an internet-enabled donor-to-nonprofit (d2n) marketplace

An Internet-Enabled Donor-to-Nonprofit (D2N)

Marketplace

Prabuddha De

Purdue University

Kemal Altinkemer

Purdue University

Zafer OzdemirMiami

University

Yasin OzcelikFairfield

UniversityPurdue University, West Lafayette, IN

Oct. 5, 2007

The nonprofit sector• Close to 2 million nonprofits• U.S. households give over two

percent of income to charities on average.

• Accumulated assets of $1 trillion• Annual donations of about $300

billion

Fundraising the old-fashioned way

Fundraising and the Internet• Shift in giving patterns• Timely response to emergencies• Cost of campaigns

The new way

Online services for donors and nonprofits• Online database to search for

nonprofits– GuideStar: www.guidestar.org

• Online evaluation, accreditation, and seal programs– Charity Navigator: www.charitynavigator.org

– The American Institute of Philanthropy (AIP): www.charitywatch.org

– The Best Business Bureau’s (BBB) Wise Giving Alliance: www.give.org

Our focus• Donor-to-Nonprofit (D2N) marketplace• Issues of interest:

– Pricing of database and certification services

– Accessibility/awareness of the database service

– Accuracy of the certification process– The effect of online services on

• total fundraising revenues• fundraising effectiveness

Related literature• No study on nonprofits in top IS

journals• Methodologically:

Our analytical model

• Variety in organizational missions

• Fundraising activities

• Variety in organizational effectiveness

• Donors’ search for charities

Horizontal differentiation (linear city market)

Hotelling (1929)

AdvertisingGrossman and Shapiro (1984)

SignalingSpence (1979)

SearchWolinsky (1984)

A game theoretic model of fundraising

• Spatial linear city market with 2 nonprofits at both ends.

• “Potential” donors uniformly distributed along the periphery of the market.

• Potential donors’ willingness-to-give to a nonprofit depends on:

– awareness– mission fit– expected quality– donor’s own type (private information)

A game theoretic model of fundraising (continued)

• Nonprofits’ qualities are not known a priori.• Potential donors may give only to those

nonprofits they are aware of. – They may be contacted by one or both nonprofits.– They may search themselves (offline or online).

• Nonprofits incur costs to contact potential donors.

• Potential donors incur a cost each time they sample a nonprofit.

• Nonprofits maximize their net fundraising revenue (following the literature on revealed objectives of nonprofits).

Basic structure of the market

High willingness-to-give

Low willingness-to-give

1-

Expected quality same for both nonprofits in the benchmark case

?

Wait and hope to be contacted…

What’s a potential donor to do?

?

N1 N2

The extensive form of the game(benchmark case)

1. Nonprofits decide on their optimal fundraising reach (r1 and r2) and contact potential donors randomly.

2. Potential donors decide whether to search for a nonprofit depending on their type and whether they have been contacted.

3. Each donor decides where and how much to donate based on his/her type, awareness of the nonprofits in the market, and belief about their quality.

The market after solicitations are complete (benchmark case)N1

r1

N2

r2

r1r2

r1 (1-r2)

r2 (1-r1)

(1-r1) (1-r2)

(1-)r1r2

(1-)r1 (1-r2)

(1-)r2 (1-r1)

(1-)(1-r1) (1-r2)

Fully aware

Fully aware

Aware of N1 only

Aware of N2 only

Unaware

Aware of N1 only

Aware of N2 only

Unaware

The market after solicitations are complete (benchmark case)N1

r1

N2

r2

r1r2

r1 (1-r2)

r2 (1-r1)

(1-r1) (1-r2)

(1-)r1r2

(1-)r1 (1-r2)

(1-)r2 (1-r1)

(1-)(1-r1) (1-r2)

Fully aware – no search

Fully aware – no search

Aware of N1 only – Search for N2

Aware of N2 only – no search

Unaware – search (twice if necessary)



Unaware – no search

Aware of N2 only – Search for N1


The market after donations are complete (benchmark case)N1

r1

N2

r2

r1r2

r1 (1-r2)

r2 (1-r1)

(1-r1) (1-r2)

(1-)r1r2

(1-)r1 (1-r2)

(1-)r2 (1-r1)

(1-)(1-r1) (1-r2)Do not donate

Donate to N1 Donate to N2



Donate to N1

Donate to N1

Donate to N2

Donate to N2Do not donate

Do not donate

Do not donate

Search once – Donate to N1 Search twice – N2Search twice – N1 Search once – Donate to N2

The benchmark case result

Fundraising revenues (total and net) increase with the expected quality of nonprofits and decrease with search and contact costs.

The D2N marketplaceProvides two services:• Database – for a fee, allows

potential donors to search online and observe the contact information and mission of both nonprofits. Only a fraction () of the donor population can use the service.

• Certification – for a fee, allows nonprofits to certify their quality. Not perfectly accurate.

Maximizes the usage of its services.

The extensive form of the game with the D2N marketplace

1. The D2N marketplace decides on which services to offer and announces its price(s) for its chosen service(s).

2. Nonprofits observe their own qualities and decide whether to apply for quality certification, the results of which are made available to both nonprofits. Nonprofits decide on their optimal fundraising reach (r1 and r2) and contact potential donors randomly (with or without the certification).

3. Potential donors update their beliefs about the quality of contacting nonprofits based on the available certification (or lack thereof).

The extensive form of the game with the D2N marketplace (continued)4. Potential donors decide whether to

search for a nonprofit depending on their type and whether they have been contacted. Potential donors may either do a traditional (offline) search or subscribe to the marketplace’s database and search there. In both cases donors learn the certification status of the nonprofit(s) they find.

5. Each donor decides where and how much to donate based on his/her type, awareness of the nonprofits in the market, and belief about their quality.

Solve for perfect Bayesian equilibria (PBE).

The market after donations are complete (with the D2N marketplace)N1

r1

N2

r2

(1-)’r1r2

(1-)’r1 (1-r2)

(1-)’r2 (1-r1)

(1-)’(1-r1) (1-r2)

(1-)(1-’)r1r2

(1-)(1-’)r1 (1-r2)

(1-)(1-’)r2 (1-r1)

(1-)(1-’)(1-r1) (1-r2)

Do not donate




Donate to N1

Donate to N1

Donate to N2


Do not donate

Do not donate

The segment without access to the database

Search once – Donate to N1 Search twice – N2Search twice – N1 Search once – Donate to N2

The market after donations are complete (with the D2N marketplace)N1

r1

N2

r2

’’r1r2

’’r1 (1-r2)

’’r2 (1-r1)

’’(1-r1) (1-r2)

(1-’’)r1r2

(1-’’)r1 (1-r2)

(1-’’)r2 (1-r1)

(1-’’)(1-r1) (1-r2)Do not donate




Donate to N1

Donate to N1

Donate to N2


Do not donate

Do not donate

The segment with access to the database


Donate to N1

Donate to N1

Donate to N2

Donate to N2

Price of database and optimal fundraising reach

Lemma: A service-maximizing D2N marketplace offers its database to the public free of charge.

Proposition 1. The optimal fundraising reach increases with an organization’s expected quality level. The optimal fundraising reach increases further when the competing organization is certified.

Characterizing the PBEGiven appropriate pricing, expected increase

in net fundraising revenues due to applying for a certification should be

• positive for a high quality nonprofit and negative for a low quality nonprofit in a separating equilibrium.

• positive for both types of nonprofits in a pooling equilibrium.

• neither of the above in a hybrid equilibrium.Potential donors’ beliefs on qualities are set

in accordance with equilibrium behaviors of different types of nonprofits.

The perfect Bayesian equilibria of the game

Proposition 2. There are three types of PBE.

a. Separating equilibrium: only high quality nonprofits get certified.

b. Pooling equilibrium: both types of nonprofits apply for certification.

c. Hybrid equilibrium: high quality nonprofits always apply for certification; low quality nonprofits apply with some positive probability (less than one).

Parametric regions for the equilibria

Cost of certification (c)

Acc

urac

y of

cer

tific

atio

n ( μ

)

Low High

Low

Hig

hSeparating

Equilibrium

Pooling Equilibrium

Hybrid Equilibrium

(a)

Parametric regions for the equilibria

Accessibility of database ( )

Acc

urac

y of

cer

tific

atio

n ( μ

)

Low High

Low

Hig

hSeparating Equilibrium

Pooling Equilibrium

Hybrid Equilibrium

(b)

Total net fundraising revenueProposition 3. If the cost of

certification is sufficiently high, the total net fundraising revenue in the market may drop after the emergence of the D2N marketplace, despite the comprehensive and free database service.

Comparisons of total fundraising revenues

Accessibility of database ( )

Fund

rais

ing

reve

nue

Low High

Net (benchmark)

Total (benchmark)

Net (with D2N – c high)

Total (with D2N)

Net (with D2N – c intermediate)

(a) Accessibility of database ( )

Fund

rais

ing

reve

nue

Low High

Net (benchmark)

Total (benchmark)

Net (with D2N – c high)

Total (with D2N)

Net (with D2N – c zero)

(b)

Separating equilibrium Pooling equilibrium

Comparisons of fundraising effectiveness

Accessibility of database ( )Low High

Benchmark

With D2N – c intermediate

With D2N – c high

(a)

Fund

rais

ing

effe

ctiv

enes

s

Accessibility of database ( )Low High

Benchmark

With D2N – c zero

With D2N – c intermediate

(b)

Fund

rais

ing

effe

ctiv

enes

s

Separating equilibrium Pooling equilibrium

Accuracy of certification

Proposition 4. A service-maximizing D2N marketplace prefers a less costly and less accurate certification process over a more costly and more accurate one.

Implications• Charging the lowest database subscription

fee helps nonprofits increase their fundraising effectiveness.

• To be able to certify more nonprofits, D2N marketplaces should seek to reduce certification costs.

• A reduction in the accuracy of the certification service (due to lowering its cost) is fine for D2N marketplaces.

• The reduction in certification cost helps nonprofits increase net fundraising revenues (which will be used to support their own services).

A quote on the rating services of Charity Navigator, the AIP, and the BBB

“It is irresponsible not to educate donors on the many aspects of [nonprofit] effectiveness beyond the financials.”

Lowell, Trelstad, and MeehanStanford Social Innovation

Review, 2005

Potential future research directions• Oligopolistic competition among

D2N marketplaces• Optimal design of certification

criteria

Questions

???

Thank you!!!

☺

an internet-enabled donor-to-nonprofit (d2n) marketplace

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