In 1995 Clayton Christensen coined the terms “disruptive technology” and “disruptive innovations” to describe technological innovations, products or services that use a “disruptive” strategy rather than “revolutionary” or “sustaining” strategies to overturn dominant or status quo products in a market.

“Disruptive innovations” can occasionally come to dominate an existing market, either by filling a role that the older technologies couldn’t — as cheaper, smaller sized flash memory is doing in the personal data storage area. Or by successfully moving up-market through performance improvements until finally displacing the market leaders and incumbents — as digital photography replaced film photography as the front-runner.

Which leads me to wonder if the “disruptive innovation” of peer-to-peer philanthropy – the third party giving sites like Global Giving, Kiva, DonorsChoose and Social Actions – will eventually replace the big, brand name nonprofits? Afterall, dozens of these sites have sprung up in recent years and they’re raising tens of millions of dollars for good causes. Many experts in the field are predicting exponential growth.

Last week’s Chronicle of Philanthropy carried a well-researched, well-analyzed piece on the rising number and early successes of the on-line peer-to-peer philanthropy groups with websites that enable small donors to make gifts or loans directly to charities, individuals or schools.

While the piece mainly focused on the issue of if and how these groups should charge administrative fees for their services, a quote from Charles Best, the founder of DonorsChoose – whose volume is doubling nearly every year — made a point about why these sites are increasing in popularity.

“Our Web site does attract some people who have become skeptical about writing checks to big institutions. They didn’t know where their money was going, and didn’t have a connection to people touched by their gifts.”

For the past three years we’ve been warning Agitator readers that “brand organizations” should no longer take for granted their brand dominance and the security it provides. And here’s yet another wake up call.

Of course the rise of these peer-to-peer sites bespeaks innovation. But quite frankly, this rising phenomenon speaks equally to the laziness and head-in-the-sand attitude of too many of the big boys who should have, could have, and still can be making a similar case and approach for themselves.

Part of the reluctance no doubt goes to the almost genetic aversion big groups have for earmarking contributions. (“We’re writing and asking you to support programs about water quality, but we really want some funds for the new office building.”)

But the fact is growing numbers of today’s donors – as seen in a variety of surveys including our most recent DonorTrends 2008 Survey and in the rising popularity of sites like GlobalGiving – want to be more directly involved in the objects of their beneficence.

Is it too late for the big boys? Have they missed the boat? I posed these questions to Dennis Whittle, the former World Bank exec who founded GlobalGiving eight years ago. Dennis, whose gentle words and steel-like determination make him the great fundraising pioneer he is, diplomatically answered my questions by reminding me of the "Innovator’s Dilemma".

“Innovator’s Dilemma” — a term also coined by Clayton Christensen in his 1997 book titled the same — describes how incumbents typically compete by continually adding new features or more complexity, eventually overshooting the requirements of their target market and providing an opportunity for upstart competitors to provide a lower-cost "good enough" solution.

In kicking this around with my colleague Ryann Miller, the Managing Director of DonorTrends, who watches online developments like a hawk, it’s clear that the “problem” the larger charities have isn’t one of technology. After all, they too have online donation pages, and most have very in-depth programmatic operations that extend far, far beyond the web and technology.

At the heart of the Innovator’s Dilemma for the larger, older, most historically successful nonprofits is the bind of general or unrestricted funds philosophy and the need to find ways to ‘earmark’ and connect donors and recipients in a better way. It’s less about one OR the other, and more about borrowing ideas from each, and mutually benefiting from the unique selling points of the third party fundraisers and embedding them in the all-too-staid conventional groups.

And of course, it’s all about mindset. And the willingness to adapt and change.

If CEOs and fundraisers in the big incumbent organizations affected by the rise of peer-to-peer philanthropy aren’t concerned and figuring out how to incorporate the innovating and compelling aspects of this new phenomenon, they oughta be fired!


This article was posted in: Communications, DonorTrends / DonorVoice, Nonprofit management, Online fundraising and marketing, Social media, Transparency.
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