When the Non-Profit OLPC Should Not be No-Profit At All

   
   
   
   
   

Non-profits are, in law, permitted to make a profit, though few do. The legal restriction is simply that profits may not be distributed to investors, so a non-profit doesn't have shareholders. Why might a non-profit want to profit?

Well, of course, most don't. In particular, Nicholas Negroponte is determined not to make a profit on the OLPC XO laptop, which some will see as entirely laudable. I don't, as I will explain.

No Profit Impacts

Now, it's true, OLPC charges governments $1 over cost, and the Give One Get One program charges $199.50 each for two XOs that cost $178 or so at the factory. That's not what industry considers a profit margin, since it doesn't even cover basic expenses like customer support, and that's where my argument begins.

olpc $100 laptop

G1G1 customer support is abysmal.

  • Misaddressed packages due to faulty software design in the fulfillment system. (If you entered Company Name and Street Address on separate lines, the second got dropped, and the shipping company sent it back. The workaround was to abbreviate the company name and squeeze both into one line.)
  • Customers whose XOs came back were not notified.
  • No responses to e-mails.
  • Spending 45 minutes on hold to talk to a person.
  • Taking more than a month to figure out how to ship to Canada.
All of this is done in the name of sending everything possible to poor schoolchildren, as the name Give One Get One makes abundantly clear. Certainly it is an important measure of conventional non-profit performance to look at how much money goes to the people to be helped, and how much goes to office expense, salaries, raising more money, etc.

But OLPC isn't a conventional non-profit, and shouldn't think of itself that way, IMNSHO (In My Not-So-Humble Opinion).

Where to Spend Profits

Now I'm not suggesting that OLPC simply go corporate. One of the reasons why the XO is less expensive than the alternatives is that OLPC is a non-profit, and many of the people there, including Nicholas Negroponte himself, work as volunteers. As do I (although I have applied for a paid position).

I am suggesting that OLPC talk to some people at MIT's Sloan School of Management (not just to other geeks) about a financial framework that would pay for necessary expenses such as documentation and customer support. Or maybe to Presidio School of Management, which offers a Sustainable MBA. Whomever.

olpc screen in sunlight

It is true that a requirement for documentation can be seen as a design failure, as discussed in The Design of Everyday Things, by Donald Norman. It is true that a major goal of XO design is to make things as discoverable as possible. Mostly.

But the XO has non-discoverable features. Easter eggs, even, like an instance of Conway's Game of Life, activated by holding down a button at boot. Inscrutable command-line functions such as yum and xo-get for installing software. Entirely non-obvious features of the Journal, and of a number of activities.

So it is vital that the XO is starting to get incomplete and not totally accurate documentation, such as the Getting Started Guide. And that people are working on many other documents, many listed on my OLPC Publications page on the Wiki. In particular, we need a visual hardware repair manual and a book on discovery on the XO to make the case that children can learn to use and repair XOs themselves.

These are important because you can't just tell people such things. You have to have a convincing demonstration. We also need a book inviting teachers and parents to discover the joys of the discovery process and its effectiveness in real education (not just scoring high on standardized tests).

Make Some Profit

So I'm talking about raising the price of the XO somewhat. I predict that Wayan is not going to be happy with me, because he complains about every bit of cost associated with the laptops. But my argument to Wayan, as it is to OLPC, is that profit is a necessary part of the process.

Moderate profit, not monopoly profit, extracting as much money as possible from a market. Profit means that we won't have to behave like other NGOs, always begging for money.

Profit means that we can fund everything else needed to start the virtuous cycle of getting people out of poverty so that they can invest in themselves and their children and their communities. Profit also for the students and their friends and relations, using what we sell to start new businesses, and even new sectors of their national economies.

olpc $100 laptop

Profit means that OLPC, or somebody, can provide the whole world with the technologies needed for clean water, and health care, and in fact all the rest of the UN's Millennium Development goals, and much more besides, and start all of the developing countries that are willing on the path to sustainable (tricky, that, but that's for another day) economic parity.

As long as it is profit on all sides, as in a genuine Free Market, and not profit extracted from the public against its will, as in Laissez-Faire Capitalism, which is currently masquerading as Free Trade. Free for corporations but not for citizens doesn't cut it in reality, and citizens shouldn't stand still for it.

Profit is not Evil

The most fundamental principle of Free Markets, even before the principle of equilibrium of supply and demand, is that in an unforced transaction, both sides gain. I sell you, or trade you, something I don't need in exchange for something I want more, and you do the same on the other side.

You get something that has a greater value for you than for me, at a cost somewhere in between. So we both make a profit, because we each get a value to ourselves greater than the value of what we offer in exchange. This is kindergarten economics, at the level of the classic Lemonade Stand game. (We can talk about how to teach it in kindergarten another time.)

In fact, one of the most important functions of the XO is to bring people into markets that were previously closed to them, to give them the means of production for the information age, to enable them to collaborate, and in so many other ways to trigger a previously unimaginable wave of economic and social development.

I am well aware that some of my readers and some of the armchair analysts cannot imagine this. I am certain that I cannot convince some of them. However, I expect that events soon will speak on this matter far louder than any of our words.

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18 Comments

"No servant can serve two masters; for either he will hate the one and love the other, or else he will be devoted to one and despise the other. You cannot serve God and wealth."
Luke 16:13

The per-unit cost of proper database synchronization is zero.

Should OLPC be nickel-and-dime'ing people like the ASUS Eee, charging $200 for a web cam and $30 of memory chips?

While it would be fine of the OLPC project decided to make money off of the laptops, they would then be LESS focused on their bulk-sales and eduction-software project.

The OLPC project did f**k up G1G1 badly. I doubt that the poor support and mailing mistakes would have been solved by another $50. I think they should have stated preparing for G1G1 several months ahead of time, but it was a last-hour desperation move.

The free market is not magic -- turn of the Business News Networks and look at horrible working conditions and massive pollution in places with the freest markets.

At $25 for "shipping and handling" on 84,000 XO's ... when ground shipping on an XO is roughly $10 (per FedEx calculator) I think a profit margin is already in existence, and they are not as pro-bono as they mentioned.

If OLPC gives Patriot/BrightStar/FedEx $2.1 Million I expect results (Especially when $1.2 million is apparently "overhead"). ;)

For some reason I keep seeing those UPS commercials run through my head.
"What can Brown do for you?" ... I guess Nicholas doesn't watch TV.

In either case, I agree with Nathan on not going "profiteering".

I would submit that your idea does not really fall into a for-profit organization, just that their budget needs to have their costs include staff, tech support, expansion of the program, etc.
So when considering the cost of each xo it should not be just the cost to manufacture it but the whole cost of the organization and is still a non-profit.

I just got the below today. I am going bonkers!!!!! What is it with these folks.... I have been getting messages since Jan 15th that my NOVEMBER paid unit was ready to ship and waiting for FedEx.... AHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHHH!
========================================================= = =

From what we've been told, all inventory has been shipped. Any OLPC donors that have not yet received their XO will receive it at the next shipping window which is Mid March. Due to a shortage of components (LCD screens I believe) additional XO inventory is delayed until then.

Your donation is registered and your shipping address is validated so everything is good to go once more XO laptops are available.

Thanks for your patience and support of OLPC.

Asus is not "nickle and dime'ing" people, they're charging what the product actually costs to produce (and what the market will bear). Logistics, QA, documentation, tech support - all of these are legitimate costs of a product. These functions need to be performed "before" you ship the product, not "if/when we get around to it."

First I would love a little intro: edward do you work for OLPC? You keep referring to them as "we" and mentioned applying for a paid job there.

I don't think you would need great lenghts to defend the idea of profits. But when you start to go into this path I have to agree with the first commenters, you are serving two masters.

The problem is that when you start selling a product like a regular business, buyers expect to be threated as regular consumers. Are G1G1 consumers or donors? Because if they are the former, they should be treated with the same standard as any other company should. If apple delayed shipment of its computers for ther months, doom would fall..

I think that's an issue worthy of a column on its own. Are the American and Canadians who participated in G1G1 customers or donors? I think some of each. Are the countries that buy XOs customers or clients/receipents? If they're customers (which I think they believe they are since they're writing checks for millions of dollars) they're going to expect the same product support they'd get from Intel.

http://www.notjustforprofit.org/
On the other side of greed is the fear of money. Too many non-profits shun all profit making in lieu of their ethics or their cause. These groups are then forced to spend their precious time begging for money in lieu of working on the mission at hand. Like the instructions given to parents traveling with their infants, "place the oxygen mask on yourself before your child," so too must the cause-driven venture strive to be as healthy as possible if it is to defend or nurture its benefactor.
http://www.notjustforprofit.org/

Edward,

"Make Some Profit"

If there is a need to raise the price of XO to cover associated costs (like distribution costs in G1G1) than so be it, but you failed to show how this, somehow, automatically proves the need for OLPC to turn for-profit.

Is this connected to your own for-profit efforts (wasn't there book you were going to write way back and, now, some 'Earth Treasury' project)
to 'piggyback' (to use your own expression)on the OLPC ...?

I'd like to correct a big error in one comment above. The last I checked this afternoon, they charge 50 bucks (not 200) for the camera enabled eeepc. That's not "nickel and diming" in my opinion. It's offering a suite of compatible devices that handle different people's needs. That said I ordered the $349 one without the camera.

But wait... I G2G1 (waiting still for one). Why would I order a eeePc ? Because the eee works.

A coworker brought one in today and it blew my mind, it was that well manufactured and solid. It had a manual. Its software was snappy. It actually connects to access points without driving you to pull your hair out. It had a good wiki and mature forum community populated by people who actually knew how to do computing. It's a mature product that 'works', not a group-hug lets-all-sing-kumbaya dream with a couple nice hardware piece, buggy immature slow unusable software, victim-mentality management and volunteers, and pathetic not-documentation.

The eeePC is the anti-XO.

Charging more for the XO would have been fine with most folks but it would not have fixed the problem. The (undoubtedly well-meaning) OLPC folks are simply incompetent amateurs in pretty much every respect....and that's a darn shame. The wireless and display technologies are pretty cool. But the rest is a total mess.

So I'm likely cancelling my second XO order and likely selling the one I have. My eeePC shipped in 'one hour' today and will be here Monday.

Can't wait.

@Vince: Your post is rather out of line. People who are very familiar with the OLPC project know that you are way off on that rant of yours. Care to clarify your statements please?

Most of the post and comments are plays with words.

A non-profit doesn't pay certain taxes because they will not distribute money to "investors" or "owners": The profit by legal definition.

They all have a duty to earn enough money to cover all current and future operations. So the fact that most charities are not making a profit is because they all have books where any incoming money is offset by outgoing money, paid now or reserved for the future.

What Edward is saying is that the OLPC is not earning enough money to perform their current and future activities. That would be a problem and would be cause to seek additional income. If they did not do their planning well, as is likely given the G1G1 problems, then they should change it. Normally, it is completely useless to offset the price of an item against the bare production costs, as that is mostly just a fraction of the costs needed to actually get the item with the customer.

Those doing the distribution (Fedex, Brightstar) do want to make a profit, and should simply be paid under contract. These contracts could be bad, but that is a completely different matter.

The difference with Asus is that Asus wants to make a profit for it's investors. Whether or not the Eee does make Asus a profit is completely immaterial to that. And if anyone doesn't like the XO and prefers the Eee, they should simply buy a Eee.

@vince and others:
The XO was not developed to be the last word in computer technology in human history. It was especially NOT developed to meet all the computing needs of Western adults. Whether or not person X likes to use the XO better than the Eee is not really that important. I don't like riding motor bikes, but I don't frequent biker hangouts to convince them that they should get rid of their bikes and start using public transport. Coming here to wail about how bad the XO is for use as a business laptop is completely pointless.

Winter

This discussion really seems be all about developing an effective marketing and distribution plan. Whether than needs to be by increasing prices (profit), hiring paid staff or switching how the out sources of the distribution is done is anyones guess.

But I agree with eveyone here that developing a more effective plan is necessary. I think the suggestion to check with "others at MIT's Sloan School of Management (not just to other geeks) about a financial framework that would pay for necessary expenses such as documentation and customer support. Or maybe to Presidio School of Management, which offers a Sustainable MBA" When many of the Xo's arrived and were seen live and in person-many many more people wanted to order them-and couldn't!

I do appreciate the efforts of all the volunteers at OLPC-Here's hoping that an effective marketing and distribution plan can be implemented. Customer Support and Service at this point, would be frosting on the cake.

i think you're right on the money with there needing to be documentation. what i am somewhat confused about however is what form you mean for the documentation to be in. Is it supposed to be in Digital format, or physical? It might be a little bit of a little bit of a nusance at times when trying to do something...but a well laid out, well written how to book would be unbelievably useful. it could have a section on how to do certain things with the (such as copy and paste) and sections (considered by some to be) not so important such as how to install doom and mplayer. i think it would also be good to have books containing tutorials (some more extensive than others) on how to use the included software.

i know the point of the xo is to learn. However, if the kids getting the machine dont have the materials needed to learn...then their development will be severly impaired. i know that they are expected to download e books and all..but what if there is no immediate way to connect to the internet? i just feel that the xo's would become useful alot quicker if there was included material on how to take full advantage of it.

The fact that OLPC customer services are abysmal has nothing to do with the fact that they are non-profit. A for-profit company could easily also have rotten service (lots do) and a non-profit could have good service (again, lots do). I think it's appropriate for them to invest whatever profits they make into making more and better laptops for kids, rather than buying bigger cars for Negroponte. To some people that's a stronger incentive than profits. They are certainly lucky there is a degree of philanthropy involved in the G1G1 deal, or I would surely have asked for my money back by now. I ordered on the first day and am STILL waiting.

RE: nickel-and-dime'ing people like the ASUS Eee

The ASUS Eee has about 5 different option levels. The bottom of the line is $300 for a 2G surf with no web cam and the top of the line is $500 for 8G with a web cam. The difference is just 6 Gb of flash storage, a web cam, and a little RAM. The Camera and the RAM are almost free (low speed RAM, low quality cam), and the flash costs about $20 RETAIL. They make about 450% mark-up on the upgrade components.

If OLPC was working on making a profit, they would sell a collection of different option packages (like a pepperpad-like thumb keyboard, second SD slot, more storage). This would increase costs at each step of supply and distribution. The variable hardware would also increase development and testing costs.

@vince:
I was looking at the price spread from the bottom of the Eee line to the top of the Eee line. You were just looking at the 4G surf vs the 4G non-surf. See above.

@Maddie:
ASUS is charging what the market will bear, and that price has nothing to do with ASUS's costs.

"group-hug lets-all-sing-kumbaya dream with a couple nice hardware piece, buggy immature slow unusable software, victim-mentality management and volunteers, and pathetic not-documentation"

Perfect description of the XO !!!

@ Nathan,

Yes, ASUS is charging what the market will bear, not that there's anything wrong with that. They'll also charging for documentation and a full warranty, among other things. They found hundreds of thousands of people who want what they're selling. OLPC made a conscious decision not to use American sales to subsidize overseas sales, which they could have done and remained a non-profit. OLPC's price is based on the product's cost, assuming all product documentation and tech support will be performed by volunteers for free for an indefinite period of time and that the customer doesn't care about a warranty. They'll be successful if they can find customers that don't have a problem with that.

Ending the G1G1 program was ridiculous. Now rather than some kid in a developing country getting a laptop as a result of the program, a reseller on Ebay gets the profit instead. The more XO's that are out there in the world, the faster development will be, and the less profitable a black (or gray) market becomes. The more XO's that are made, the cheaper they will be to produce in the long run. The OLPC needs to quit seeing demand as a bad thing.
Because Linux geeks can't get a XO, they will put their efforts into products that they can buy, like the Asus Eee Pc, Cloudbook, etc. Look at the demand for the Eee, they can't even fill all the orders. Linux development is the result of motivated volunteers, and development is usually the result of users seeing the need for something, and doing something about it. Thats what Linux is all about. It really seems like OLPC is out to snatch defeat from the jaws of victory. Myself, I'm a longtime Linux user, that would have done the G1G1 thing, except that the original delivery date would have occurred when I was out of the country, so I waited. Now I'm looking to buy a Eee, and Asus will make some money (nothing wrong with that), and some kid somewhere won't get my donated XO.

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