What Nonprofit Leaders Need to Know

Written by Jim Fruchterman 
September 21, 2021

The modern nonprofit runs on software. The choice of which software can be critical in meeting mission goals. The wrong choice can impede the work of the team and their mission. One of the biggest questions that arises when making a major software decision is: open source or proprietary?

The answer is not easy, especially when the debate is traditionally dominated by arcane technical or legal concerns, or simplistic answers. Open source good, proprietary bad? Or open source bad, proprietary good? The answer is, it depends!

This short paper is intended to explain to nonprofit leaders how the open versus proprietary decision affects them and their nonprofit organizations. Our goal is to cut through the confusion and hopefully explain some of the trade-offs to non-technical social change leaders, so that they can better make some of these important decisions.

Open Source versus Proprietary Software

Let’s start by explaining the central dichotomy: what are the differences between open source software and proprietary software? At its most basic level, the source code for open source software is freely available to anyone to look at or even modify. The intellectual property is essentially owned by the community as opposed to a corporation. Typically open source software is free (though an organization might charge if they operate the software on cloud servers for others and/or provide support services).

The contrasting options to open licensing are proprietary approaches. The goal here is to not share the source code or IP freely, but control access to it, typically in the pursuit of profits. The proprietary model works well for for-profit businesses who want to make money. But what happens for software applications that may be incredibly useful and valuable, but the intended users cannot afford to pay (or pay enough) for it? Frequently, market failure means the needs of disadvantaged communities and the nonprofits which serve them simply don’t attract business interest.

Why do open licensing approaches matter when it’s unlikely that most nonprofits will ever want to take the software code and modify it themselves? It matters because it is a powerful option for overcoming market failure and getting software that meets the needs of the social sector. Furthermore, it’s a statement about joint ownership, which generally leads to greater trust.

In our experience, the currency of the nonprofit sector is not money, it’s trust. The proprietary versus open issue is not limited to situations of market failure, or nonprofit applications. There are nonprofits which provide proprietary solutions (often to build their brand and control those solutions). There are for-profit companies which make their core software open source without a licensing charge, and make their profits from services related to that software. However, it’s clear that the open approach contributes to increased trust in the open assets. One of the biggest benefits is freedom from the challenges for-profits face in providing solutions to the nonprofit sector. We know of many examples where technology products were suddenly withdrawn from nonprofits, because the for-profit company changed direction, leadership, or went out of business. Open source products don’t depend on the continued existence of the original developers: the open license makes it possible to find somebody else to continue developing and maintaining the software.

Open licensing makes it possible to share ownership of a digital item with everybody in the world at no cost, especially for cloud-based assets. This is well matched with the values of the social sector. If our nonprofit makes a video on hand-washing, or bullying, or how to find the length of the unknown side of a triangle, our mission-based goal might be to maximize the number of people who see our video. Open licensing is a strong statement of intent about freely sharing our work for the benefit of the larger community. In general, nonprofits creating digital assets, especially software, tend to choose open licensing because of its alignment with nonprofit values. And for-profit companies, which have a responsibility to increase wealth for their shareholders, tend to choose proprietary approaches.

The Move to the Cloud

Our focus in this paper will be on cloud-based software solutions (remote computers connected by the Internet) as this is the clear direction of the software industry.

This contrasts with twenty years ago, when most software ran on computers controlled by each organization. The phone system was probably on a computer in the equipment closet. Word processing was likely to be Microsoft Word 1997 or 2000, installed from a CD-ROM. A medium-sized nonprofit organization was likely running its own email server.

Today, in 2021, things have changed. Whether you are using a PC or a smartphone, there is likely to be a strong need to connect to the Internet to reap the full benefits of modern technology. Instead of running software on your device, cloud computing runs the software and stores the data on other computers, which are connected to users over the Internet.

Email is a classic example of this shift. Email always needed the network to function, but organizations rarely run their own email server in a closet in the office anymore. Large cloud companies like Microsoft or Google are running the email servers for most organizations. And, this shift goes far beyond email. Facebook is cloud-based. Streaming music and video services are cloud-based. Whether you are ordering something from Amazon, requesting a taxi ride, buying a pizza for delivery, or requesting somebody receive a payment, cloud-based software is running the show.

The shift to cloud computing has three main drivers.

  • The first is simplicity: modern cloud software doesn’t have to be installed on thousands of wildly different devices. It’s much easier to maintain a single version of the software designed to work with standard web browsers.
  • The second is increased power and capabilities. Huge amounts of data, and powerful calculations on that data, are only practical when many, many connected computers are involved. A home PC can’t have all music, all videos, all Facebook posts, or even all of Wikipedia on its hard drive.
  • The third is cost: giant data centers are much more economical at scale.

The advantages of cloud-based computing are strong, and it is hard to imagine sticking with the old way of doing things into the future. However, the dynamics of cloud-based computing has changed how the old open source versus proprietary question shows up today compared to decades ago. In the old days, an organization using open source software on their desktop computers incurred no day-to-day costs associated with the software. That’s because the cost of the PC, its storage (hard drive), its electricity bill, network connection, and tech support were all paid for separately. However, in the world of cloud computing, there’s usually a cost meter running associated with the costs of the servers (computers) located and managed by somebody else who wants and needs to get paid. Using cloud computing, the PC in the office just needs to have a network connection and a web browser: all of the hard work is done somewhere else.

If this sounds more expensive, it typically isn’t. The reason cloud computing swept the business world is because it generally lowered costs while improving products. But, the costs have moved around, and typically a big cloud company like Amazon, Google, or Microsoft is making a little bit of money every day on cloud computing activities.

OmniBread™, the Analogy

Let’s introduce an analogy to make these issues more real for a nonprofit tech future based on cloud computing involving open source software.

Imagine that Tech Matters, my nonprofit, has dedicated a major effort to coming up with the most fabulous bread recipe, OmniBread™, which will solve global hunger and turn rich omnivores into happy vegetarians, helping the climate crisis as well!

Our commitment is to share the recipe in complete detail with the world, so that anyone in the world can make the same wonderful bread, as long as they pay careful attention to our recipe and adhere to the highest professional bread-making standards. The way we carry out this commitment to sharing is by putting an open license on our recipe. For our OmniBread recipe, we choose an open Creative Commons license, a standard way of declaring our open sharing intent.

We’re also dedicated to long-term research to improve OmniBread and expect to release new versions of the recipe every year, also for free, and also under the same open license.

We can distribute a million (or a billion) copies of the recipe for free, because it’s just a recipe in an electronic document (or a blog post, or a Facebook post, etc.). Because we believe in the power of OmniBread to change the world for the better, we spend extra efforts publicizing the recipe and its benefits.

Anybody in the world can change our recipe. For example, anyone could add cherries to our recipe and call it SuperBread. We encourage innovation, although we don’t think most people can afford cherries, so cherries didn’t make it into our base OmniBread recipe.

When OmniBread version 1.0 is ready, Tech Matters launches an OmniBread program to actually bake the bread. Our focus is finding a revenue model that combines donations and grants with people paying us to bake and deliver the bread. We think actually baking and sharing the bread is critical to achieving our social goal, because people have to actually taste OmniBread to change their eating habits and eat less meat.

Baking and distributing one million loaves of bread is not free, although we have mastered the art of making both the best and cheapest bread in the world. We come up with a revenue sustainability model where donors pay for us to distribute bread to poor people at below cost, or even for free, while we make a small profit margin on bread we sell to rich people, to help pay not only for their loaves, but also something towards improving the recipe (bread R&D) and towards subsidizing the cost of loaves distributed to the poor. Since we are organized as a charity, making a profit isn’t our goal. If we make extra money one month, we just plow that money into making more subsidized loaves for needy people.

OmniBread Translated to Software

The OmniBread analogy highlights the difference from sharing something which is intangible and freely shareable (the recipe) and something which actually costs money to provide (the bread). The same distinction comes up between software, content and data, which can be easily shared freely, and something which actually costs money, which is operating a cloud service.

In building from this analogy, the open source software (the recipe) built by tech nonprofits like Tech Matters is free to everybody. The cloud platforms (the bread) we operate are not free, because we have to pay for storage and bandwidth and computer servers in data centers somewhere (the ingredients for the bread). We also have to find extra funding to pay for software engineers to keep improving our software (bread R&D) and to provide support to our users.

However, because we choose to make our software available under an open source license (in our case that is often an Affero General Public License), we have made it possible for anybody in the world to use our software (bake the bread themselves), or add new features to the software (the equivalent of placing cherries on top). While the software is free to use and adapt, actually running the software and hosting data will still incur the costs of cloud operations (paying for the costs of ingredients, people to bake the bread, and the electricity bill for the ovens).

Over the long term, it isn’t possible to operate a cloud platform for free. The money to pay for the team working on the platform, and the cloud operating costs, has to come from somewhere. This is familiar territory to nonprofit leaders, since the cost of their staff and programs need to come from somewhere. Donors and government grants might pay for all of these costs (the third-party payer model). In other cases, the users of the software might pay for all the costs. The most likely model for sustaining technology nonprofits seems to be a blend of both kinds of funding. Luckily, tech for good nonprofits only need to break even, unlike for-profit tech companies which need to make significant profits.

Tech nonprofits operating cloud platforms as a social enterprise (as these nonprofit projects with a mix of revenue sources are typically called) have most of the revenue models used in the for-profit world available to them. The main exception is the advertising-supported model, which makes most nonprofits uncomfortable, and generally doesn’t make enough money to really help most social enterprises. A fairly common model is the Freemium model, where most users are not charged anything (free samples in our bread analogy), but more intense users are expected to pay for a subscription which includes more services (more storage, more content, more features). This model is familiar to many people from news websites, which might allow two or three free articles a month, but then require payment to read more articles.

The Benefits of Open Approaches

Nonprofit leaders are responsible for making technology choices in the real world. Open source approaches are not always the best and most practical choice. I’m writing this article in Microsoft Word because my organization standardized on Microsoft Office a very long time ago, and there isn’t a powerful reason to change at this point. However, open source software is increasingly an exciting option for nonprofits choosing critical tech infrastructure for their programs and operations. This is especially the case when nonprofits in a particular field band together to use shared software solutions. This is the nonprofit approach to market failure in getting the software their field needs. Dentist’s offices, restaurants, and golf courses don’t create their own software, but use cloud platforms aimed at their specific field. However, because these commercial fields are deemed to be attractive markets, these fields have cloud platforms developed by for-profits competing for their business. And, those for-profits generally don’t choose to make their software available as open source, because that makes it easier for their customers to get free of them.

Here is a short list of the most valuable advantages of the open source approach for mission based organizations:

  • Shared values. Open source is a communitarian approach, more in keeping with social sector values. The primary goal of a nonprofit software project is to serve its users, not to make profits for investors.
  • Better software, less expensively. Spreading the cost of a software platform across dozens (or thousands) of NGOs means that it is possible to build far better software with 24/7 availability and tech support, compared to the status quo we call the “cult of the custom.” This is where each nonprofit develops their own customized software solution and is the only group paying for maintenance and upgrades.
  • Ownership. Open licensing makes every user a co-owner of the software. While very few nonprofits will choose to operate the software themselves, or make software improvements with their own or hired developers, the fact that they can, gives them power over their technology they don’t have with traditional proprietary solutions.
  • Data control. Software solutions built as open source generally ensure control over the important data belonging to nonprofits and the clients they serve. Many nonprofits are very concerned about for-profit companies profiting from confidential knowledge about the community those nonprofits serve. Furthermore, for-profit companies often make it hard for their customers to stop paying them by making it difficult or impossible to export the data: this is called lock-in.

 When the market fails to meet the technology needs of the organizations solving the world’s biggest problems, collective action can fill that gap through open source software which honors the needs and values of the social sector.

Conclusion

You might ask, why is Tech Matters committed to give away open licenses to all of the software it creates? Especially when our typical projects involve the investment of millions of dollars over many years? We want to make sure that nonprofits reap the benefits of cloud platforms in their work. We believe in the communitarian values of the social sector, and open licensing terms are how those values translate into the decision about how to make software available. While we hope our NGO partners will want Tech Matters to operate their platform, we believe strongly in giving them the power to do it themselves, or to hire somebody else to do it. Our incentive is to do such a great job, that our partners will want to keep working with us and not bother to look for somebody else.

Tech Matters is not providing unlimited cloud services for free to all nonprofits, because we can’t afford to. We have to find some balance between our operating costs, ongoing software costs (for improvements), and our sources of revenues. But, we don’t need to get back the original investment in creating our software solutions, since that investment was made by generous donors who do not expect their grants to be repaid. We’re happy to provide free access to our software (the recipe) to everybody on the planet to operate services like ours: but those organizations will need to pay for their own operating costs to do so.

What this means in practice is that all of our nonprofit partners – and everyone else – have just about all of the rights of owners when it comes to the intellectual property created by Tech Matters when we write software. You can use our software for free. You have access to all of the source code. You can make changes to it. You can share it with others. You can hire somebody else to improve or maintain the software. You could operate a cloud service based on the software for your own benefit, or even sell that as a service and compete with our social enterprise. All without asking Tech Matters for permission, because we are committed to open licenses, and open licenses do not require such permission.

What does this mean to organizations which are not software developers? First of all, it gives shared power over the software. An organization that needs something faster than the Tech Matters team can deliver it can add it themselves. A feature that only that one organization wants, they can have built—all without needing permission from Tech Matters. Moreover, the license allows these improvements to be added back into the main software project at a later point, something likely to happen if the new capabilities are useful to multiple users. That is what it means to build an open source project, to create a digital public good, rather than a private, proprietary software product like those operated by traditional for-profit tech companies.

Open source is also a statement about data ownership. Many for-profit companies use proprietary solutions to capture data about people and their activities: monetizing the data about nonprofit activities. The data collected in this fashion is hard to perceive, and well nigh impossible to reclaim (barring regulations mandating this). When software is open source, it is crystal clear what data is being collected. The simple act of releasing software as open source is a de facto statement about freedom and data ownership.

Giving away the rights to open source software is the shift in mindset that most tech people make when they want to make social impact instead of making the most money. It is how we translate the tools of the software field to the social good field. Because we believe that the currency of the social sector is not money, but trust, making a commitment to open licensing is a down payment on deserving the trust of the nonprofits and agencies serving the most vulnerable.

We hope we have been able to share some of the reasons why Tech Matters, and most nonprofits doing technology for social good, choose open licensing to advance our charitable missions of helping humanity and the planet.

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