After selling his company to Microsoft, Peter Mountanos looked around for a new venture and discovered philanthropy. It's inefficient, he thought. All those mailings and phone calls and galas. The Internet can do for charity, he figured, what it did for investments, books, auctions and travel.
Other entrepreneurs and charities alike are rushing simultaneously to the same conclusion, revolutionizing a sector that touches the lives of every American. Online philanthropy is "opening new world portals" for giving, President Clinton said yesterday at a White House summit on philanthropy's future that drew executives from high-tech companies and philanthropic groups.
In the context of the $174 billion donated to American charities annually, e-philanthropy, as it's being called, is still a drop in the bucket. But it's a drop, said Bill Massey of the National Charities Information Bureau, that is creating ripples now growing into tidal waves. "We are at the beginning of something enormous," Massey said.
Mountanos is betting $28 million that his company can raise more for charity and make a profit to boot. In April, he and other venture capitalists opened an $8 million Web site that features, among other things, an online shopping mall and auctions. Profits are shared with more than 2,000 charities that customers can designate. In the next 60 days, he plans to raise another $20 million to expand the site.
Others are already jockeying for position, reflecting what Clinton said is the new "entrepreneurial spirit . . . energizing this field." At least 10 other companies, besides Mountanos's charitableway.com, share profits from online shopping with charity. Three others host auctions and share the proceeds.
Philanthropy, in fact, is the hottest new area for what high-tech venture capitalists call "disintermediation opportunities"--in everyday language, inefficient areas of commerce that could be transformed by Internet technologies.
The largest charities have already pioneered the medium--the Red Cross raises millions for disaster relief. But even the smallest charities are finding novel ways to exploit the field. The Washington Animal League, for example, began offering "virtual pets" this week to people with the money to support an animal, but not the time to clean up after one. You choose a featured pet and make a credit card donation online to feed it.
Already state regulators are scrambling to figure out how to monitor solicitations suddenly coming from around the world. Some experts question whether the partnerships between charities and business could blur the lines so much that the distinctions are lost.
Charity leaders and scholars are buzzing with questions. Will the Internet attract new donors or merely heighten competition? Will technology level the playing field for small charities and unpopular causes or widen the gap? Will shoppers at an online mall feel a new connection with the charities they designate for a gift, at no cost to themselves? Or will they feel they've completed their civic duty?
Whether small charities can compete in this new world remains to be seen. Buzz Schmidt, for one, believes the revolution will raise all boats. His nonprofit, Guidestar.org, in partnership with the Urban League, just made available online the income tax filings of every charity known to the Internal Revenue Service. The database is at the heart of a new AOL Foundation site.
"Obviously any medium can be most effectively used by big entity with a brand name," added Schmidt. "However, before the Internet there was no medium, other than word of mouth, for small charities to communicate. The Internet will be a great leveler."
In a remote corner of Southeast Washington, a group that makes and delivers meals to AIDS patients has marshaled the power of one of the world's largest accounting and consulting firms, Ernst & Young.
The firm has devoted a team of high-tech specialists to creating an interactive, state-of-the-art site for Food and Friends, to replace its low-tech page. The new site will allow the charity to take donations online and solve one of its biggest accounting headaches.
Each year during the AIDS Ride, donors send in more than $4 million to Food and Friends. An army of volunteers and staffers open about 50,000 envelopes with checks and forms and tally both gross and individual totals for each of 1,900 or so riders.
The new Food and Friends site will automatically tally money donated online. And the site will sort out the confusing tangle that occurs at an organization that depends on 700 volunteers a week to deliver food.
"We happen to have garnered the resources of a generous, multibillion dollar consulting agency, but even without them, the Internet was giving us a leg up," said the charity's executive director, Craig Sniderman.
Ernst & Young hopes the Food and Friends project will help it market services to larger nonprofits and companies. The intermingling of charitable and profit motives is fine, Sniderman said. "If forced to chose between appealing to a business's charitable side and its marketing side, I'll chose their marketing side every time, because they'll give more."
Businesses hoping to cash in on e-philanthropy are offering a multitude of services, beyond developing sites. Several certify the security measures of charities that accept online credit card donations. Others have developed technology that allows a donor to pay through his or her telephone bill.
AllCharities.com collects donations for charities and turns over 100 percent of the money. It hopes to earn money back by offering other Web-based services to the charities, such as making their own Web pages capable of accepting donations.
It is the profit-sharing partnerships between business and charity that have some observers concerned. "Cause-related marketing," the subject of much hand-wringing for a decade, last year raised $9 billion for charity. But the Internet is exploding the trend.
The potential is enormous. Online shopping malls alone could transform philanthropy if charities can capture even a fraction of a percent of a business that some experts predict will generate $3 trillion in sales within five years.
The online shopping malls that share profits with charity are in the odd position of not competing on prices. Prices are set by retailers, including large department stores, who give the mall site owners a commission for selling their wares. Instead, the mall sites compete by offering consumers better donations to their favorite charity.
Shoppers in this strange new world may find themselves looking not only for the best deals for themselves, but for their charities. One donation comparison: charitableway.com will give least 90 percent of its commission to the charity designated by the shopper.
"Where business begins and charity ends is becoming ever more confusing," said Schmidt, of Guidestar.
But for the moment, many charities show more anxiety about where they are sitting on the train than the ultimate destination. "We haven't heard any of our 6,000 nonprofit partners worrying about the lines blurring," said Robert Grosshandler, CEO of iGive. "We're being asked, 'How can you make this a more effective venue, and how can we do more?' "