Great blog post over at Futuristic Play which details an exchange between Andrew Chen, the blogger at Futuristic Play, and Ben Rattray of change.org. Actually, it’s more of a posting of an e-mail that Ben Rattray sent to Andrew Chen regarding the future of Facebook apps. It’s a good introduction to the problems faced by would-be Facebook developers. You can summarize the problems as:

• Too many apps for limited attention capacity of Facebook users
• Too many invites from other apps lower adoption rates for all apps (including your own) by Facebook users
• Useful apps have a tougher time getting users than social or “fun” apps

I’m not sure the useful vs. fun distinction makes much sense because it doesn’t really explain Causes. It’s very clear the head start that Causes had has been very difficult to erode. As of 5/7/2008, Causes is down to under seven million installations from a peak of ten million. The question is: Is Causes’ user base eroding because of this useful/fun distinction or is it simply eroding because of where we are in relation to the Giving Season? We can’t really say for sure.

I think change.org is an interesting case of a social network trying to use another social network to get more users. In that sense, I’m not sure if Ben’s experiences over at change.org haven’t colored his commentary regarding Facebook apps. There is certainly a lot of truth in what he says but just to get a second angle on what he was talking about I decided to do some quick look ups at Adonomics just to confirm the problem he stated. If it’s true that useful apps such as nonprofits apps will have a hard time getting viral on Facebook, then we should see mostly flat adoption rates for all nonprofit apps on Facebook. And for the most part, he’s right. change.org, Changing the Present and Razoo seem to have hit their plateaus when it comes to user adoption on Facebook.

However, that’s not the whole story. I decide to check out the Firstgiving app in Adonomics. The Firstgiving app was originally created by the US nonprofit Firstgiving which is a subsidiary of Justgiving in the UK. The app is no longer viewable on Adonomics so I decided to check out the Justgiving app. I guess the UK mothership at Justgiving has decided to rebrand the app as its own. That wasn’t the only surprise…

Lo, and behold, Justgiving has been taking on new users at a pretty nice clip since January:

Last August, I had noticed that the Justgiving app had a large amount of user interaction with the Justgiving app. That continues to this day with four percent of their installed base interacting with the app on any one day. What’s their secret? How did they break this trend? Could it be that the British have done what the Americans couldn’t do and loosen the binds that have held back cause-based apps growth in Facebook? I’ll try to follow up on this issue as it is VERY intriguing to me.

According to sources, Network for Good charges 4.75%, while FirstGiving charges up to 7% in transaction costs to the charities. In other words, only $0.93-0.9525 of each dollar of a donation actually reaches the charity. Network for Good, in fact, doesn’t actually get permission from charities, but rather has an opt-out program if charities do not wish to have Network for Good collect donations for them. According to the FAQ’s on the Network for Good’s website, they send the money on to the charities through electronic funds transfer or a paper check on the 15th of every month.

So, in other words, the Network for Good is taking 4.75% and then holds the money for up to 31 days before moving it on to the charity. Network for Good is itself a non-profit, but those fees and the benefit of that negative float provide serious financial benefits to Network for Good far above the cause to whom the donor actually wanted to provide money to.

As a sidenote, FirstGiving actually charges 7.35%. Network for Good’s transaction costs page is here.

It’s a known practice that online donation processors make a bit of money on the float. I don’t know if there has ever been a discussion of this actually online. Should this practice be ended? It’s hard to say since the case that FirstGiving and Network for Good always makes is that they handle end-of-the-year paperwork related to receipting and tax return information. Also, they have pretty good reporting tools for nonprofits to slice and dice with. The deeper question is whether those ancillary reporting capabilities and built-in business logic is worth the float plus the transaction costs that are passed on to the donor.

Personally speaking, the value of reporting tools and business logic capabilities depreciate in time as other and more capable credit card processors go into the market. My experience with Google Checkout for Non-Profits shows that it’s more than capable of handling those particular needs. I haven’t used Network for Good or FirstGiving myself though so I can’t really speak for them.

On the other hand, when I worked at the Coalition for the Homeless, we used IATS, one of the credit card vendors behind Blackbaud’s NetSolutions. Despite a similarly high transaction fee to Network For Good, it actually lowered our net transaction costs because IATS handled the fraudulent credit card problems we were constantly being hit with and because of the instant integration with Raiser’s Edge.

So in the end, that business case being made is predicated on the ability of FirstGiving and Network for Good’s continuing development of their backend processing tools. However, if other processors such as MPayy and Google Checkout for Non-Profits, with their lower transaction fee of 0% (yes, they’re both free) can provide equally compelling backend reporting tools then it’s a total no-brainer for nonprofits.

It also depends a lot on the maturation level of your nonprofit. I believe that if you’re starting out, MPayy and Google Checkout for Non-Profits are precisely where you should be heading. If you need back-end integration though with an existing system like Raiser’s Edge, you might consider just sticking with whatever Blackbaud solution is around. Ultimately, it’s more than just transaction fees that you have to consider but unfortunately as far as the public is concerned, those fees are part and parcel of your relationship with them. Clearly, the weighting should be towards lowering those transaction costs whenever possible.