Read Write Own by Chris Dixon

Author:Chris Dixon [Dixon, Chris]
Language: eng
Format: epub
Publisher: Random House Publishing Group
Published: 2024-01-30T00:00:00+00:00

The Nonprofit Model

Some people believe nonprofit legal entities provide a solution. The network would still be a dictatorship, but at least it would be controlled by an organization that has motives beyond financial success. Proponents of this approach cite Wikipedia, the crowdsourced encyclopedia owned and supported by the nonprofit Wikimedia Foundation, as a model. It’s an interesting idea, but is it capable of being extended to other areas of technology?

Wikipedia is a special case: it is the only large-scale internet service structured as a nonprofit. Wikipedia was able to succeed this way due to a combination of factors, including the goodwill of its founders, its long-standing network effects, and its low upkeep costs. Unlike many other internet services, Wikipedia hasn’t needed many product changes since its introduction in 2001. Consumer demand for encyclopedia information hasn’t changed much as tech platforms have shifted. As a result, Wikipedia’s expenses have remained relatively low and supportable through voluntary donations.

To the credit of its founders and board, Wikipedia hasn’t wavered in its mission even when it might have been easy to get distracted or try to cash in. It would be great if Wikipedia’s nonprofit model could extend to other areas, but it is exceedingly rare for modern internet services to need so little ongoing investment. Indeed, the two most prominent attempts to replicate Wikipedia’s success in other domains have both since pivoted away from their founding nonprofit structures.

The first is Mozilla, creator of the Firefox web browser. Mozilla began in 1998 as an open-source project to steward code for the early web browser Netscape Communicator. In 2005, two years after spinning out Netscape assets as a nonprofit, Mozilla created a for-profit subsidiary, the Mozilla Corporation. This allowed it to pursue more aggressive business tactics that are prohibited for tax-exempt nonprofits, including inking a multi-hundred-million-dollar deal with Google and acquiring smaller companies to accelerate product development.

The second example is OpenAI, creator of ChatGPT and other tools. OpenAI originally started as a nonprofit in 2015. Four years later, it rolled out a for-profit subsidiary to raise the billions of dollars it needed to compete with Big Tech AI efforts. The startup went corporate.

It’s hard to be a nonprofit in a for-profit world. Both of these organizations’ transitions were probably necessary. The internet is a highly competitive place dominated by big companies with tens of billions of dollars in cash reserves. Competing without generating revenue or accessing capital markets immediately puts nonprofits at a disadvantage. The nonprofit model sounds good in theory, but it is very hard to make work in practice.

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