Remote Possibilities

Rather than buy sophisticated software systems, some charities find it pays to lease them via the Internet

For years, Ted Allison, the one-man membership department at KBEM-FM in Minneapolis, kept track of the public-radio station’s membership list using simple word-processing software.

But as the jazz station’s donor list approached 5,000 names last year, Mr. Allison realized he needed a better way to store and organize the information or things were “going to get out of hand,” he recalls.

The cost of purchasing a traditional fund-raising software program — thousands of dollars for the products that he was considering — was out of the station’s reach. So instead, Mr. Allison signed up with one of a rapidly growing number of companies that lease the use of their software systems to charities via the Internet for monthly fees.

KBEM-FM hired a St. Paul company called Thedatabank to organize the station’s donor information and store it on the company’s computers for a monthly rental charge of $160.

Like Mr. Allison, many people in the nonprofit world are turning their attention to Internet-based software distributors, often called application service providers, or A.S.P.’s. In addition to offering donor-database software, some companies lease software for designing and updating Web sites, coordinating e-mail communications, and accepting and processing online donations. But for those ventures to take off, nonprofit organizations must first be convinced that the providers can be trusted with sensitive information — and that the companies will have the money and staying power to continue providing services for a long time to come.

The software systems offered by application service providers physically reside on the servers of the companies, as do the data that charities store in those programs. Users gain access to the software and to their data via their Web browsers.

The arrangement means that nonprofit organizations do not have to go through the arduous process of installing the programs on their machines and then reinstalling subsequent upgrades. The companies offering the software also take care of backing up charities’ data and other routine maintenance. Upfront costs tend to be lower than those for traditional software because charities are leasing the use of the system and paying a monthly rental fee, rather than purchasing systems outright.

Application service providers have been springing up in both for-profit and nonprofit forms. Among them:

• More than a dozen companies offer Web-based software systems to charities, and several have more than 100 customers. ETapestry, one of the biggest, has 1,000 nonprofit clients and is backed by more than $7.5-million in venture capital.
• A number of traditional software companies, such as SofTrek and Synergy Development Systems, now offer their fund-raising databases via the Internet.
• Foundations, including the Open Society Institute and the W.K. Kellogg and Surdna Foundations, are financing nonprofit A.S.P. ventures as a way to help small charities overcome technology hurdles.
• Several charities are starting to explore offering software to their affiliates through a Web site. United Jewish Communities, in New York, has developed an online system that its 189 local federations can use to build interactive Web sites that can accept online donations, coordinate advocacy campaigns, register volunteers, and more — all without requiring the federations to have Web-design skills. Four federations are testing FedWeb (http://www.ujcfedweb.org), and 30 more are on a waiting list.
• In November, Environmental Defense spun off a for-profit company, LocusPocus, to help charities manage their online advocacy efforts and to provide a way for activists to contact policymakers via e-mail or fax. The company, now called GetActive Software, grew out of Environmental Defense’s advocacy work, and the charity still holds minority ownership interest in the venture.

Help for Small Groups

Small to medium-size organizations that struggle to find and keep information-technology employees and that cannot afford big technology investments stand to benefit the most from new online software services.

But technology observers warn that to take best advantage of them, charities still need to have an employee who is comfortable enough with technology to manage the organization’s relationship with its application service provider. Charities also need high-speed access to the Internet to run the large, complicated applications efficiently.

Above all, nonprofit organizations need to be informed consumers and ask tough questions about companies’ security measures, privacy policies, and financial health, technology experts advise.

Beyond helping charities with fund raising, some application service providers are trying to make it easier for nonprofit groups to wage advocacy campaigns.

GetActive Software, the company that grew out of Environmental Defense’s advocacy work, for example, leases a Web-based system that enables even small charities to conduct sophisticated online advocacy campaigns. The system organizes contact information for activists, and helps charities to send out e-mail alerts that point supporters to a Web site. From that site, users can customize form letters to policymakers and then push a button to have the letters sent by e-mail or fax.

Children Now, an Oakland advocacy group that focuses on issues that affect young people in California, recently hired the company to help it manage communications with its more than 21,000 activists. Colette Washington, Children Now’s Internet coordinator, says one of the most important features of the GetActive system is that the charity can keep track of the people who take action and follow up with them to say, “You took this action, and this was the result.”

Connecting Databases

Some online software systems offer multiple features — donor-record management, online advocacy, and e-mail marketing capabilities all in one system, for example — which help charities link separate databases together, says Vinay Bhagat, founder of Convio, an Austin, Tex., company founded in April 1999 that has raised more than $20-million in investment capital.

Mr. Bhagat says his company is working with one large nonprofit organization that has fund-raising and advocacy departments that contact many of the same people and sit only yards away from each other, but their databases aren’t connected.

“Historically, organizations have had silos of information,” he says. “To do effective marketing, you need to know as much as you can about a single constituent, and it’s very hard to do that if that data resides in different databases.”

Are Expenses Lower?

Some experts say charities are better able to afford access to sophisticated, expensive software programs through the online-provider model because economies of scale allow the companies to spread the cost of development over many client organizations. In addition, they say, the pricing structure that most such providers follow — a monthly rental fee based on figures such as the number of records in a database or e-mail messages sent — better reflects how much an organization uses a product than traditional software programs do.

But others question whether charities ultimately benefit by paying a monthly leasing fee, rather than buying the software outright.

Brian Montgomery, director of strategy at software giant Blackbaud, in Charleston, S.C., has his doubts. Blackbaud has 10,000 charities that have purchased the company’s fund-raising database software, and almost all of them have installed it on their own computers.

Even though application service providers may offer a low price at the start, he says, “people realize that eventually that the subscription does kick in and you are going to end up paying over time.” Mr. Montgomery adds: “That’s why things like rent-to-own furniture places aren’t the most popular things on the planet.”

Blackbaud currently offers a system to process credit cards using the A.S.P. model. It also leases additional online programs, but organizations must first buy and install its database program to use them.

One of the biggest concerns for charities considering signing up with an application service provider is how to pick one that will be around for the long run. The failure of numerous dot-com philanthropy ventures in recent months — and the increasingly shaky economics for all technology companies — has cast a shadow of doubt on the long-term prospects for application service providers.

When asked how he advises clients considering application service providers, Nick Allen, a technology consultant at donor digital.com, in Berkeley, Calif., laughs and says tongue-in-cheek: “Choose carefully and pray.”

In a more serious vein, he recommends that charities find out as much as they can about the financial situation of companies whose products they are considering, requesting to see financial statements and asking how long the companies can survive at their current rate of spending.

Because it can sometimes be difficult to get straight answers to sensitive financial questions, he says, organizations also need to ask themselves, “If these guys go down, how bad of a situation will I be in?”

Some companies have already run into problems.

In the fall LocalVoice, a San Francisco company that provides a suite of applications that charities can use to add interactive features to their Web sites, laid off five of its 12 employees.

Rob Vandenberg, president and co-founder of LocalVoice, says that trimming the payroll has allowed his company to adjust to the slow buying cycle that charities tend to be on and to focus its efforts on becoming profitable.

“The way decisions are made in charities is not necessarily a bad thing,” explains Mr. Vandenberg. “It’s just it’s very collaborative — there has to be buy-in on multiple levels, from within the organization to the board.”

Privacy and Security

Another concern identified by charities and nonprofit technology experts: the privacy and security of the information that organizations store in software programs that are housed on a company’s servers. Charities worry about who will be able to view their data, whether the company has taken precautions to protect their servers, both from security risks like hackers and unexpected events such as power loss or a fire, and what would happen to their data if a provider were to go out of business.

Many of the technology companies have taken numerous steps to try to avoid any problems, and some tout the security measures they have taken as selling points for their products. Chris Hanson, chief innovation officer for Thedatabank, says his company’s security measures include multiple drives so that if a hard-drive fails, the application picks up on another drive; daily data backups that are stored off-site; three different sources of power and Internet connectivity; and a high level of encryption for all data moving across the Internet.

“It’s really a much higher level of data security than virtually any of our clients would be able to afford on their own internal servers,” says Mr. Hanson.

Charity Ventures

As the online-provider approach develops, some charities and foundations are exploring nonprofit alternatives to the commercial ventures.

NPower, a Seattle nonprofit organization that provides technology help to other charities, is developing an online software system called ChangeFrame that will offer three categories of software for charities to use via the Internet: business software such as word processing and e-mail, general nonprofit programs like donor-record management, and applications geared specifically to legal-services organizations, such as keeping track of clients and making it easy to write court briefings.

Charities in Seattle and Detroit — 25 to 35 groups in all — will start using the business and nonprofit software packages in August.

The project has been awarded $250,000 in grants from the W.K. Kellogg Foundation, the Microsoft Corporation, and the Surdna Foundation.

Tom K. Reis, program director in philanthropy and volunteerism at Kellogg, says the foundation wanted to add balance to what it saw as a marketplace dominated by commercial ventures and see what differences emerge between the two types of providers. “A nonprofit might potentially better understand the culture and the needs and the desires of nonprofits than a commercial provider,” theorizes Mr. Reis.

The Horowitz Foundation, in Seattle, and the Open Society Institute, in New York, have also created a nonprofit organization, ASPiration, which is exploring Web-based software options for legal-services, human-rights, and alternative-media organizations.

Although technology observers recommend that charities advance with caution, many in the nonprofit world say the concept of software delivered over the Internet holds promise for charities.

“Through the A.S.P. model, you create a solid, reliable infrastructure” that takes advantage of economies of scale, explains NPower’s executive director, Joan Fanning. “It has the potential to level the playing field.”