Blackbaud, Convio, and the Nonprofit Software Market

By Laura Quinn, January 19, 2012

So as you've likely heard by now, Blackbaud has plans to aquire Convio. As two of only a handful of big companies in the nonprofit technology space, this is big news. But what does it mean? There's been a lot of concern and speculation.

Peter Campbell, an Idealware blogger and board member, said:  "It seems to me that if I'm looking for an eCRM or DonorDB for a mid-sized org that can't afford to gamble its fundraising system on some clever startup, I have a range of products to choose from, but I'll be sending the RFPs all in one envelope to the same address. Am I wrong about that?"
 
Gavin Clabaugh said: "It seems a perennial truth that, after the nuptials, merged companies kill the decent products, roll out the crap, and try to tell you that you're all the better for it. One need only look at the undead things called "Computer Associates" or  "Symantec" to see the hideous results of such a zombie wedding... Perhaps this won't happen here... Who knows, Blackbaud might just be the better for it, and perhaps their customers will be too...  I doubt it, but who knows. They might be the rare exception that proofs the rule."
 
At Idealware, our job isn't to try to predict the future, but to do impartial research.  So for us, it's too early to have specific data.  But there's one related piece of research I'd love to do if I had unlimited time and money: Does it help or hurt the nonprofit sector to have big vendors making real money?
 
This aquisition makes it clear that the financial market cares about what's going on, at least somewhat, with nonprofit software. Is this good or bad for nonprofits?  I could see the data lining up either way. I think the nonprofit sector is quick to judge that bigger companies with more financial motives are likely to do worse things, and maybe Blackbaud will -- but they'll also have more revenue with which to try new things, or the ability to support one product (like something for small nonprofits) that doesn't sustain itself with revenue from a product that does.  
 
And it's definitely good news for nonprofits that it's possible to make a living creating software for nonprofits -- after all, we'd have fewer software choices if no one could support themselves creating them. So to my mind, however this aquisition turns out, it's an indicator about something good in the marketplace itself, which is that solid vendors can make enough money from nonprofits to create viable products.  
 

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Comments

Common Ground will soon be dead

by chris (not verified) - 2012-08-31 16:24

Curious to see Idealware's thoughts about the latest announcement telling Blackbaud Common Ground customers just to sit tight for a while and let Blackbaud tell them what they have to do next. 

 

Two sided coin

by David Geilhufe (not verified) - 2012-01-19 23:33

 

"this aquisition makes it clear that the financial market cares about what's going on"

The financial metrics of SaaS vendors means that there are only two serious concerns. Is the customer paying the company year in and year out (churn)? Can the company acquire new customers at a (volume) x (average selling price) that drives revenue growth?

Blackbaud isn't really a SaaS vendor yet, but it's getting there.

The great thing about this is that SaaS companies must make good software so people keep paying them year after year.

The not so great thing is that less profitable, lower margin customers (small and mid sized nonprofits) are either abandoned or simply not a priority since their average selling price tends to be low, their churn high and their  volume isn't high enough to merit investment in the market segment.

One of the cool things about the nonprofit sector is that churn tends to be low since nonprofits have a tendency to stay with whatever solution they have paid to implement whether or not it is working for them - as an industry its actually a fairly low churn place.

"solid vendors can make enough money from nonprofits to create viable products"

I strongly disagree with this when I use the stock market's definition of viable. Blackbaud has a huge number of products built by a huge number of companies (Kintera, Get Active, Target, etc.) I would say that none of these companies made enough money to create viable products -- GetActive was end of life'd by Convio, Etap or Common Ground will be end of life'd, some of their accounting solutions will be end of life'd -- these are not viable products. If Blackbaud can migrate a large custom population to a couple of platforms, those products will be viable.

For all these companies Blackbaud has acquired, they couldn't get enough customers fast enough at a high enough average selling price to achieve viability and a bigger competitor snapped them up becuase it is cheaper to acquire a customer by  buying a company than by actually going out an convincing someone to buy your software.

When I use my open source, lefty version of viable (as oppose to the stock market version), I agree that we will continue to have a large number of small vendors that are able to put credible software into the marketplace and support it for its life cycle.

Which is good for nonprofits no matter the final disposition of the Convio acquisition.

 I've read articles claiming

by Peter Campbell - 2012-01-19 12:27

 I've read articles claiming that NPOs make up somewhere between ten and twenty percent of the business landscape.  There's money to be made here, even if it isn't as big a bucket as, say, the financial industry or oil.  We were probably beating out the auto industry for a while, though, and retail is always sketchy.  :).  But software vendors design products for the 80%, not the 20%, so most of the products that we buy are not made with NPO needs in mind, and we have to adjust.  I dealt with that problem at Goodwill, where I quickly learned that there was no commercial inventory management application designed for a thrift operation that resold donated goods; and at my current environmental law firm, where we can't identify case management software that understands our pro bono, multiple client business.  Fundraising software, of course, is the exception.

But the decision to purchase products from companies who, first, have no mission other than to increase shareholder value and, two, don't discount their products in order to support the non-profit efforts we're devoted to have to be carefully considered. I favor vendors who demonstrate a commitment to protecting the environment, and include a line in my RFPs asking what activities they perform and or efforts they make in that regard.  And, of course, given any two equal  or close to equal products, price will be a big factor.  Every penny I spend on software is money that doesn't go to planet-saving litigation efforts.  

Clearly, I'd rather buy products from mission-focused vendors; ones with multiple bottom lines. Companies without shareholders, since the very nature of being public means that the priority is in maximizing profit, not doing social good.  Better yet, open source.  More and more, in a country where corporations are people and SOPA/PIPA is supported by liberal politicos in tech-focused states because their allegiance is clearly to their entertainment industry donors, not the voters, we should all understand that purchasing is a mission-impacting activity.  If I can avoid padding the bottom line of a company that donates heavily to Keystone XL pipeline proponents, I'm serving my organization's mission.

Mind you, we bought Blackbaud software for our fundraising in 2009.  They had what we determined to be pretty much the only product that met our complex needs, while based on modern, not archaic, technology.  Common Ground was announced the week we signed the contract. We had other reasons to go with Blackbaud.  We factored in that they know our needs, and their products have been developed, for decades now, with lots of input from customers like us.  But I was dismayed by the lack of alternatives three years ago, and, from where I sit, it's only gotten narrower.  

Blackbaud/Convio

by Tim Clark (not verified) - 2012-01-19 11:58

I had just posted something about this yesterday. While good things can and do happen with acquisitions like this, I always wonder who will really pay for this in the end? 

Blackbaud is a publicly traded company, with interested stockholders who expect constant quarterly improvements. With a cash and debt-financed purchase of this magnitude, will it be passed on to the non-profits in the form of higher prices and increased support expenses? And even if prices don't go up to help cover this merger, there are fewer choices now in the market to compete with them and to cause greater compeition and innovation.

It is a wait-and-see scenario, naturally, but I'm hoping they can pull it off. If only for the sake of the non-profits and their already threatened resources.

Bad time to purchase Common Ground ?

by Martha (not verified) - 2012-02-13 12:56

Given all that you've said about the acquisition by Black Baud would you reccommend against making an investment in Common Ground at such a unsure point? My second option is eTapestry but prefer Common Ground, just don't want to end up in the lurch. Thanks for any advice.