Non profits

Working business models are a must!

While lots of my friends from the valley scoff at my conservative "income has to match or exceed expenses" approach to running a non-profit, I'd like to think there is some basic sense in adhering to the laws of business.

Case in point Divx recently shut down Stage6:

So why are we shutting the service down? Well, the short answer is that the continued operation of Stage6 is a very expensive enterprise that requires an enormous amount of attention and resources that we are not in a position to continue to provide.

While filling a need or building a cool site on the net is fun, the laws on the Internet apply to everyone: Success is expensive! Building a cool site like Stage6 may fill a need on the net. But if you don't have the business model to support your service, success will kill it. This sounds totally counter-intuitive, but hosting tons of traffic on the net isn't cheap -- especially if you're serving tons of video! Its important to have income match your traffic -- if you cannot derive cash from traffic, you're going to die. Its really that simple.

Wikipedia is in the news again, for the same reason:

"Imagine if the other top 10 websites in the world, like Yahoo or Google, tried to run their budgets by asking for donations from 14-year olds," said Chad Horohoe, a 19-year-old college student in Richmond, Va., who was until recently a Wikipedia site administrator, one of the 1,500 or so people authorized to delete pages or block users from making changes to articles. "It isn't sustainable."

Sad, but very true. A few years ago I had hoped that donations could help artists/musicians/hackers etc, but I think I'm finally done with that notion. People aren't willing to open up their wallets enough to really make anything serious happen. Hosting a site with donations? Yes. Paying a paycheck: Not bloody likely.

Case in point: MetaBrainz took in 16.5% ($14,780.59) of total income in end-user donations in 2007. Our hosting expenses were 13.6% ($12,240). But paying out one meager salary (at about 1/3 of market value) was 44% ($39,500). Our donations were not even close to covering that cost.

The moral of the story: You need a business model that works. Especially so, if you're in the non-profit sector since the "sell out to Google" model doesn't work. So, Wikipedia, find a model to license your pages for commercial use -- do it now!

Call me if you want me to pop in sometime and share my thoughts with you. :)

Posted by Mayhem at March 10, 2008 04:35 PM