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Launch Issue
Giving Magazine
Deciphering the Numbers
by Luke Norman
With data dominating, has become as familiar as Google to many American donors. Has the website filled a void for consumer education in philanthropy?

Data has been the buzzword in philanthropy for the last 18 months. Just as it has proved to be a major driver for the commercial economy, so it has become the lifeblood of the social economy. Not only are the provision and use of data now key to persuading donors where to place their money, but they are also vital in helping improve the efficiency and effectiveness of the charities and social enterprises funded by such gifts. is the shining beacon, or perhaps more accurately the behemoth at the vanguard of this spread sheet revolution. It is a portal, gathering information on nonprofits, packaging it and disseminating it to a hungry public. These numbers and facts are freely available but habitually buried in all manners of gunk, making them harder for the time-pressed donor to access than for a hungry traveller to find a sugar-free snack in a service station.

The idea behind Guidestar, similar to many that have ridden the internet wave, is based on dispensing important information to the masses for free. However, as demand has ballooned, so has it changed shape.

It is interesting to note that when commentators describe Guidestar’s function, many of them fall back on the terms “charity watchdog” or “evaluator”—The Washington Times and Time magazine provide two examples in the last 12 months. However, this is simply not true. Ernest Hemingway once wrote, “Never mistake motion for action.” He might have added, “And never mistake information for endorsement.”

This misnomer is a serious enough issue for Guidestar to have a “Clarification” announcement on its website, stating definitively that its users should not mistake information for endorsement. Indeed, Guidestar’s mission is clear enough: “To revolutionize philanthropy by providing information that advances transparency, enables users to make better decisions and encourages charitable giving.”

Clear enough then. But at some point services like Guidestar reach a tipping point. The level of information along with the number of people accessing and/or relying on that information combine to confer endorsement. And this is a problem. Guidestar’s own, hard-earned reputation should not be transferred seamlessly to the organisations represented on its sites, but it is. This presents a dilemma; if Guidestar and its ilk are presenting such information. should they be evaluating it as a matter of course?

While charitable giving in the U.S. accounts for less of the country’s gross national income than in other nations, it far outpaces any other country in pure financial terms. Particularly in a context of such heavy lifting, givers feed on information. Indeed a scan of the newspapers during Christmas every year, a key season for donations, often reveals almost unanimous advice: “know your charities.”

Donors are taking this onboard. More than 90%, according to a Guidestar report, said in 2013 that nonprofit performance was an important factor in their giving and one that they wanted to be able to analyze more easily. Conversely, the same donors admitted that just 30% of them actually research the charities their cash reaches.

Guidestar is caught in a conundrum. The majority of charitable donations in the USA are made by individuals, specifically, 73% of the $298 billion that was given in 2011. Concurrently, the vast majority of Guidestar’s users—98% of them—access just the free-to-air raw data that they provide. Guidestar and its competitors have all started to deliver premium services in which they rate, analyze and pass judgment on the performance of the charities they list. For instance in 2012, Guidestar teamed up with the Non-Profit Finance Fund comparing the financial health of nonprofits. It is a practice that has spread. In 2013, 15 of the biggest US foundations launched a “Reporting Commitment” making grants data available. Simultaneously, the China Foundation rated 2,000 of its foundations with an elaborate transparency index.

In these confusing waters, two things are clear: the first is that data use and access are set to be institutional for the entire social economy (with that comes ownership, another thorny question); the second is that raw data services, such as those that Guidestar provides, will inevitably become available at source. Guidestar’s core offering, the 990 forms that tax-exempt nonprofits are obliged to file with the Inland Revenue Services (IRS), has a shelf life. Currently, the IRS is ill-prepared to provide the information that organizations—and the clients they represent—are asking for. The provision of raw data via hard copy or DVD will soon have to give way to more easily accessible digital archives as demand for information continues rising.

So Guidestar is faced with a raft of key questions about its next steps: how can it maintain its core operation but continue experimenting? How can it analyze data without morphing into a full-out advisory service? How will it make open data an asset and not a liability?

Despite the "clarification" on its website, Guidestar already offers extensive analysis. In the recent past it has teamed up with several partners to provide evaluations. Philanthropedia, an internal division of the organization, rates nonprofits according to the work they do, with 2,500 experts reviewing 3,500 outfits in 2012, while Takeaction@ Guidestar measures impact to help identify the most effective nonprofits in particular cause areas. On top of this, a TripAdvisor-style offering, GreatNonprofits, provides personal reviews to produce average user ratings that accompany some nonprofit listings on Guidestar.

These are of course all premium services with corresponding costs. Still, just 2% of Guidestar’s users are paying for them. So surely the key question becomes, is there a paying market for this valuable data? Or, will it too inevitably become free-to-air?

It is a devilish Rubik’s Cube of a problem. Almost all of Guidestar’s users want free, raw data as a compass for their giving, but 90% of those surveyed want their data evaluated and analyzed. Still, just 30% of donors actually bother to research the causes they give to and Guidestar’s paying customers represent a tiny fraction of the pot. Headache? Imagine Guidestar’s and this is before one considers the thorny problem of storing, protecting, and dictating ownership of such data.

Given Guidestar’s history of excellence, it seems likely they will find a way. As our perfect case study, let’s hope they do, and quickly.

social investors worldwide