizations select and install software systems.

“It remains a dynamic industry with a lot of choices, at least at the low to mid-tier of the market,” he says. “At the highest end of the market, there have never been all that many choices.”

Some key gaps in the marketcontinue to exist, says Mr. Weiner. For example, software that is good for managing direct mail is often weak when it comes to managing big gifts and vice versa, and few programs handle university fund raising well.

Small groups, he says, have a lot to choose from, but many of those companies offer little training and support, or if they do, the organizations buying the products often don’t have the money to pay for them.

Having fewer options at the more crowded lower end of the market might actually be a good thing, because charities would have fewer programs they would need to review and compare, says Charlie Crystle, chief executive of Mission Research, a company in Lancaster, Pa., that makes GiftWorks, a software program for small and medium-size organizations.

“There’s a lot of redundancy in the middle of the market,” says Mr. Crystle. Selecting a fund-raising program, he says, will be easier because there aren’t as many options that charities have to consider.

“Consolidation helps reduce some of the clutter,” he says.

Mission Research was one of the many companies — including Metafile Information Systems, Sage Nonprofit Solutions, SofterWare, Telosa Software, and others — that actively courted former GiftMaker Pro users who had to switch to new fund-raising software.

New Customers

The changing landscape has prompted some software companies to re-examine their business plans and the types of organizations that they want to attract as customers.

For example, large nonprofit groups traditionally made up the bulk of customers that used Portfolio, a Web-based software package that helps charities manage donor records. But while watching the consolidation of software companies, Amergent, the direct-mail company that created Portfolio, saw an opportunity to offer its product to somewhat smaller organizations, says Mark T. Connors, a vice president at the Peabody, Mass., company.

In the past, he says, the company oversaw a separate server where each of its clients could store information. That way, organizations knew that when they needed to run a large fund-raising report or query the database, other groups wouldn’t be vying for computing power.

Now, to bring down the cost of the service for midsize groups with fewer donor files, Amergent has added an option in which clients can choose to share a server with other groups.

The new option cuts the cost of the software license by at least 50 percent, sometimes by as much as 75 percent, depending on the number of people using the product, the size of the database, and other factors.

Nonprofit-technology experts say that in coming years, more nonprofit organizations are likely to move toward fund-raising software that is hosted on companies’ servers and that employees can access through the Internet.

One of the companies betting that online software will become the norm is Convio, which has provided its products over the Internet since its founding in 1999.

An online approach makes more economic sense both for charities and vendors, says Gene Austin, Convio’s chief executive.

The switch to Web-based software, says Mr. Austin, would mean that nonprofit organizations would no longer need to maintain complex and expensive servers to host the programs, and they wouldn’t have to worry about installing patches and upgrades to the program. And because those upgrades are done all at once, by the company on its servers, customers are all on the same version of the software, making it easier and less expensive for companies to provide customer support.

“It’s just a more efficient model for deploying technology in today’s world,” he says.

Blackbaud — a company that until recently had taken only modest steps toward providing its software programs over the Internet — is moving in that direction as well. The company’s new product for large organizations, Blackbaud Enterprise CRM, and the next version of Raiser’s Edge will be available in both Web-based and installed versions.

As technology companies make the shift toward Web-based software, however, they must overcome concerns about security and persuade charities to let them store sometimes sensitive information on donors on company computers. In October, hackers broke into Convio’s systems and stole data from 92 charities that used GetActive.

Despite that reminder of the perils of data security on the Internet, many nonprofit groups think that their donor information is probably safer on a software company’s servers than on their own networks.

Last summer, the ROSE Fund (Regaining One’s Self Esteem), a small charity in Boston that provides assistance to women who have left violent relationships, moved its donor data from an improvised system that combined Excel spreadsheets, Microsoft Access, and QuickBooks to DonorPerfect Online, a Web-based fund-raising software package.

“They have a whole warehouse that’s extremely secure, under all different locks and keys,” says Christina Falck, director of development at the ROSE Fund. She says the small organization, which does not have any technology employees, would be hard pressed to match the security measures DonorPerfect has in place.

New Tools

Companies are also increasingly offering charities more options to customize software to their needs.

Last year, Convio and Kintera released a set of tools — known as open-application programming interfaces, or API’s — that allow programmers to pull information into or out of software packages or to build additional features on top of the systems. “There are many different solutions and applications that nonprofits want to experiment with from a fund-raising perspective,” says Rich LaBarbera, chief executive of Kintera, in San Diego. “No company, no matter how large you are, can bring all of those products to market.”

Not every software company is so sanguine about the prospect of charities picking and choosing different products to link together in their own fund-raising systems.

Advanced Solutions International, in Alexandria, Va., the maker of iMIS, a fund-raising software system for medium-size and large groups, believes that organizations are better served by comprehensive systems they can use to manage all of their fund-raising activities, says Dan Germain, senior executive for strategic business development at the company.

“If you’re building a house, do you want to be the general contractor, or do you want to hire a general contractor who’s then going to worry about the plumber showing up on time?” he asks.

Mr. Germain believes that charities are being misled by companies that tell them that open platforms will make it easy to share data among programs from different companies. “Those integrations are something that require a tremendous amount of work to keep going,” he says. Even so, Advanced Solutions International is making open API’s available.

Blackbaud has long had API’s for its products, but — with the exception of its online fund-raising software — organizations had to buy them and pay an annual licensing fee. Going forward, however, the company has decided to make API’s available free for new software products, including Blackbaud Enterprise CRM, a system that the company hopes will be used by all of charity’s workers,, not just for fund raising but also for areas like program management and human resources. The company plans to release a free API for the current version of Raiser’s Edge later this month for customers who use NetCommunity, the company’s online fund-raising software.

Changes in the fund-raising software world hold out the promise of making management of donor information easier, experts say. But in the excitement of new products and approaches, it can be easy to forget how slowly most charities adopt new technology.

Organizations are unlikely to investigate cutting-edge technologies unless they have technology expertise on their staffs, says Janella L. Franklin, vice president of development at Communities in Schools, in Alexandria.

Ms. Franklin says that she doesn’t have a lot of time to step back from her daily responsibilities and contemplate changes in fund-raising technology. Her number-one priority for software is ease of use. “You need your time to do what you do best, which is going out and raising the money,” she says, “not trying to mine the data that’s in the database.”