The Landscape of Social Enterprises and the Potential Role of Web Monetization within it

aarjav — Mon, 22 Mar 2021 01:58:03 +0000

Grant for the Web Progress Report

A social enterprise is a business that aims to achieve a particular public or community mission (social, environmental, cultural or economic), and reinvests the majority of its profits into achieving that mission [1]. In simpler terms, a social enterprise is a business that focuses on social innovation rather than centering financial goals. Though traditionally not for profit in nature, social enterprises have now expanded to for-profit structures, creating a unique interplay between social and economic value.

Consisting of both nonprofit and for-profit ventures, social enterprises blend social benefit and financial revenues. They come in many flavors, but they all face the same fundamental question: Can they generate enough revenue and attract enough investment to cover costs and support organizational growth [2]? is by far the largest challenge faced by social enterprises.

Even after completing the daunting task of accumulating funds during the start of a social enterprise, such organizations face the struggle to build a consistent source of revenue year over year. Studies show that while social enterprises are expected to be financially sustainable through making a profit, a substantial proportion still have foundation grants and government grants as their primary sources of funding [5]. Individual donations are also a substantial source of funding for social enterprises, on average making up a fifth of the organization’s income stream.

A key challenge is the unlocking of investment from new and traditional sources. With the constantly morphing socio-economic landscape, how can new sources of investment be utilized without hindering the relationship with existing funders? The challenge for social enterprises here is dealing with the conflicts resulting from the diverse expectations of stakeholders, which may lie anywhere in the spectrum of placing importance to social impact to preferring economic growth. The good news is that the consistent challenge of funding social enterprises is the friction which creates the necessity of social innovators. The social enterprise space stresses the role of social entrepreneurs in devising innovative methods to improve social outcomes and create social impact. [5] And this is where the implementation of newer technologies is a great space for social enterprises to grow in.

The funding models of social enterprises have undergone significant transformation over the last 20 years. There is a clear trend shifting away from direct grants provided by government and philanthropic foundation sources to earned revenues from a broader range of sources (including public, private and individual). [4] And as the stakeholders of funding sources increase so must the models and mediums through which funding is facilitated.

Within this unique space of social impact and financial stability, we have collected some commonly adopted models within the social enterprise sector:

Cross compensation/subsidization: Within this model the profits generated by the sale of products/services to a particular audience/stakeholder are used to subsidize and lower the costs of the same products/services to a lower-income or underserved population. A great example of this is BioLite and their Parallel Innovation model. The high end power, lighting, and other outdoor gear is sold to western markets, meanwhile subsidized solar based cooking, lighting, and electricity kits are developed or sold to developing communities worldwide.
Cooperatives: Co-ops are democratically run for-profit entities where people voluntarily unite to achieve a common social or economic aim. Income from a co-op can be used for a myriad of purposes such as to develop the co-op, set up or build reserves, benefit members in their transactions with the co-op, and to support other activities approved by the members of the co-op.
The Give Back Model: The driving principle behind this model is to serve the common good by giving back for every purchase made for a service or product sold by the social enterprise. This model usually entails the social enterprise donating a portion of their profits or goods to in need populations. BeRobinhood is a social enterprise where a margin of profits are donated to charities.
Market intermediary : The market intermediary model of social enterprise provides services to its target population to help them access markets. Clients of market intermediaries are usually small producers (individuals, firms, or cooperatives).
Employment Model: Within this model underserved disadvantaged populations are employed and hence play a role in making a social impact by providing fair wages and incorporating other social programs which may aid the employees.

Interest is growing in how social enterprises should capitalize on social technologies such as social networks, blogs, wikis, games and live streams. A social enterprise is one that strives to open up new communication channels with stakeholders using new forms of technologies [3], by constantly innovating with the guiding principle of positive social impact.

Previous researchers have stated that self‐sustained social entrepreneurial organisations should be able to create a network with partner organizations who share their social vision and integrate the target groups into the value creation process [6]. Web Monetization allows for a simple and streamlined way for the smallest organizational entity, an individual, to be involved in the value creation process and be part of the positive social vision of these social enterprises through digital engagement with the organization.

Web Monetization’s capabilities allow social enterprises to generate income through the implementation of digital engagement activities. By providing a way to collect multiple small payments from users in exchange for consuming digital content and/or services [7], Web Monetization provides an innovative technology to fund social enterprises and social entrepreneurs. With this in mind, advocacy efforts, community engagement, business models designed to support and collaborate with stakeholders in order to increase and diversify funding sources should be revisited through the lens of Web Monetization.

References:

[1] http://www.tools4dev.org/resources/what-is-a-social-enterprise/
[2] Bugg-Levine, A., Kogut, B., & Kulatilaka, N. (2012). A new approach to funding social enterprises. Harvard business review, 90(1/2), 118-123.
[3] V. Burégio, Z. Maamar and S. Meira, "An Architecture and Guiding Framework for the Social Enterprise," in IEEE Internet Computing, vol. 19, no. 1, pp. 64-68, Jan.-Feb. 2015, doi: 10.1109/MIC.2014.85.
[4] Chong, P., & Kleemann, L. (2011). The future of funding for social enterprises (No. 34). Kiel Policy Brief.
[5] Guo, B., & Peng, S. (2020). Do Nonprofit and For-Profit Social Enterprises Differ in Financing?. VOLUNTAS: International Journal of Voluntary and Nonprofit Organizations, 31(3), 521-532.
[6] Yang, Y. K., & Wu, S. L. (2016). In search of the right fusion recipe: The role of legitimacy in building a social enterprise model. Business Ethics: A European Review, 25(3), 327-343.
[7] https://webmonetization.org/docs/explainer

Rootable Grant Report January 2021

aarjav — Thu, 21 Jan 2021 20:56:16 +0000

Project update

So far we’ve explored various nonprofit funding models to understand how various funding events and processes can be adapted to fit with the affordances of current Web Monetization infrastructure. The following questions are areas that challenge our team as we explore the space and limitations of the nonprofit sector.

Challenges

How can we adapt traditional nonprofit funding models to Web Monetization?

Traditional non-profit funding models focus the relationship between the organization and their funders. We are investigating how different funding models might fit into the Web Monetization structure, and trying to figure out which types of models will benefit most from including Web Monetization as a funding stream. We think that some types of organizations will benefit from incorporating Web Monetization more than others, but are still researching the details of what makes microtransactions a good fit for a non-profit funding model and how organizations might incentivize web traffic that results in micro-transactions.

How can we educate nonprofits in a way that is useful for them to consider Web Monetization funding models without being overly technical?

Web Monetization, while relatively simple to incorporate into a website, requires an understanding of technical concepts like APIs, ledgers, and protocols. In order to help community organizations decide whether to incorporate this model into their funding scheme, we face the challenge of sharing the structure and benefits of Web Monetization without losing our audience in technical details.

How can Web Monetization cater to different audiences/stakeholders associated with nonprofits?

Nonprofit organizations are connected to a wide range of audiences. From members to donors, community members to the government, a part of our challenge consists of exploring how and whether these stakeholders would participate in micro-transactions to fund their favorite community organizations.

Next steps

Next, we are going to continue learning about ILP, Coil, and the alternatives in development. We are prepared for the possibility that non-profit organizations may need to use an alternative model to the one employed by Coil in managing wallets and micro-transactions. We are currently trying to decide the scope of the infrastructure we will build for community organizations to access Web Monetization as a funding stream.

In order to get an idea of how Web Monetization fits into traditional funding models for community non-profit organizations, we are working within FRA and Rootable to understand the limitations of the current infrastructure for Web Monetization and the ways that it can be improved for this demographic. That way, if building a Coil alternative becomes a part of our project, we will have identified the design goals and challenges before undertaking the build.

Report by Casey Hunt and aarjav Chauhan

The Interledger Community 🌱: aarjav