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Web commerce – Working digital markets

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By Todd Cohen

Welcome to Philanthro-Mart.

Online superstores are emerging to feed the shopping appetite and business needs of U.S. nonprofits, which spend an estimated $197 billion a year on products and services alone.

These digital marketplaces aim to streamline buying, delivery and back-office operations for a sector that’s huge — accounting for 6 percent of the gross domestic product – but also fragmented and focused on mission, not buying.

“Procurement is not a major function for nonprofits, but it’s a major cost,” says David Wyld, an associate professor of management at Southeastern Louisiana University in Ponchatoula, La., who tracks Web commerce.

That makes the charitable market ripe for online business-to-business exchanges, giving entrepreneurs and others an incentive to pull together suppliers and nonprofits, he said.

emarketplaces come in a variety of flavors. Some aggregate suppliers. Others pool nonprofit buyers. Still others aim to boost the contribution of goods to nonprofits and their clients.

“Nonprofits should have a lot of choices in that area and should be able to choose those best able to suit their needs,” says David Eisner, senior vice president of the AOL Time Warner Foundation, which operates the helping.org Web portal that helps people volunteer and make donations.

Whatever form they take, the goal of online exchanges is to make a market big enough to command lower prices and customized products and services from suppliers.

“The drive there is most often one of necessity,” says Ken Weber, director of global services for nonprofits for CommerceOne, a business-to-business Internet firm in Pleasanton, Calif.

And necessity has been the mother of invention for the ephilanthropy marketplace. 

ONLINE PROCUREMENT

Consider NFPBuyer, an online purchasing agent whose founders had helped colleges, universities, nursing facilities and churches negotiate big capital projects.

“We saw that colleges and universities tended to buy a lot of the same things at the same times, but they tended to operate independently,” says Jonathan Mool, vice president for marketing for Minneapolis-based CommerceExec, which owns and operates NFPBuyer.

Launched in March 2000, the procurement firm has negotiated special pricing with a handful of suppliers such as Boise Cascade and Office Depot.

The company — which markets itself to large nonprofit groups with members that are religious organizations or colleges and universities, as well as retirement communities — has raised $1 million from investors and expects transactions to exceed $30 million by the end of the year.

Procurement by school systems, colleges and universities also is the target market of Simplexis, a San Francisco company chaired by Lamar Alexander, a former U.S secretary of education, that has raised $35 million from investors.

Competing with a handful of other companies, Simplexis sells software to help clients streamline procurement by moving it from paper to the computer desktop.

Clients buying the software get access to a Web site to make purchases from their own pre-approved vendors. The customized software is designed to ensure that clients comply with regulatory or institutional rules and policies.

Simplexis handled $20 million in transactions through last August in its first four months of operation, and aims to generate $10 billion in savings for its customers by 2005 through aggregated buying and more efficient purchasing.

The company has shifted its revenue strategy from transaction fees to suppliers to per-student subscription fees to customers for the use of its procurement software.

Once it is handling big-enough purchasing volumes, Simplexis plans to begin marketing itself to nonprofits, as well.

“It’s a very big market, but it’s very fragmented,” says CEO Amar Singh. “If you have enough critical mass of suppliers, it becomes valuable for nonprofits to log on. We don’t have a big Wal-Mart yet.” 

SUPPLY-CHAIN MANAGEMENT

Yet another online exchange, Aidmatrix, aims to plug nonprofits into software widely used by businesses to manage decision-making along the entire supply chain.

Aidmatrix was created in October 2000 by the i2 Foundation, which had been endowed with $20 million by employees of Dallas-based i2 Technologies, the biggest maker of supply-chain-management software.  

Aidmatrix grew out of foundation officials’ concern over what they saw as a mismatch between supply and demand in disaster-stricken areas.

“People weren’t getting what they needed,” says Kristy Dooley, Aidmatrix’ executive director and a former Bain & Co. strategic consultant.

Aidmatrix uses i2’s supply-chain software to help nonprofits manage the flow of products from donors to clients, and to gain access to new donors.

In a test project, Aidmatrix is connecting the North Texas Food Bank in Dallas with donor firms, truckers and agencies needing food.

Grocers and truckers, for example, will be able to use the Aidmatrix site to post information about available products and pickup times, respectively, and food pantries will be able to order products and schedule pickups.

Aidmatrix also has teamed up with First Book, a nonprofit in Washington, D.C., that gives poor youngsters their first books.

Aidmatrix helps First Book distribute unsold inventory from book publishers, and helps literacy groups place orders with First Book’s national book bank.

And because First Book generally serves the same low-income population as the Food Bank, Aidmatrix hopes to help piggy-back the delivery of books and food.

After testing its supply-chain strategy in Dallas, Aidmatrix will expand to other food banks and to nonprofits distributing medical supplies and other aid items.

And Aidmatrix, with donated servers and hosting from Sun Microsystems and EDSSabre, soon will launch a European operation. 

DESKTOP BACK-OFFICE

Procurement is simply one feature in a back-office technology “platform” for nonprofits being developed by B2P, a Chicago-based company that teams with groups serving large numbers of nonprofits.

“What we do is go after large chunks of smaller and medium-sized buyers and we aggregate the market,” says Jason Saul, the company’s founder and CEO.

Rather than asking nonprofits to go online to do their shopping, Saul says, B2P aims to deliver a full range of business functions – including procurement – either to their desktops or to the sites of B2P’s “channel” partners that serve nonprofits.

B2P — which has raised $1 million to $2 million from investors and whose partners represent 187,000 nonprofits — identifies nonprofits’ needs and invites big firms to offer discounts and develop customized products and services.

So far, B2P’s platforms features 10 specialized Web-based business tools, such as an insurance aggregator that lets nonprofits get multiple bids on directors and officers coverage; information-technology support that nonprofits can order from a desktop; a self-maintaining Web site that nonprofits can build and update; and a procurement center for ordering commodities like printer cartridges or paperclips.

Nonprofits in the B2P system can buy products and services in two ways –- either through free use of a “nonprofit business center” that the company builds for its channel partners, or through a “nonprofit desktop manager,” a Web-based business-operations platform that an individual nonprofit can lease for $40 a month.

For the Delaware Association of Nonprofit Agencies, for example, B2P built, hosts and maintains a business portal that the association’s 380 members can use to order everything from pencils to customized services.

“Our members alone will spend over $2 billion,” says Drew Hastings, the association’s president. “It’s a market worth attempting to aggregate and streamline.”

Members also can lease the desktop manager and use it to handle all aspects of administration, including procurement. Using the desktop manager, for example, a nonprofit officer could find a product, get approval from a supervisor, place an order, cut a check and log it in the organization’s accounting program.

And association members without their own Web site – more than half the membership — can lease B2P’s customizable Web site for $24.95 a month.

Still, procurement represents only a single aisle in the online exchange business for nonprofits, Saul said.

And the key to cornering that market, he says, is to build Web-based tools that deliver nonprofit business needs ranging from commodities to financial and business services.

“We want to own the nonprofit desktop,” he says.

Ultimately, ephilanthropy exchanges themselves could be aggregated as part of a “global trading web” envisioned by CommerceOne, which has advised more than 200 large nonprofits on ecommerce issues.

“These are all business-to-business transactions,” says Weber, who heads CommerceOne’s nonprofit practice in Arlington, Va. “Can Web technology help to streamline those and make them more efficient? Absolutely.”

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