Beware the ‘Dotzillas’

Internet economy pushes up salaries and rents, causing problems for Silicon Valley charities

Fund raisers might expect that working for a charity here in Silicon Valley would be an easy and enviable job. But just as the Internet economy has created a flood of young millionaires to woo as donors, it has also put serious pressures on nonprofit groups, Harry Saal, president of Cultural Initiatives Silicon Valley, told participants at a conference here called “Expanding Philanthropy through the Internet,” sponsored by the White House’s Millennium Council.

Mr. Saal, a pioneer in building computer networks and the founder of several computer companies, may seem an unlikely naysayer. But he said his experience working with charities here has convinced him that nonprofit organizations are in danger of getting trampled by the success of the “dotzillas.”

Mr. Saal said the proliferation of computer companies has sent rental rates escalating, forcing many charities out of offices they once occupied.

Housing costs have also soared, making it difficult for people on nonprofit incomes to afford to live in the area. What’s more, technology companies have so raised salary expectations that nonprofit groups are struggling to recruit and keep talented people, especially those with strong computer skills. Mr. Saal said local nonprofit groups are experiencing high turnover rates for the first time.

Charity leaders, he said, need to think more broadly about what the “digital divide” really means. “The issues are not about using technology but about how technology impacts our community,” Mr. Saal said. “I see it as a looming crisis — a brick wall that we’re hurtling toward at 90 miles per hour.”

The problems could soon have fund-raising consequences, he said, as charities see their overhead costs rise because they have to pay higher rents, salaries, and other administrative expenses.

“The new dot-com entrepreneurs are expecting very, very low costs of operations in our nonprofit sector and will probably react in a very alarming fashion,” said Mr. Saal.

In an interview after his speech, Mr. Saal said: “There’s a need to communicate this up front to the donor community so they understand these pressures, so they can get involved, so they can volunteer more, so they can help alleviate perhaps some pressures in real estate.”

Mr. Saal offered several suggestions for nonprofit groups trying to cope with the challenges, including following the “incubator” model of sharing office space, equipment, and administrative services that has worked well for young Internet companies.

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The conference had as its official goal to “lay the groundwork for all the diverse players in philanthropy and the Internet — new philanthropists, dot-coms, brick and mortar companies, and nonprofit organizations large and small — to work together to expand giving and volunteering to better serve the people and communities worldwide.”

The meeting was paid for by the AOL Foundation, Charitableway.com, the Fidelity Charitable Gift Fund, the Forum of Regional Associations of Grantmakers, Independent Sector, the National Charities Information Bureau, and the United Way of America.

Mr. Saal and many of the other speakers emphasized that while new technology holds great potential for reaching new donors, especially young people, charity leaders need to make sure they do not overlook the potential problems it can cause.

One big issue that charity leaders are struggling with is how to ensure that donors’ and service recipients’ personal information will not be misused when it is stored in Internet databases.

Joanne Fine, director of marketing at United Way of Central New Mexico, questioned whether charities had really thought through how to handle sensitive information, such as computer records showing which users might be looking at Web sites on topics like spouse abuse.

“None of us want to live in a world where everybody can collect information on everything we do,” said Deirdre Mulligan of the Center for Democracy and Technology. The Pew Charitable Trusts recently released a study that showed that 86 percent of Americans are concerned about their online privacy.

To deal with those concerns, Ms. Mulligan said nonprofit groups need to “think in terms of putting the donor first. Provide people with control. Let them know, for example, if you do exchange donor lists [with other organizations]. Be upfront about what you’re going to do with the information.”

Not all privacy threats come from the Internet.

New technology means that nonprofit groups often have donor databases with credit card and other personal information readily accessible via computer networks. Ms. Mulligan said charities need to make sure they have protections in place to prevent sensitive parts of donor records from being seen by employees at the organization who do not need to see them. “Eighty percent of abuses are historically internal,” Ms. Mulligan said, often involving disgruntled employees or temporary workers.

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Charity leaders are still trying to figure out how best to make Internet fund raising pay off. One organization that has planned a major experiment with online giving is United Way of the Silicon Valley (formerly United Way of Santa Clara).

The organization plans to collect more than half of its income online from on-the-job campaigns this year. Seven of the United Way’s top 10 donor companies — including Hewlett-Packard and Agilent Technologies — have agreed to handle employee donations electronically.

The charity hopes the decision will help it recover from financial problems it suffered a year ago, which left the organization nearly broke and eventually caused its chief executive officer to be fired.

The United Way is working with Charitableway.com, which will process the transactions and provide online information about charities to donors.

The experience in Silicon Valley could help shape the future for other United Way campaigns. Some people have criticized United Ways for being too slow to work with new Internet companies that are interested in setting up their own models of online workplace campaigns.

John Fensterwald, an editorial writer at the San Jose Mercury News who moderated a session on employee giving, said, “The big question, of course, is how will the United Way react to new challenges and new competitors.”

United Way of America president Betty Beene responded: “The message I hope you will all walk away with is that it’s about collaboration. It’s not about competition.”

Pete Mountanos, founder of Charitableway.com, agreed. “The idea of partnership and collaboration is key,” he said. “No one expects you to go it alone anymore.”