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The Innovation Economy: Why Causes Will Matter More Than Ever

October 14th, 2008 by Tom Watson · 3 Comments

Down with the cause in the down economy. Cause marketing is about more than doing good. It’s about maintaining competitive advantage.

Editor’s Note: Max Gladwell is proud to welcome Tom Watson as our first-ever guest blogger. Tom is an entrepreneur, journalist, philanthropy consultant, and soon-to-be best-selling author of CauseWired: Plugging In, Getting Involved, Changing the World.

The economic forecast remains grim. Big companies are crashing and governments are putting up public capital to prop up national economies. The stock markets twitch like unstable isotopes looking for the lost atomic particle of easily available credit, and the job forecast is dark indeed.

Philanthropy will take a hit: only twice in the last four decades has American philanthropy declined for two consecutive years – during the 1970s oil crisis and after the terrorist attacks of 2001. This economic crisis is likely to add a third. And even including those declines, philanthropy in the U.S. has always remained within a narrow band of the American economy – between 1.7% and 2.2% of GDP, year after year.

So funding for causes will remain, even if it depresses for a couple of years. With more competition for shrinking philanthropic dollars, will the least-proven and most experimental forms of public funding – the peer-to-peer models we all work on – fall by the wayside?

I would argue that the answer is no – a strong, spirited “no!” as a matter of fact.

When I started to research by book CauseWired: Plugging In, Getting Involved, Changing the World – which will be released by Wiley on November 10th – I didn’t just focus on the innovations of the last two years. Indeed, the earliest online social activism platform profiled in CauseWired was started way back in 2000 by a history teacher from the Bronx. Charles Best created DonorsChoose a year before 9/11 and nurtured it through the hard years as he perfected the model and expanded its scope. As of last spring, DonorsChoose had raised more than $25 million for public school projects and enhancements – one of the big peer-to-peer giving success stories ever. It was created during the dot-com bust and survived the drop in funding after the terror attacks.

Looking at the landscape in a donor-challenged economic recession, I can’t help but think that in some ways the market is coming back online social activism platforms – rather than the other way around.

Think about it. Online social activism platforms are, generally speaking, lean operations. The more than 40 platforms we’ve identified at CauseWired (and supplemented by Christine Egger over at Social Actions) do not boast deep balance sheets laden with venture capital, or vast marketing operations designed to build their brands rapidly. As hard times nip at the world’s heels – and this truly is, in my view, a global economic crisis – the cause start-ups should be well-positioned to survive, and in many ways, to help provide assistance where it may be needed more than ever.

And as recruiters of CauseWired consumers – wired young activists who believe their work must stand for something greater than themselves – the online social activism start-ups can provide a real outlet for soul-satisfying involvement, even as markets close and opportunities suffer.

Nonetheless, these platforms are start-ups: they require some cash to run, whether philanthropic or of the investment variety (or a combination of both). They are social ventures and are expected to boast models that lead to financial self sufficiency at some point in the future. So the disaster in the markets and the paralysis of the world credit markets may well leave their mark.

That said, I was struck today from some advice published by my old friend John Borthwick, a well-known entrepreneur from my Silicon Alley days who now runs an incubator for social media start-ups. I think some of the hard-charging CauseWired social entrepreneurs could do well to read his advice. Here’s an overview:

Things look ugly, but with distress comes opportunities. Scarcity drives innovation. Always has, always will. Do more with less: A trite one liner that you need to make part of your companies DNA.

There will be more emphasis on user value, more ways to make money from that value. We will finally fess up to the fact that many of the ad models of web 2.0 don’t yield results, and we will invent ones that do. All around there will be more innovation.

It’s counterintuitive, but during an up cycle people accept conventional wisdom, and during a down cycle people challenge it. That’s good. Very good. And the cycle will winnow competition.

And yes, you do have competition. Sure, it’d be great if all the well-minded social actions platforms grow and survive and help to change the world. But they won’t. Some will become part of the fabric of public life; others will whither. And the competition for attention alone – those precious clicks and minutes online – will eventually winnow the pool. Then other start-ups will come along and innovation will advance.

Then too, causes are still important in the marketplace. As Natalie Zmuda wrote this week in AdAge:

You might expect that cause marketing would be the kind of intangible, feel-good advertising to get axed in a recession. Instead, quite the opposite is true, as major marketers, from retailers such as Sears, Target and OfficeMax to package-goods players such as General Mills and P&G, find that cause efforts actually help persuade weary consumers to spend.

Turns out, causes may be an edge that consumer brands can use to their advantage in lean economic times. As Zmuda noted, the 2008 Cone Cause Evolution Study revealed that 26% of consumers expect companies to give more support to causes and nonprofits in an economic downturn, while 52% expect companies to maintain existing programs. Another 79% of consumers said if price and quality were similar, they would switch to a brand associated with a good cause.

“Consumers are absolutely looking for value, meaning that it’s a quality product and fairly priced,” said my friend and colleague Carol Cone, founder and chairman. “If they can also have an easy and inexpensive way to help with a cause that’s relevant to them, it adds value to the shopping experience.”

Catch that: easy and inexpensive. This certainly plays to the strength of the several dozen CauseWired activism platforms out there.

Finally, the big downturn – and we’re looking at a couple of years, minimum, so don’t kid yourself – will help to accelerate another trend, one that favors the zeitgeist of online social activism. John Borthwick:

I think this cycle is going to drive another significant shift in how open and interconnected the Web is. This is good news for you, and this is bad news for the Facebooks of the world, who tried to replicate the walled garden strategy of Web 1.0.

Think about what happened through the last cycle. Start with AWS. In the 1990s, Internet companies had to own everything top to tail. Today you can use Amazon and other services to pop up a new box for hundreds of dollars, if that. Thats a huge shift, and it’s also a shift toward interdependency.

We are all now dependent on the Amazons of the world for parts of our infrastructure. I think this turn of the cycle is going to drive a lot more openness. This in turn ties to the market figuring out how to rapidly establish bottoms-up standards. This is about working with others and figuring out how to do things without having to do all the work.

John Borthwick was writing about for-profit social media start-ups, but I think his advice is spot on for social entrepreneurs working on the web. It’s going to be a rough go, but I think the stakes of what we’re doing just got higher.

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Tags: Marketing · Social Action · Social Media