The following is a conversation between Mike Kubzansky, Managing Director of Omidyar Network, and Denver Frederick, Host of The Business of Giving on AM 970 The Answer WNYM in New York City.
Denver: There are only a handful of organizations that look to address societal problems in a multi-dimensional fashion, seeking new combinations and approaches to achieve impact. Omidyar Network is one of the most highly respected of those in both advancing the conversation and implementing new strategy. It’s a delight to have with us tonight the managing director of Omidyar Network, Mike Kubzansky.
Good evening, Mike, and welcome to The Business of Giving!
Mike: Thanks. It’s great to be here.
Denver: Why don’t we start by you giving us the history of the Omidyar Network, the founders, and its mission?
Mike Kubzansky, Omidyar Network. (PRNewsFoto/Omidyar Network)
Mike: We were founded by Pierre and Pam Omidyar. Pierre is the founder and inventor of eBay; found himself incredibly wealthy after the IPO at a very young age, and really a little before his time, committed to using the proceeds of that windfall for the purpose of social impact and social good.
He and Pam set out on a very intentional journey. At first, they actually set up the Omidyar Family Foundation. That was a conventional foundation, 501(c)(3), grant-making entity. What they realized after a couple of years is it wasn’t nearly able to reach the same scale of impact as the eBay platform was, where literally millions of people had become entrepreneurs and found a way to earn a living on the eBay platform, and a couple of other things which we now take for granted, which is ways to connect — ways for strangers to connect and transact with each other. Prior to eBay, the notion that you would agree to sell something to a perfect stranger across the country and connect was much more unheard of than it is that we now take for granted.
So, there are insights both in terms of the economic platform that eBay created at scale and the connection platform that eBay created at scale. On that insight, in about 2005, Pierre decided to convert to Omidyar Network, which was really the fundamental insight being the ability to do both commercial investing as a means of generating social impact at scale — which has now later got named impact investing — and making grants alongside. That was the origin of it, and then the insight of a two-checkbook approach – that you can be under the same roof; you can use both your grant-writing checkbook and your investing checkbook to drive social impact. That was the origin of how we came to be in our current form.
But applying it with a venture lens is something I think that we’ve historically done more of than most people; how do you take that venture capital, Silicon Valley-lens on high-risk set of things to do?
Denver: It’s hard to overstate how groundbreaking that was. As you just said a moment ago, we take all this for granted today — the LLCs and the 501(c)(4)s and the social enterprises. I think many people wonder where did it ever get started? I recall back at that time too, there was a lot of pushback. Mohammad Yunus and microfinance and commercial microfinance. It just wasn’t embraced right away, was it?
Mike: Right, and I don’t want to take undue credit. There were a lot of people, particularly in the US, in the (Community Development Financial Inclusion) CDFI movement for decades who had been… as with Yunus, had been doing in the ‘70s and in the US, the CDFI movement (Local Initiatives Support Corporation) LISC, Enterprise, all the (Community Development Corporations CDCs) who were doing low-income housing and job work, impact investing in that sense is not new. And they were funded generously by Ford and MacArthur with (program related investments) PRIs along the way. We would be loathe to take credit for something that started well before us. But applying it with a venture lens is something I think that we’ve historically done more of than most people; how do you take that venture capital, sort of Silicon Valley lens on high-risk sets of things to do?
Again, lots of things; I once had the privilege of doing a brief summer internship at Shore Bank in Chicago. That was a very high-risk set of (Program-Related Investments) PRIs for Ford and MacArthur and others to make as well. Again, not saying that we have a monopoly on risk. How do you take that venture mindset and stamp it on to a philanthropy, and really see what kind of social impact you can drive by doing that? So, that was the origin of the thinking. Yes, that was new and controversial, and we’ve been gratified to see other people coming at it over time and doing the same thing through either forming an LLC…. Some foundations are now putting large chunks of their endowments aside for mission-oriented investing. It’s been nice to see the movement in that direction where this is no longer a heretical thing to be doing.
Denver: Since this origin, how much has the organization invested? What has the focus of those investments and grants been?
Mike: Over time, and again this gets complicated because we’ve recently gone through a reorganization to stand up independently a number of our longest standing initiatives… which I’ll take you through if your listeners are interested. Historically, about $1.4 billion since inception, about 53% to 55% of that has been as grants. As my predecessor, Matt Bannick used to say, 100% guaranteed loss of principal investments, and the other 45% has been in the form of some kind of typically an early-stage equity investment in a startup company. One startup company for instance that we invested in which has done quite well, a company called d.light, which does low-cost solar lanterns and solar home systems in emerging markets in Africa and India. We are really proud of them and the work that they’ve done and who have been along the way. Later on, I can talk to some more recent investments.
Denver: Toward the end of last year, October to be precise, you announced a new strategy, a new approach focusing on several key areas. We’re going to get a chance to speak about a couple of those. First, what was the impetus for taking this new tact?
Mike: I’m glad you asked because there were two impetus: One was actually we had… and this is the privilege of working for Pam and Pierre is that Pierre had the insight that things should not stay static forever. The insight that it would be a good time to change and stand up some of our longest standing initiative areas; so our financial inclusion team has now stood up and spun off as Flourish Ventures. Our governance and civic engagement team has now stood up and spun off as Luminate. They’re doing really interesting work and continuing to do the work they did. One impetus was we were changing the organization fundamentally by spinning off our longstanding entities, who are continuing the excellent work that they do.
The second impetus though was taking a look around. This was the first time as a result – first time we really did our strategy reset since 2007. A lot in the world had changed. Looking around at a very different world in 2018 from a world in 2007, if you look around, our assumptions and hypotheses were built on two key assumptions, both of which I think are at a minimum open to question, and in some cases, the evidence is pretty clear. One is that democracy, not just in the US, but including in the US, is stable and not under threat. I think that is certainly open to interpretation. The second is that markets are adjudicating returns and profits fairly and equally and generating the prosperity that they need to. I think on the second question, that was one of the assumptions of the old strategy of being on market-based solutions. There, I think the evidence is pretty strong in terms of the inequality levels that have become quite apparent post the Great Recession. Not just in the US, but in many other places.
That markets are not doing the jobs that we have expected them to do in at least their current format. So, it was a real chance to take a step back and say, the world is really different right now. We have illiberal governments in a number of countries. We have high levels of inequality; and from the point of view that we discussed, first of all, we feel some comfort that we’re not the only ones taking that two-checkbook impact investing approach anymore. That freed us up to take a look at some different issues and some different ways of doing business. Really, mostly inspired by taking a hard look at the world around us in these core assumptions of that really being ripe for re-inspection.
Denver: My observation would also be that in Silicon Valley where you’re based, there’s been a little bit of skepticism, or at least pumping on brakes, that market forces alone were not going to solve these social problems; and technology, with all its great possibilities also had its limitations, and those limitations sometimes were not all good. There seems to have been that hesitation to say we need to, as you say, re-set, take a step back, and really look at this. Would that be a fair statement?
Mike: I don’t want to speak for others, but I certainly think we’re hardly the only ones who have had this observation. A number of things that we wish had been clearer at that time became clear post- 2016 between Brexit, and the election in the US, and a number of other things that were clearly brewing under the surface for a while. That became much more apparent since 2013. 2014 is when things started to really become apparent that we needed to think about things in potentially different or more expansive ways, I would say, not necessarily completely different. There is a growing recognition, and you see it some ways in terms of the UBI conversation coming out of Silicon Valley, that being universal basic income. You see it in other ways among our other social impact foundations and investors starting to think about these sets of issues. I don’t think we’re the only ones who had this insight at all. But it was a moment, since we were already reinventing the organization, to really take a step back and reorient around these priorities.
A lot of people are worrying about the future of work, and that’s good. We do too. We are very worried about AI and its upcoming effect on jobs.
Denver: One of those priorities is to reimagine capitalism and to build a more equitable society. Flesh that out a little bit for us in terms of your vision for that.
Mike: That’s a nice small goal that we should be done within a year. That’s a joke. What we mean by that is – this is one of the things that became apparent when we looked at our strategy– and we looked at the world around us is – the capitalist system is failing. There’s a reason why we call it “reimagining capitalism” and not “promoting millennial socialism.” And we are believers in the capitalist system and what it can do. You see examples in Europe and elsewhere of a capitalist system that creates broad-based growth and benefits.
Underneath that, this starts at the highest level from the point of view of the observation that we are all operating under the Milton Friedman-Friedrich Hayek paradigm of what’s been conveniently called “neoliberalism.” Our view is that has passed its sell-by date; it’s no longer an effective way to govern. Every assumption about the balance between states and markets, between companies and individuals, companies and unions, company concentration comes from this underlying mindset of the Chicago School of Economics.
At the highest level, we see a need for a paradigm shift that rebalances the state and markets, that rebalances power away from corporate concentration, that rebalances the power between workers and companies, that rebalances shareholder primacy to take into account a much more broad stakeholder.
At the highest level, reimagining capitalism for us is supplanting the Chicago School of Economics with a better, new set of ideas. We think this is an ideal role for philanthropy, and we’ve been working very closely… If you’ve seen Larry Kramer’s letter for instance to his board on this, we’ve been working very closely with Larry and Hewlett on this. We think there’s a unique role for philanthropy to play. In fact, Hayek and Friedman themselves and the Mont Pèlerin Society were funded by philanthropy. Their development of their ideas and the Chicago School of Economics didn’t happen in a vacuum. They had philanthropists funding them. At the highest level, we see a need for a paradigm shift that rebalances the state and markets, that rebalances power away from corporate concentration, that rebalances the power between workers and companies, that rebalances shareholder primacy to take into account a much more broad stakeholder.
At the highest level, we think of reimagining capitalism as the mindsets, ideas coming out of the academy and think tanks about that organize the economy. Underneath that, we have the three or four areas where we’re first looking as we get into the space. One is what we call “worker power”. A lot of people are worrying about future of work, and that’s good. We do too. We are very worried about AI and its upcoming effect on jobs. One of the things we’re concerned with as well is what institutionally – and this is, I think, part of the evolving focus…. We’ve always been concerned with impact at scale, primarily through innovative companies. What we’re adding to that is thinking about institutions and the power architecture of the system. Institutionally, not necessarily labor unions, but workers: one, are getting more fragmented by the gig economy and people having two, three, four jobs; two, their ability to negotiate for their share of the productivity.
We are also interested in this notion of safety nets. Under that aegis, we’ve looked at, we’ve funded several pilots and efforts on UBI, universal basic income, as one entry into that.
I don’t know if you’ve seen the Economic Policy Institute’s classic chart where wage growth stays flat from the ‘70s to today, but profits and profitability and productivity have gone up in a very sharp, upward, to the right angle. We think there are a variety of ways that need to get closer. One is, a lot of people working on skilling; one is just increasing institutionally and structurally the bargaining power of workers to have the ability. This is one of the reasons we supported the ballot initiative in Maine for instance. It was not successful, and we learned from it. We’ll talk about risk in a second. But the idea was, that proposed to give workers a seat at the table on how the home care industry worked in Maine, in that state. That was one that overlaps our third area, which is the safety net. What is the safety net particularly if there’s going to be increasing acceleration of dislocation from jobs? Two, how do you build in- that was a two-fer for us because it was both about the safety net that’s in place and about a segment of workers who are low-paid, typically forgotten, and getting them a seat at the table. We are interested; the worker power is aimed at that. We are also interested in this notion of safety nets. Under that aegis, we’ve looked at, we’ve funded several pilots and efforts on UBI, universal basic income, as one entry into that.
The other pieces that we’re really currently pursuing is around concentration of power and monopolies. We’ve made several grants recently to Open Markets Institute. He would be a great guest… to public knowledge and others to start thinking about modern antitrust theory in a world where…take the tech platforms, consumer harm can’t be determined from price. Again, thinking now with a broader lens about power and distribution of power, how structurally, how do you keep checks on concentration of power?
Denver: Clearly, it seems, you’re moving upstream. You’re much more involved in policy and 501(c)(4) work perhaps than you have been in the past because you realize if you don’t change the system at that level, you really minimize the impact that you could have at the other.
Mike: We’ve always been interested in system change, and that’s been… we even have, the Omidyar group has systems and complexity practice and a systems and complexity coach. Then there are various ways you can cut into a system. In certain sectors… like some of the things that are less regulated… you can cut in with a disruptive entrepreneur, can change the system, particularly if they can develop a standard or can be… if through their success, others will copy and compete the same way. There are multiple ways to address the system.
But yes, for some of these things that we’re now looking at, we’ve drawn the conclusion that in addition to the other tools we’re using, it’s become clear to us that we need to exactly come into the upstream, whether it’s the mindsets and the beliefs of the system at the Friedman level, whether it’s the rules of the game at the Justice Department antitrust level, or whether it’s some of these other balance of power things in terms of who gets a seat at the table. That’s a shift for us, and that’s different kind of work from how we certainly started. It’ll take some time for us to get used to working in these different areas. It means we’re now spending time with some new kinds of grantees who think about this on a more regular basis than we had in the past.
…how do you get people in emerging markets to more formal economy? In the US, how do you adjust from an economy where it’s been formal, single employment to a world where people will have two and three gigs as well?
Denver: Before we move on to technology, you mentioned something that not enough people talk about these days as far as I’m concerned, and that is the gig economy. Seems that we’re living in the present. We know that 90% of the jobs are all coming from the gig economy as you look at a twenty-first century social contract; you have to address the gig economy because that’s where it’s all going. I did have Leila Janah from Samasource on the show recently. They’re one of a few organizations that are actually having a training program for young people to prepare themselves for the gig economy. Give us your thoughts on how that’s going to change the nature of work and how society needs to prepare for that.
Mike: I think the nature of work and worker power… the conventional trade union, for instance, was built on a factory floor, and everybody is in the same place. And everybody has one job. The gig economy – and we’ve seen vastly differing and disagreeing statistics in terms of how big or not it’s going to be. Even the Bureau of Labor Statistics is coming up with differing numbers from study to study. Sizing it is a difficult task, but it does seem quite evident in more and more people. This is a place where…the emerging markets are always gig economy. Most people don’t have formal employment, and they’ve always been in the gig economy. So the trick is, how do you get people in emerging markets to more formal economy? In the US, how do you adjust from an economy where it’s been formal, single employment to a world where people will have two and three gigs as well?
One, it would be great to be in a world where people didn’t have to have a gig job to make ends meet if they weren’t being so underpaid at their primary job. Given that that is continuing to be the direction of travel, I think there are a couple of challenges that come up from the gig economy. One is, how do people get benefits? In the US at least, the benefits are tied to your employment status. Obama Care has been a helpful detachment from that. We are looking at a bunch of things in the portable benefits space. We did work with the Black Car Fund here, for instance, to look at their drivers, what kind of benefits they would preserve. If benefits are tied to employment and more and more people in the gig economy not having formal employment, then those benefits need to come from somewhere. They may have different preferences as to benefits – whether they want health or disability or other things as well. The benefits preferences might shift as well.
The second thing that’s raised is: Can benefits be a way in which workers actually do aggregate in terms of… that cannot be a platform by which gig workers could get together, and how that a minimum better purchasing power for benefits, but at a maximum have better voice and bargaining power over other conditions and things as well. We’re interested in that angle on things as well. The other question is in a gig economy, this gets into SEC rules and a bunch of other things. But we saw with the Lyft and the Uber IPOs, and there’s an Airbnb one coming up… I think there’s work to revisit in terms of worker ownership. If there can’t be ownership in a conventional shareholding, is there are role for instance for… in a typical Uber or Lyft set up… In most companies, there are depreciable assets that are owned by the companies. For the most part, in a Lyft or an Uber, the depreciable assets are owned by the individuals and the drivers. Is there some way that they could not benefit from the depreciation of that and get dividend checks in lieu of actual ownership, but in recognition of the fact that it’s their assets that are being depreciated to provide the profits to the company? I think there’s interesting work to be done in thinking through creative options like that.
Mike Kubzansky and Denver Frederick inside the studio
Denver: You look at situations like that, and you say: The workers are not making any money; the company is not making any money; the investors are making all the money! They just showed up yesterday! Doesn’t seem to make an awful lot of sense.
Denver: Another big area is the beneficial use of technology. There is so much to talk about there. Why don’t we start with the term you’ve been using for about three years now called “Good ID.” How do you characterize the forms of digital identity which are considered to be good?
Our beneficial tech is really about: How do we get the benefits of technology out there, but in ways where there are guardrails so that you are as seen as you want to be, but no more seen than that?
Mike: This should be available on our website for people who want to track in on this in more detail. Let me take one step back up and then come back down to the ID thing. In general, with our eBay heritage, we’ve always thought about technology. We are from Silicon Valley. We think hard. For a long time, our premise was that technology is a great force for good and for expanding the franchise and for making people who are unseen and unincluded be seen and included. I think we need to think about the opposite, which is: can people be too seen and too included and against their will?
Our beneficial tech is really about: How do we get the benefits of technology out there, but in ways where there are guardrails so that you are as seen as you want to be, but no more seen than that? And as included as you want to be, but no more included than that. Digital ID is a good case of that where countries around the world, particularly in the emerging markets – Africa, South Asia…India has issued a billion of these digital state-issued digital identities. This is fantastic from an inclusion point of view. People can open bank accounts. They can have access to state benefits. It’s a very inclusive-oriented development. But there are clear risks in the issuance of the IDs in terms of surveillance, privacy invasions, and other things.
So our initial focus on ID came out of this focus on state-issued IDs where most countries– Kenya, Nigeria, India- a bunch of countries who… Bangladesh, are all issuing digital IDs. But how do you govern these digital identities in a way that is privacy-protecting? In India, that turned out as a very public fight all the way up to the Supreme Court level, where they had to rule on a right to privacy and a limitation to the program.
Again, back to institutions, the institutions in India worked pretty well. The State came out with a program. Civil society and the media made a series of cases as to why the program might have been overreaching. The courts decided and put boundaries on the program. The system got better. Again, with our institutional hat, think about: what are the institutions that need to be in play to put the same checks and balances on the system that worked well in India? The notion on Good ID is that from the development point of view, you want as many people to have an ID as possible, but we want to make sure that as people issue IDs, that they are bounded with checks and balances on the system– that users can opt out, that users can protect their privacy, that users have the ability to use an off-line ID if they choose to, or a different kind of ID if they want to. Really building this notion of individual agency and choice into the idea that it’s not simply a state-issued, required-for-everything system, and that something can be ultimately used for nefarious or other purposes. What we’re trying to do as that momentum gets started is really shift the debate. It’s not about how many IDs you’ve issued full stop. It’s about how many IDs you’ve issued that conformed to this definition that really put the user at the center of the work. And that’s the notion on Good ID. From there, it’s relatively easy to think, actually you have your officially issued ID; but you also have a de facto digital trail ID.
How do you give users in the digital economy more broadly that same ability to control and permission their identity, their data, their use of data? That has spread into a variety of areas. Here’s a place where we use all the tools in the toolkit. We have a commercial investment in a company called Digi.me which allows you to download your data, control who you give it to, and control who you’ll not give it to, and puts you in control of whether you want to share your social media data with others and not vice versa. It could also be your call data records. It could also be your Snapchat activity. There’s a variety… it’s a tool like that.
In addition thinking about how we get other investors to commit to good data practices and good data policies in the kinds of companies they’ll invest in. We’ve introduced… with a number of other fellow investors around… a race to the top for high quality data practice. Then looking at the rules of the game again with what should be data privacy laws and data privacy protections in both emerging markets and in developed markets, we’re working with data protection authorities in Europe, for instance, to help them enforce data privacy laws. That’s just where I think the mix of the Omidyar Network toolkit really comes into play.
Denver: There are some general guidelines… I think the World Bank has put them out…. But there are really no global standards right now. That recent report that you were working with McKinsey Global Institute on, I believe it said that 3% to 13% of GDP can be traced to good digital ID, and 50% of it will be amassed by the consumer, but only if there is trust. How confident are you about that trust?
Mike: That’s what we’re working so hard to try to build. That’s why the Good ID movement, and I think it will vary; one, country by country; two, company by company. I think there’s more trust in Apple than there is in Facebook even. I think we’re worried about it. And this is the moment, as people roll these systems out, to build in the safeguards and the trusts in the system. Three years from now, it’s going to be too late. When they’re rolling the systems out… which is why we feel a real sense of urgency around this…most of the new ID systems are going to be issued in Africa. So, we’re working with UNECA, for instance in Africa, on a broader digital economy envelope of things that would build trust in the digital economy. Because if it’s not there, people won’t use the system if they feel they’re going to be spied upon. Lots of countries have issued ID systems, and they just don’t get used because there’s lower levels of trust in them. So you’ve got the worst of all possible worlds. There’s no inclusion; there’s no trust; and a lot of money got spent from the treasury for…
Denver: Very little utility. And there’s no legacy system with which to replace it. There’s just nothing.
One last word about this Responsible Computer Science Challenge that you’re a part of. You just announced some of the winners. Tell us about that challenge.
Mike: We’re excited about this. Again, coming at the most broad level of the system for: How do you make technology companies be their best selves? Again, we’re coming at it from all sides, whether it’s the monopoly regulation side, whether it’s the digital trail side; this is the side of working with tech and their workers. With tech companies, this comes out of a set of impulses that we’ve had to work with tech companies and their workers. We just… our grantees, everyone in UK, just released this fascinating survey of UK tech workers and their attitudes toward privacy regulation, AI ethics, and a bunch of things. It occurred to us and a number of our co-funders at Schmidt Futures and Mozilla that actually nobody is…there’s a bunch of tech workers who are deeply concerned about that. We found a lot of engagement with tech workers who really do care about what their companies are doing, and who they’re doing business with, and how they’re doing business. You’ve seen this right with Google with Project Maven and a number of other things where the workers have actually started to really raise their voices in certain cases, and we think that’s healthy.
Again, it fits with our worker power thesis. The Responsible CS Challenge is to attempt to really provide some momentum to having people, as they learn to code, think about the societal implications of their work, to not just think about the code, but to think broader about the context into which they’re launching their activities and sending them… most of these schools are the pipeline for… where if you’re Uber or Google or whomever are drawing your coders, many of these schools are the place where they’re coming from. So, we view this as a very important way at the source to start broadening awareness that code is not written in a vacuum. Products come out into a societal context and thinking about unintended consequences, thinking about alternate use cases. Most technology we’ve learned is dual use. Having folks aware of that at the outset we think will make for a healthier ecosystem.
Denver: Good stuff. Let’s turn our attention to impact investing. As you know, there’s been this discussion going on for a long, long time as to whether you could earn market competitive returns and still have social and environmental impact, or whether you had to accept a concessionary return to achieve those objectives. You have sought to take this conversation to the next stage. You have an initiative called Beyond Trade-offs. What’s the gist?
There ought to be, from our point of view, segments of the impact investing market where there is absolutely – and we have a number… in fact the majority of ON’s investments were made on the premise of: we expect to get a market rate of return.
Mike: The gist is we don’t think it’s an either/ or. For a long time, I was vice chair of the Emerging Markets Private Equity Association Impact Investing Council; they just had their annual meeting. You’d go to the meetings, and people would put in advertisements into their program saying, “Such and such fund… impact investing. No trade-offs!” That’s great. That’s good. If you’re out there raising money from commercial LPs, that’s a great stance to have.
Realistically, in the financial markets writ large, there’s all kinds of gradations; different asset classes have different return profiles, different horizons. Long-term investors look at things quite different from day traders. There’s a number of different aspects of the market. Impact investing market is and should be no different. There ought to be, from our point of view, segments of the impact investing market where there is absolutely – and we have a number… in fact the majority of ON’s investments were made on the premise of: we expect to get a market rate of return.
There’s a separate question as to how you estimate what a market rate of return should be in a country like Zambia and where there’s relatively low private investment in venture companies in the first place. Leave that aside, assuming you can figure out what a market rate of return is, yes, there ought to be a segment for which you should and ought to expect market rate of returns. And there’s strong discipline in that. And we think there are investments that absolutely – and we’ve seen this in our financial inclusion work, that absolutely can meet both hurdles– high social impact, high competitive commercial returns, and off to the races.
But we also think that there are segments where that equation just won’t clear. Patient capital is required, so you might get a good return on multiple invested capital bases. But once you’ve done the time value, particularly if you’re in emerging markets… which is a thin market with a lot of exits available to you, it might just take longer. So, it’s still a good investment, but it may not be a fully market rate of return, and there are other things which we think are just going to ultimately require subsidy in the form of below-market returns to be able to clear.
There ought to be a segment for that too. It ought not be one-size-fits all. The idea of Beyond Trade-offs is there are certain situations and markets and characteristics of investments, and that’s one of the reasons we were excited to go on with MacArthur Foundation and Rockefeller Foundation on the Catalytic Capital Consortium, C3, to really put a pool aside to experiment with these below-market rate, but still providing a return, categories of investment to really articulate because there’s been a lot of activity in impact investing at the market rate of return.
If you look at the Global Impact Investing Network (GIIN) surveys, most people say they’re chasing market rate returns. That’s great, and we have investments in funds for whom that is their goal, and we’re delighted to be alongside with them for that. But the idea on the C3 was, how can you capitalize some experimentation? How would that actually work for that segment of investments and maybe its long-term stuff, maybe its climate stuff. Prior to my career at ON, I did a lot research. I’d monitor on business models that serve low-income segments. There are certain low-income segments that are simply not going to be reachable at commercial returns. You might be able to get somewhat of a return. But it’s still really valuable to reach that consumer segment. So, those might be a segment where to get to rural, low-income populations in emerging markets in Africa; again, I don’t want anybody to take away from this – that’s the only way you can do it. There will be commercial rate of returns as well in an emerging market, say Kenya. But there will be cases where to reach, for instance, a particularly low-income segment, the business model is not going to be able to generate full commercial returns.
Denver: As you say, it’s a continuum. And it’s like going to a grocery store and deciding what aisle you want to walk down. Not just two aisles; there are a lot of aisles.
Mike: We have the luxury at Omidyar Network, both as an investor and a grant maker, so we can play across that. We recognize that for commercial LPs, they can’t afford to play in the below-market rate zone. They’ve got fiduciary obligations and that sort of thing. They’re not our audience when we talk about this sort of thing. We know what their constraints are and that sort of thing. But family offices, high net worth, foundations, donor agencies, USAID, DFID; these sorts of folks, for them we think they really should be thinking about this full spectrum of capital.
Denver: One of the things that the Omidyar Network is always trying to do is get better. One of the ways you did that recently is do a survey among all your investees, both the for-profit and nonprofit, conducted by Keystone Accountability, who’s been on this show. Tell us what that showed and what you learned from that.
Mike: We actually did two. I think this is a really fascinating thing. We’re really committed to end-user voice. We think it’s not often enough brought into the conversation. This will be a little challenging to talk about. End-user voice on monopoly policy, so we’ve got to go figure that out. But we brought in both Keystone and Acumen’s Lean Data, who I’m sure you know, to do relatively low-cost, relatively fast surveys of the end-users. With Lean Data, we did about 40% of the portfolio to say: What do the end users say about the products and the services? This is very interesting, and it’s really useful for us. It’s really useful obviously for the grantees and investees who are doing it. They get live feedback from their consumers in a very quick way that can help them fine tune their offerings as well.
What you find is some unexpected things ,which is segments that economists might say… based on some J-PAL study would say: this has an enormous impact on people’s lives. They self-report. You ask them, “How do you value the product or the service? And is it making a big difference in your life?” Some of the stuff that a J-PAL (Poverty Action Lab) economist might say if it makes a difference in someone’s life. “Yeah, it’s okay.” Anyone who does randomized control trial, rigorous evidence-based. I should give a shout out to IPA, Innovations for Poverty Action. Our head of learning and impact used to work there. The interesting thing you find there, for instance, is our India team which is now again self-standing…had an investment.
One of the things that scored highest was something that I don’t think an IPA randomized control trial would say would be super valuable, but it’s a company called RailYatri which does mobile-phone based Indian railway tickets, and it scored off the charts in terms of user satisfaction, enthusiasm, and feeling like it’s made a big difference in their lives. They’re aimed at low to lower middle income, first time smartphone owners in India. That’s their audience. You discover these surprising things. It’s interesting because we also published a report on what we thought our social impact was over the first 10 years. We tried to come up with a metrics around both reach, which is just absolutely the number of people, and depth.
Because we’ve done everything from Make a Grant to Wikipedia to Living Goods. Living Goods has a randomized control trial saying it improved infant mortality and maternal mortality by about 27%. Wikipedia is obviously a very light-touch intervention in people’s lives. We’ve tried to come at this notion of both reach and depth. The interesting thing when you go and ask the end users is you get a standardizable metric on depth. You can ask them how important they think this product was in improving their lives. Did it improve your life a little bit? Did it improve a lot? Did it improve it a great deal? And if you believe that people are, and this comes out of eBay heritage, if you believe that people will be trustworthy in terms of how they report these sorts of things, then that’s a remarkable, relatively low-cost way to try and understand your impact by going and asking the end users. Again, in the policy world, harder to do, but where you’re making investments in companies or grantees or doing direct service, it’s a magnificent tool.
Denver: Sounds like it is. Let me ask you a word or two about your organizational culture. Why is it such a special place to work? And what do you do to help shape and influence it?
Mike: This is where my three Improv classes come into play. The culture at ON came out of this eBay ethos at the beginning. It has evolved over time. But it has been a constant focus on entrepreneurs and entrepreneurialism. We’ve always been anchored on impact at scale. People come… they really come because they really want to dedicate their lives to impact. They come from all kinds of places. Whether from IPA or from…we’ve got ex-JP Morgan people, ex-Google people. We’ve got a few reformed ex-consultants like myself. I think the main thing is; you see this in an organization that’s willing to split itself into pieces and reinvent itself periodically… is a high tolerance for risk, which is a real willingness to take a risk, try something new. Even though this is already in our DNA, I work hard to further this and talk about… this is why we went public, that we funded the Maine campaign, and that we failed on the Maine campaign. To sort of say, the Maine campaign failed. We learned a lot from it; we took a risk. It didn’t pay off. But it’s really informed how we think in the future about how we engage on both worker power issues and how we engage with tools like…
Denver: So, it did pay off.
Mike: Definitely! It didn’t pay off in an immediate policy win. There were other benefits to having done it. I think in general, ON is a good place if you have high tolerance for ambiguity… you like to take risks; you’re excited about having social impact and constantly pushing to the cutting edge. In really thinking about a blue sky idea. It means that every now and again, we’re going to shake ourselves up and do sorts of things, so it’s not… an institution I once had the privilege of working at– the World Bank. It’s not an institution, it’s not the same kind of culture and the same kind of place, and it’s not a good fit for people who are looking for…
Denver: It sounds to me that if you’re not comfortable with change, do not apply.
Mike: That would be a fairly succinct watchword.
Denver: Let me close with this Mike. You have been out front on so many of the developments that have occurred in the social sector. What do you think might be coming next? Do you think we’re going see an acceleration of some of the present trends? Or do you think we might be in for some pretty big disruptions?
Mike: I think some stuff we’ve seen will continue. We feel like there’s good momentum for instance behind the impact investing trend. I think that will continue. Although I think we worry about… there’s a lot of now straight commercial money coming in from private equity funds. That sort of thing. Keeping the impact in the impact investing is going to be important. We see that really gathering momentum and moving forward.
Denver: Living up to the hype, so to speak.
Mike: Yeah, Catching up to the aspiration. When the Rockefeller Foundation convened people in Bellagio in 2007 or 2008, the idea that trillions of dollars would move into the sector, I think that’s no longer as far-fetched as it would have seemed a decade ago. We see momentum there.
We’re hoping there’s a trend around this incorporating user feedback, Fund for Shared Insight and others are moving, we’d love to see that become a more embedded feedback lab, some of these groups that are working on that. But I think there’s a couple of new things that are coming up which I think could be disruptive, but I think are also healthy. One of the things in our evolution, thinking more about institutions… or coming back in cases like Ford Foundation’s been thinking about it for a while. Again, it’s not brand new. There’s a lot of questioning currently of institutions, of the institution of philanthropy itself and questioning of all institutions, whether it’s government, philanthropy, the media. The element of trust barometers are fascinating in this regard. I think there’s a potentially strong threat of disruption around that, or at least forcing a re-questioning which I think is healthy for philanthropy, it’s healthy for us. I think it’s healthy for the sector.
I’d say, one of the things I’ve observed; this might simply be our own journey along the way, and everybody has been doing it. I think in general, people are thinking more about power in terms of.. I don’t think it’s just us. Again, it could be. I think there’s this kind of awakening to how power is distributed in society, and you start to see more and more of that, and coming back to these first principles. And that I think is also healthy. Sociologists think about power all the time. It’s good philanthropists are starting to think about that too.
Denver: I think you are absolutely right. I can’t tell you the number of young people I’ve encountered who are not that interested in politics. Until you tell them politics is about power. All of a sudden, they light up and say, “ I want to get involved in that!”
Well, Mike Kubzansky, the managing director of the Omidyar Network, I want to thank you so much for being here this evening. Your organization generates some of the most interesting material to be found on all these issues. Tell us a little bit about your website and some of the info that you do have there.
Mike: Omidyar.com… we have another one that you might find particularly if anyone’s listening in India which is omidyarnetworkindia.com. You can find our India team’s work under that website. The work that I’ve mostly been describing now at omidyar.com – you’ll find things like, increasingly what we’re doing more of, for instance, the Good IDs that you were citing- we’re starting to publish our points of view on things. To be more transparent, What do we believe? What are we trying to get done? That sort of thing. Over time, that’s the first of them. Over time, we’ll be publishing more of those. People will be able to see a little bit more about that sort of thing. In the meantime, that has the four areas under reimagining capitalism that we’re currently working on, including impact investing, some ongoing work in the property rights space, as well as the new areas I described to you… similar on the technology, that sort of thing. Our grantees are listed there; new and old can be found there, and profiles of the team for anybody who is really…
Denver: I’ll just add one thing. Organizations like yours, taking a stance and taking a position, and citing your opinion…Something that wasn’t done a decade ago.
It was such a pleasure to have you on the show, Mike.
Mike: My pleasure, Denver. Thank you so much for having me.
Denver: I’ll be back with more of The Business of Giving right after this.
Mike Kubzansky and Denver Frederick
The Business of Giving can be heard every Sunday evening between 6:00 p.m. and 7:00 p.m. Eastern on AM 970 The Answer in New York and on iHeartRadio. You can follow us @bizofgive on Twitter, @bizofgive on Instagram and at www.facebook.com/businessofgiving.