A few weeks ago, I was reading about the dating app Tinder’s remarkable rise from a popular but penniless service, to one which is expected to bring in over £80m revenue in 2016. This got me thinking. Social apps like Tinder, Twitter, Facebook and Skype face the same fundamental funding challenge as many not-for-profit organisations. Key to both of their missions is to make their services as accessible as possible to their users, which normally means offering them for free.
In the technology world, people talk about the challenges of “monetizing” their product or service, whilst the buzzword we use in the social sector is how to become “sustainable”. But putting the semantics aside, this essentially boils down to the same funding dilemma – how do you fund your organisation when charging your end user is a no-no?
Traditionally, charities have tackled the problem through accessing grant funding, delivering public sector contracts or drawing on the goodwill of individual and corporate donors. For-profit technology companies like Tinder have never had the luxury of grants and donations, yet many have achieved impressive revenue. This all raises an interesting question. At a time when government grants are at an all time low, is there something that charities can learn from the technology sector to help plug the gap?
I’ve decided to dig a little deeper into two of the most lucrative models that tech companies use and draw out some lessons for the sector
The “Freemium” revenue model is one of the most popular approaches to currently being adopted by tech companies. Users get the main service for free, but they can either upgrade to a premium account with additional features or make in-app purchases, which generate income for the company. This is exactly the approach taken by Tinder.
So is this something that charities can embrace?
Fortunately, there is already a precedent for this in the sector. One organisation I previously worked with developed a highly successful “freemium” revenue model for their housing support service (which provides support to vulnerable adults around making adaptations to their properties). The tiny local authority contract just about covered the costs of a couple of staff to provide advice and surveying. However, by adding on a charged-for handyperson and gardening services, the organisation was able to triple the size and income of the service.
The corporate sponsorship model is a relatively new entrant into the app world. There are two ways in which this can work. The first is a simple sponsorship where the corporate pays for their brand to be displayed prominently across the app, benefiting from the positive user experience. The second is an affinity relationship where the app incentivises the use of the partner’s products, e.g. by unlocking discounts or rewards.
So what can charities learn from this approach?
Corporate partnerships are nothing new in the non-profit sector and many organisations have generated significant income by incorporating this within their fundraising strategy. What is surprising, however, is that this source of income is falling across the sector as a whole at a time when corporate profits are on the up. One problem is that many charities are too focused on chasing donations or support in-kind and fail to develop partnerships that make sense to the corporate.
Where tech companies can teach charities about sponsorship is the importance of mutually beneficial relationships. Charities have incredible powerful brands that can be highly attractive to a partner who wants to promote their product either through straight sponsorship or affinity approach. In many cases, the right partnerships can even add value to the end beneficiary too, for example, by providing them with a discount.
Just a funding dilemma?
If only it was as easy as being an internet start-up! There are things to learn from monetisation of apps, but for not for profits, these approaches present an ethical minefield. There are significant implications for adopting these models and they should be considered very carefully with your trustees and against charitable objectives. Charities occupy a unique position in the public’s trust and recent furore around fundraising practices has made it increasingly difficult to justify more commercial models of revenue generation.
However, when traditional funding for services is being drastically cut, we all should look outside our existing business models for inspiration. Swipe right and you might just find a match with your ethics and ambitions!