To Give Or Not To Give?
Wednesday, January 20, 1999 by Dave Winer.
This passionately evangelical and visionary article, written by my longtime friend Dave Carlick, email@example.com, is about e-commerce and giving. What a surprising combination!
Dave sent it to me, asking what I thought. He probably knew it would resonate, and it sure did. It's a big What If? I asked if I could run it on DaveNet, and he said yes.
I've known Dave for about sixteen years. In his former life as an advertising guy, he helped me launch and market my first company, Living Videotext, and has played an instrumental role in marketing numerous Silicon Valley companies including Netscape, Silicon Graphics, Network General and Synopsys.
He was co-founder of DoubleClick, the first online advertising network, and is now an advisor to venture capitalist, VantagePoint, and a director at International Network Services, I/PRO, CustomerCast, and my latest company, UserLand.
The service he describes is http://www.igive.com/.
So here's Dave Carlick on buying stuff on the Internet and its relationship to charity.
To give, or not to give
As this new Internet economy develops, markets are recognizing a fundamental gap between the cost structure of molecular (i.e. brick and mortar) businesses and digital businesses, with the advantage going to digital businesses.
The stock market has placed huge valuations on this potential differential. Amazon, for example, is valued at 200 times potential revenues in the year 2000, which is an enormous vote of confidence in the leverage these new margins represent. Similar valuations go for Yahoo, eBay, and countless others. It's new money.
So far, all the new money is going to the capitalists. Fair enough. They took the risk, they won the reward. And yet here is an entirely new opportunity for charity, enabled by the very technology that is creating all this wealth. These new margins can be, in part, directed to charity in ways never imagined before the power of the Internet.
And we can realize not just the power of technology, but the power of technology to do good. We can build in a payback from this new technology through the cause motivations of the marketplace, rather than depending on the philanthropic benevolence of the wealthy. That is the issue that faces us when we consider these new margins: To give, or not to give.
Affiliate Economics and the New Margins
There is presently 'price protection' around this gap between digital and molecular distribution channels. Brands do not want to destroy their traditional brick and mortar channels by cutting prices wildly online, so margins have an artificial protection for the time being. Brands which are unfettered by molecular distribution, however, have flourished. Witness the explosive growth of online business at companies like Cisco, Dell, Gateway. They have forced competitors to respond to their online convenience and/or intense price competition.
In the consumer world, online sellers have their own problems connecting the consumer with the website, in order to generate these new electronic savings. There is a considerable new customer cost involved in getting people online to make a transaction with the merchant.
Hence the rise of affiliate programs, which are a temporal solution to the problem. Affiliate programs are 'commission sales' programs by online e-merchants. Rather than incur the 'risk' of advertising for new prospects and turning those prospects into customers, e-merchants are enabling virtually any website to get a commission on actual purchases by referred customers.
These affiliate commissions are less than the traditional retail distribution cost, which is fair, because the e-merchant is doing much of the heavy lifting, in terms of merchandising, transactions, stocking, transactional websites, and so forth. But the affiliates are also doing heavy lifting in terms of traffic and customer loyalty.
The birth of e-charity
One interesting trend that has arisen from the fertilizer of affiliate commissions is that of splitting the commission with the consumer's chosen charity. A number of new e-charity firms have formed, all aggregating merchants and enabling consumers who shop those merchants via the e-charity to redirect part of the new Internet margin - represented by the affiliate commission - to a charity. Again, so far, so good.
Consumers appear to love the idea. Now, when they shop online for the things they need or want, a percentage of the purchase goes to a worthy cause. In many cases, to the individual's personal favorite worthy cause - the medical research that will help their descendants, or their kid's school, or the mission that is helping to educate inner city kids, or the pet rescue charity in town.
And merchants appear to benefit. Marketing statistics indicate that consumers have a strong preference for doing businesses with corporations that are good citizens, and that when the merchant is making a donation of part of the sale price to the consumer's cause, consumers see a very tangible demonstration of corporate citizenship.
Will affiliate commissions, and e-charities, last?
In time, the economy is efficient, and drives prices toward cost.
One cost is the value expectation of the consumer.
At iGive.com, the leading e-charity, we believe we are in a race: Generate significant consumer expectations for support for worthy causes when they do business online, before the margin protection disappears and the opportunity is lost.
Here is the dream. Which side are you on?
Our side: As the new economy evolves, consumers expect a big 'feelgood' component to their purchasing. We create a new behavior pattern that says that in a new, rich, electronically enabled world, there is margin to do good, and to help causes, and even better than that, to help the causes I as an individual care about. Margins drive toward cost, but we've created a new cost -- consumers expect online merchants to be terrific corporate citizens -- better than brick and mortar companies. I think this dream is possible.
This is the power of technology to do good.
The other side: As the new economy evolves, margins will drive toward cost, and causes will be left to fend for themselves as before.
I think this leaves a huge emotional and societal 'hole' compared to the vision of the former. It's just business as usual, instead of moving business toward good.
Trends support the side of light
1. Social entrepeneurialism. Many are recognizing the inherent value of bringing competitive talent and in fact the forces of competition to bear on social problems. This competition means that e-charities will be driven to greater efficiency than governmental or even volunteer efforts.
2. Internet democracy. The new technology enables communities like never before, around interests as small as you can imagine. Hence the explosion of chat, personal websites, and other new forms of self-expression. It also enables individuals to participate in causes. The .org sites and activities are generating tremendous participation and enthusiasm.
3. Guilt. Enormous new wealth is being generated, and someone should do better by the less fortunate, whether the less fortunate are kittens and puppies, inner city kids, our kids, churches, and so forth. We have a chance to 'bake' that support into the new margins, and enjoy the unbelievable efficiency that arises when those new donations are directed by the individual t the cause or causes they choose.
4. Innovation. Now we can build an entirely new kind of voluntary, line-item donation into the economy that actually lowers overall costs by motivating people to be digital, gives the individual, not the corporation or government, the choice on what to support.
5. Competition. The news is not that we figured this out. The news is that this is happening, competitors are out there, and with lots of entrepreneurs going at this, it has a chance to succeed.
Our charitable bottom line
We have a chance to commit a new kind of donation and do-good effort into the new Internet economy that bypasses traditional inefficient distribution, and lets the individual pick the causes they care about for this new money.
It is individualism, it is capitalism, it is democracy, it is entrepreneurialism. It creates an entirely new idea about what purchasing is about. We have the ability to create a future where our descendants come to expect the responsibility and ability to direct a portion of their merchant dollars to help the needy.
But it won't happen -- this transitory margin will drive to zero -- unless we create and build a consumer expectation that this margin belongs in our new pricing.
We need e-merchants who understand this, editors who are willing to open a dialog on the subject, and technology companies willing to make the effort to have technology stand for a new, better, and innovative kind of societal goodness that only technology itself could enable.
To give or not to give in the new economy? We can, in fact, make the answer, with every transaction, a definitive to give.