Time to learn some new dance steps

This is the year that software vendors found philanthropy. At the just-concluded annual Conference for Community Foundations at least two new technology companies garnered a good deal of attention. Both of these companies, Collaborative Standards (www.cstandards.org) and Kintera (www.kintera.com) are relatively new. Both have new products and new products focused on grantmakers. Even younger efforts, like Newdea (www.newdea.com) are still in BETA versions. Other companies, including Telosa (www.telosa.com) and FoundationSource (www.foundationsource.com), aren't new companies but are running new marketing campaigns.

So why all this action now, in a market that has been "owned" for years by two or three firms and in which mergers and consolidation have been the storyline for a decade?

Perhaps it has to do with the attempt by community foundations to create a "buyer's collective" and push for the products they need. This took place in 2002 - two long years ago - when 20+ community foundations created a $4 million Funding Syndicate to build the technology the field needed to compete with international financial service firms and their technology platforms. The syndicate and the associated Technology Steering Committee (www.cftech.org) have planned, mapped, and shopped ideas for new technology products for community foundations.

But I don't think the Steering Committee, the Syndicate, or the $4 million is the real reason these companies and products are now available. No, I think what we're seeing is a long delayed, ripple effect payoff for nonprofits from the late 1990s economic boom.

After all, both Kintera and Collaborative Standards explain on their websites that they were founded by philanthropists. Individuals who were successful technology entrepreneurs and business leaders. Who have had plenty of time to get to know philanthropy. And nonprofits. And who were smart enough to recognize the creation of the Tech Syndicate not as the signal of "game over," but as a collective plea for help. After all, these folks know a market when they see one. And there's nothing better than the 20/20 vision of newcomers to look at something and see all the nonsense that old timers have been taking as givens. Like the unhappiness of the customers of those 2 or 3 software firms. And the size and scope of a market that could support a new company (or two). And the slow slow slow pace of collective action when it involves nonprofit entities trying to corral competitive commercial vendors.

So they jumped in and launched products in less than two years (Collaborative Standards) or went public in a not much longer period (Kintera). But here's the beautiful twist on the whole story. These companies are not really interested in the foundations as a market. Certainly not the 600 American community foundations, their 500 international brethren, or even the full bucket of 65000 US foundations. None of these adds up to a big market. Especially given the lack of business pressure on most of those foundations to operate efficiently, coupled with their antagonism toward (and potentially regulatory pressure to avoid) spending money on operational supports.

No, what these software companies see is the nonprofit market beyond the foundations. After all, while there are 65000 foundations, there are many more than 1.5 million nonprofits (US only). And while foundations control more than $450 billion in assets, they don't (and never will) spend the vast majority of it, and will always seek to spend the least amount possible running their shops. Most of them also lack any real business pressure to improve their services, improve customer relations, or make life easier for those they support.

Now compare that with the millions of nonprofit organizations, which collectively account for more than 5% of GDP, are accountable to multiple constituencies, operate in highly competitive subsectors, and strive to lower their cost of business while improving services. They need software, they need upgrades, they need interconnectivity and they need to pay for all those things and more.

Here's the real irony. Foundations have been putting nonprofits through the wringer for years and nonprofits have put up with it to get the foundations' money. Now, the tech companies come along and are already looking over the heads of the foundations to the nonprofits, for therein lies the real market worth competing for. In the age-old dance between foundations and nonprofits the steps have always been dictated by who has the money. From the perspective of the software industry - and its potential investments in innovation, efficiency improvements, and new cool tools - the money, and the power, lies not in the foundations but in the nonprofits. I wonder how this dance goes...?