Adam Rosenzweig knows quite a bit about nonprofit IT, and how funders can serve their grantees’ tech needs. He’s currently a lecturer at the Haas School of Business at the University of California, Berkeley, and also has part-time gigs as interim chief of staff at the nonprofit Nexleaf Analytics and as an advisor at Platypus Advisors, a consulting firm. Until January of this year, though, Rosenzweig worked as the director of Tech for Good, a program designed by the cloud-based security software company Okta that aimed to help nonprofit organizations access the company’s services.
It was in that role that Rosenzweig developed the idea of “subscription philanthropy,” whereby grantmakers would “subscribe” to provide regular, ongoing support to nonprofits. Such support would, in a way, mirror the increasingly subscription-based IT services nonprofits must find ways to pay for these days, and is meant to be responsive to those evolving needs.
If this concept sounds a lot like the philanthropic holy grail that nonprofits have spent decades pushing for — multi-year, general operating support — well, that’s because at its core, it is. But there are some distinctions, which we’ll get into below.
But whether or not funders and nonprofits ever get on board with some form of subscription philanthropy, Rosenzweig’s reflections highlight ongoing rapid shifts in how nonprofits (and all organizations) pay for technology today, and touch on larger questions around why so many wealthy foundations still seem to have trouble pitching in with anything other than restricted project support. This interview has been edited for length and clarity.
I wanted to start off by getting our readers to think about how we pay for technology these days. A laptop or keyboard is a one-time purchase, and perhaps people buy Microsoft or Adobe products, but monthly streaming services have become an increasingly large proportion of technology purchases, haven’t they?
That’s exactly right. When I started my career, we were still buying our Microsoft Windows in a box, and that’s how a lot of people bought technology for a really long time. When you buy technology in a box, you can use it forever. Microsoft can’t come and take the CD away from you the way [a company like Netflix] can turn off your subscription, right? When you bought technology that way, as a capital expenditure, you gained an asset. When you buy a subscription license, you have an expense. It is not an asset, it’s not yours, you’re just paying for access to something that somebody else owns. That totally changes the way that that technology is accounted for. That makes technology much more obviously an overhead kind of item.
This is a secular trend, across industries and sectors, this sort of move to the cloud and the way that organizations have to do that. Digital transformation is also a secular trend, and nonprofits are also recognizing that they can and should use technology to change how they do business. And there are some traditional funders who are uncomfortable with that. I don’t mean to disparage them. Everyone who is in this work is doing it for the right reasons. But there is that lingering sort of overhead myth; this feeling that I want my charitable dollars to go to the cause. And it’s a misunderstanding of how the cause is effectuated in the modern world. It’s not sexy to fund someone’s Salesforce subscription, but Salesforce powers a lot of really good work.
Just how prevalent is subscription-based IT these days? Do we know what proportion of the IT that nonprofits are using is made up of subscriptions vs. one-time purchases?
In my experience working at Okta, we know every single application that our customers use, because they run all their applications through Okta as a front door. In 2018, we disaggregated that data by sector and we looked at nonprofits, specifically, over the course of the previous several years. It’s not a representative sample, because nonprofits that use Okta are probably more likely to adopt tech. But even still, the number was creeping up from 30 to 50 applications per organization. Some of those are free, but some of them are paid. While I don’t have [the number] and really wish I did, NTEN used to publish the proportion of nonprofit budgets that go to tech. That is a number that I would love to see. Because if you could remove hardware, you can almost guarantee that nonhardware, subscription tech expenses are the biggest expense for the vast majority of nonprofits.
(Note: We may not have exact numbers on the percentage of IT expenses taken up by subscription services or the proportion of nonprofits’ overall budgets that are dedicated to IT, but according to the Technology Association of Grantmakers’ 2022 State of Philanthropy Tech report, roughly 51% of funders allocate from 6% to more than 10% of their budgets to IT expenses, while 50% of funders spend 1% to 5% of their budgets on IT.)
How has this switch to subscription-based technology impacted nonprofits’ bottom lines, and do you think institutional funders have kept up with these developments in terms of supporting nonprofits with these emerging expenses?
So a lot of the research that was being done by institutions in the nonprofit sector paused during the pandemic, so the data that I have been able to find on this is a little bit dated. And actually, if anything, the pandemic has made the shift to subscriptions more extreme because so many people suddenly went to remote work. So if anything, we are kind of undercounting the impact of technology on people’s books and their operating models.
But in terms of funding, in October 2020, the Center for Effective Philanthropy compiled a report looking at the prevalence of multiyear general operating support over the prior 10 years. According to their report, 57% of grants were multi-year and 21% were for general operating support, but only 12.5% of grants were both. But multi-year, general operating support is what organizations need in order to make decisions about how they will spend their money and to be able to plan more than a few months in advance.
So the vast majority of institutional dollars are not giving nonprofits the flexibility that they might need. And again, the fact that these grants aren’t for general operating support typically means nonprofits aren’t able to use them to expand overhead, including for expenses like new subscription technology needs.
I know you’ve been talking about your idea for subscription philanthropy for at least a year. How and when did this idea first occur to you, and how does it relate to paying for tech service subscriptions?
It was my privilege to manage Okta’s nonprofit programs for almost five years. Okta’s a cloud-based cybersecurity tool, and I was thinking about how to make this tool as accessible as possible to nonprofits all over the world. Okta is a SaaS business: subscription as a service.
We were talking about the fact that, when an organization gets a grant to buy something like Okta, they’re going to need to pay it the next year, too, and the year after that. So are we dooming them to just keep going out and asking for the same money every year to pay for something that we can tell you right now that they’re not going to stop using?
For most of these tools, you don’t use them for a year and then move on to something else. They become your operating foundation, whether you’re talking about basic things like your collaboration suite, like Google Workspace or things like Slack or Zoom. These applications and their fees don’t go away. That’s not a bad thing; that just means you’re a modern organization and the rules of doing business have changed. And so it just became very clear to me that the funding mechanisms that nonprofits rely on don’t match this new expense category. And so I thought, well, what can we do about that? Could you make the funding stream match the expense stream, and what would that actually look like? And I wondered if something like this already existed in some form.
Well, individuals do make recurring donations. I can’t find reliable statistics for the percentage of individual donors that make recurring gifts, but [the existence of recurring gifts indicates] that individual donors understand that if they believe in a cause, and they want to see that cause grow and do well, that they need to sign up and back that cause until they don’t [have to] anymore. That’s really powerful because foundations and institutional funders are also populated by human beings who intuitively understand that these causes are not going to get solved tomorrow, and so we need to have nonprofits’ backs in the long run.
How do you envision subscription philanthropy working?
Imagine that I work for a foundation and I want to subscribe to one of my grantees. What that means is that I make a commitment that probably looks a lot like a multi-year grant offer. That commitment could be for a fixed amount each year, or for a fluctuating amount. So for example, I could say, I’ll give you a grant that’s going to fluctuate based on your technology costs. So if your indirect costs go up a little bit next year, I’ll give you a little bit more next year, and so on. This gives the power to the grantee to determine how they want to spend their money to pursue their mission. You could limit those fluctuations by either an absolute maximum dollar amount or define it as a percentage change each year.
Of course, this begs the question of whether or not this lasts forever — what does unsubscribing look like? But we have models for what it means to unsubscribe from a service, and we have models for what it means to discontinue philanthropic support. And I don’t think it would be that complicated to imagine a funder and a grantee agreeing to terms.
Do you actually envision nonprofits having the power to set the terms?
That question gets to the heart of why this is important, because it puts the power in nonprofits’ hands to say, “This is what we need,” rather than respond to funders saying, “This is what we want to see.” I could absolutely see nonprofits setting standard terms across the industry. Subscriptions aren’t some complicated financial tool, right? They’re pretty simple financially. The idea is really more philosophical: Are we willing to give nonprofits the power to innovate and do what they need, or do we in the philanthropy community want to continue to call the shots?
So why not just push for multi-year general operating support?
If the nonprofit sector moved toward a multi-year, general-operating-support-by-default culture, that’d be a win for the subscription philanthropy mindset, I would say. That is the gold standard right now for funding, and we’re not even close to it being standard operating procedure. The value of the subscription philanthropy idea, in my mind, is to draw a stark contrast between traditional funding mechanisms and the way nonprofits experience tech expenses. It calls out the disconnect more clearly, and makes it clear that your grantees are faced with a type of expense that you’re guaranteeing they live in fear of losing by funding them in the traditional way. And we have to do something about that.
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