Guidestar, the leading source of information on U.S. nonprofits, has developed into an impressive database with over 1.3 billion pieces of data and 10 million users. Many talented individuals worked committedly to build its operation into what it is today. When Jacob Harold took over recently as CEO, he inherited an organization that has a phenomenal amount of data, but is only scratching the surface of what’s possible in terms of extracting, modeling and visualizing its data and linking it to other sources to create new products. At the same time, the organization faces many challenges similar to other information-based businesses, with disruptions in digital media and technology opening the way for new substitutes for its services.

As a case study, Guidestar has all the ingredients to be a great test for what it takes to innovate in the social sector:  How can Guidestar make open data an asset rather than a liability? Balance openness with the imperatives of nonprofit sustainability? Maintain the organization’s core operations while experimenting aggressively?

At Knight we care about and wrestle with many of the same issues in our own work, particularly in our journalism and media innovation program.

Last month, we partnered with Harold to bring together some of the best talent in data analytics and tech for a conversation about Guidestar’s future. The honorary advisors included Sean Gourley,  Stephen DeBerry.  Chris Diehl, Schuyler Erle, Jake Porway, Robert Munro, Lucy Bernholz, David Gutelius, Corey Ford and Jason Payne (from Palantir).

Here were five pieces of feedback that came out of the conversation:  

1.     Take the Lead on Openness – The obscure way in which the IRS ‘publicly’ releases nonprofit data (i.e., selling people DVDs of tax returns – hard to believe, I know) has created few substitutes for Guidestar’s services. This monopoly isn’t likely to survive for much longer with pressure mounting on the IRS to electronically release its data and groups already posting portions of the IRS data in bulk online. (For example, Public.Resource.org recently posted 6.4 million filings of exempt organizations since 2002.) Although Guidestar’s data is the cleanest and its team really is the world’s expert on the Form 990, it won’t be long before other decent substitutes emerge. This means Guidestar has the opportunity to take the lead in opening up its data before others do it for them. For example, the organization could make it increasingly easier to access its data through a freemium API model, which would give it the chance to lock-in users for additional services, while contributing to a broader data ecosystem in the social sector and remaining the go-to brand for nonprofit data. A freemium API would mirror what Guidestar has already done with its consumer model, which provides tiered access to different levels of nonprofit information products.

2.     Make Money off Volume and Insight – Experimenting with a freemium API model wouldn’t prevent Guidestar from continuing to create bulk data licensing agreements that allow it to sell structured data to partners, such as banks, advisory groups and search engines. Likewise, opportunities exist to develop additional products that provide greater analytical insight beyond the raw Form 990 data. A good example of this is Guidestar’s Financial SCAN product—developed in partnership with Nonprofit Finance Fund – which provides comprehensive, standardized analyses of nonprofits’ financial health.

3.     Provide More Timely Data– The vast majority of Guidestar’s nonprofit data comes from the IRS, which means a lot of the information is fairly old – on average about 1.5 years – by the time it’s made available. Guidestar might encourage nonprofits, particularly those with greater capacity, to directly send them electronic versions of their 990s and other data, such as on information on program strategy and outcomes, which isn’t well represented in the Form 990. Guidestar could also try partner with foundations willing to require their grantees to electronically submit their 990s to Guidestar as well as to the IRS. Speeding up the data collection would make the information more timely and potentially more valuable.  

4.     Take Advantage of a Low Churn Rate – Many of Guidestar’s users include financial service firms, attorneys and tax advisors that use its products in their due diligence process, often to protect themselves from potential legal and administrative penalties. When you’re in this kind of compliance mode as a user, there’s very little churn rate – you’re not likely to quickly switch to a different product as new substitutes emerge. This buys Guidestar some breathing room to experiment. In the meantime, Guidestar could create more value for this user base by selling quality assurance agreements that guarantee the veracity of the data and provide users with legal indemnification. This might help add to the kind of R&D money Guidestar will need to innovate for the future.

5.     Organize Information by Sector – Under its current model, Guidestar’s primary unit of analysis is the individual nonprofit. As it evolves, Guidestar might be able to build and sell datasets on nonprofit sectors. For example, it could take a particular issue, such as homelessness or Parkinson’s disease, and draw together insights on nonprofit activities, foundation grants, information on nonprofit boards, press releases, public health data and social science research on what works. With its expertise in nonprofit data and existing relationships, Guidestar is well positioned to become the place for connecting discrete datasets in the social sector. The Foundation Center has started exploring similar efforts by combining foundation grant data with research reports and case studies on particular issues, such as water, sanitation and hygiene. This is an area wide open for further exploration.

Data has clearly been one of the buzzwords of 2012 in the social sector. Next year, we’ll get to see how Guidestar tackles a challenge other nonprofits will soon face: make open data work for your mission and your bottom line.

By Mayur H. Patel, vice president/strategy and assessment at Knight Foundation