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Entrepreneurship in the field of public goods

There is an interesting trend in the high-tech industry. Not long ago, public goods were considered as an area for charity. Now, entrepreneurs, investors and top managers of corporations saw in them an opportunity for profit. In this essay we will go through the main issues of the public goods market. In particular, we will deal with the definition, business models and growth directions.

What is public good?

In economics, there are two interesting criteria for the classification of all goods: access parallelism (rivalry) and accessibility (excludability). Fortunately, it is non-parallelizable (rival) if using it by one participant reduces its accessibility for the rest. Benefit belongs to the category of open access (non-excludable), if it is not possible to restrict individual access or if such a possibility is not voluntarily used. Using these two criteria, you can divide all benefits into four types:
Examples of public goods are easy to find in various areas: urban infrastructure, education, public order, peace, energy, environmental protection, health, transport, tourism, financial systems. In this article we will discuss the opening up opportunities for entrepreneurship in the field of public goods .

Public goods and related concepts

Let's recall a few definitions. A non-profit organization is a legal entity that does not pay dividends to its owners; instead, all proceeds are spent on production and development. A charitable organization is a special case of a non-profit organization in which the goal of the work is a kind of "good goal". In many cases, it is about helping those who cannot help themselves. Charitable organizations may receive certain tax benefits. Social entrepreneurship is a commercial activity aimed at good goals and beneficial social change.

The creation of public goods can be both commercial enterprises and non-profit. Public goods may be charitable in nature (a documentary about healthy habits), and this applies to luxury items (satellite group for GPS navigation). The public goods market is a combination of all manufacturers and users of products with unlimited and parallel access. Players in this market can be both non-profit, charitable organizations, social entrepreneurs, and purely commercial structures. A common challenge for all players is finding a sustainable business model.

Business models

To participate in the public goods market, both start-up investment capital and a permanent source of income covering operating expenses are required. In search of investment capital, you can turn to standard venture capital investors, in particular, to funds with a specialization in public goods ( Omidyar Network , Good Capital , Unreasonable Institute ). Secondly, you can start the development of the company, using grants from charities and government organizations. Further, in some cases, there are programs of soft loans for enterprises in the public goods sector. Tesla Motors has received a credit line in the amount of over $ 400 million to create a factory for the production of electric cars. Finally, an enterprise in the creation of public goods can receive significant non-financial support. This may be the help of volunteers, free premises, technology and data.

The parallelism and unlimited access to public goods gives rise to the “free rider problem”. Everyone hopes that someone else will finance the creation of the product. As a result, we have a shortage of public goods. There are three main approaches to solving this problem:

Opening opportunities

Most likely, in the coming years, the need for public goods will only grow . The capital of charitable organizations is growing, developing countries are becoming richer, corporations are thinking about social responsibility, and in socialist and authoritarian countries (Sweden, North Korea), the state assumes expanded functions of caring for the population. An entrepreneurial approach to public goods brings many benefits. Commercial companies can attract venture capital and the best employees, invest in production facilities and research laboratories, conduct long-term programs to develop their resources. The public goods sector includes perhaps the most important problems of mankind: health care, transport infrastructure, environmental protection and education.

Now we see two large groups of public goods based on web technologies. The Internet is an ideal tool for creating marketplaces . CharityNavigator connects philanthropists with charity programs, Kiva associates third world entrepreneurs with individual lenders, Kickstarter allows artists and photographers to find sponsors for their art projects, Spot.Us performs the same function for investigative journalism, CatchAFire helps to find volunteers, Alter Eco promotes fair trade products . The second group of technologies will consist of open knowledge . KhanAcademy and SupercoolSchool publish lessons, Ushahidi collects reports from disaster sites, Wikipedia organizes encyclopedic knowledge, TED - scientists and politicians, OpenCongress publishes drafts of draft laws, and Ashoka collects stories of social entrepreneurs. Public web technologies also include mobile applications, specialized search engines, e-government, payment and financial systems, social and communication services.

There are a number of biases associated with public goods. It is believed that government contracts and support from charitable foundations are built on corruption and personal connections. There is a deal of truth in it. However, government agencies have a genuine demand for the creation of public goods. A number of funds operate under open market schemes. And corrupt suppliers still need subcontractors to fulfill their orders. Further, public goods are associated with non-profit organizations and charity . In reality, the sphere of public goods is much wider than essential goods for earthquake victims in Haiti. City fireworks or the Internet system for paying fines are created by commercial companies. Thus, public goods is simply a sector with indirect business models. According to the following prejudice, sponsorship cannot be a basic business model for high technology. Here it should be remembered that museums, classical music, and many branches of education and environmental protection are supported by sponsors. Thus, recognition of the sponsorship model is only a matter of time.

What awaits us ahead?


  1. Creating public goods is a promising area for business. The private goods market is gradually passing under the control of large corporations. Increases competition in the most profitable areas. And at the same time, the business potential of high technologies in the field of public goods is practically not realized. Thus, for the next wave of startups, great opportunities are open in such areas as health care, environmental protection, e-government, transport, education and employment.
  2. The nature of public goods dictates the choice of a business model. If your product belongs to the category of public goods, then your sources of funding will be charitable foundations, the state budget, sponsorship packages and related products. In the past decade, the advertising business model has driven the bulk of innovation in the field of Internet technology. Now comes the time of the sponsorship business model. Further, it should be understood that public goods are both private. The product, being public for end users, is a private blessing for its sponsors. This is especially clear on the example of local public goods (knowledge transfers, marketing companies for tourist zones). Thus, the classical methods of marketing of private goods can be applied to attract sponsors of public goods.
  3. Technological progress in creating public goods is inextricably linked with the development of market mechanisms for financing these goods. First, we need efficient and transparent platforms for buying / selling / sponsoring public goods. Secondly, we need generally accepted metrics of the benefits of these benefits. Fulfillment of these conditions will drive progress in creating public goods and is necessary for rapid growth.

Source: https://habr.com/ru/post/105472/

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