Fostering For-Profit Civic Innovation

According to the National League of Cities, 2012 was the sixth consecutive year of declining city revenues. While budgets are getting tighter, demands for public services are not going away.

But here’s the good news: We live in an era when we can adapt innovations in data analytics and technology platforms used by the private sector to help public institutions do more with less. It’s entirely possible that such civic innovation not only can offer new possibilities for even bankrupt cities, but also improve the field of governance in the 21st century. To help enable this movement, we have expanded our funding strategy at Omidyar Network.

Private Innovation, Public Application

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Over the last 10 years, we have spent more than $70 million on innovative nonprofit organizations that increase transparency, accountability, and civic engagement in governance. Our more recent objective is to foster and grow innovative, for-profit, start-up companies with missions to improve how governments serve citizens and how citizens engage in the process of democratic governance. Why for-profit? Because we believe those models offer greater sustainability, more efficient IT spending, and a better platform for scaling.

Video: Omidyar Network’s Pierre Omidyar on investing in the private sector to scale social benefits.

Two important observations along these lines:

1. Sustainability is crucial to meeting the demands of civic challenges. Philanthropy is critical to fostering civic innovation and government transparency. But it is also limited by a relatively fixed pool of foundations and high-net-worth individuals committed to the cause. In other fields where Omidyar Network is active, such as microfinance, nonprofits played a critical role during the field’s early development. However, for-profit players with sustainable and scalable business models (for example, commercial financial institutions), were critical to transforming microfinance into a flourishing global sector. We believe civic innovation has similar potential.
2. Public innovation is an economically viable sector in need of disruption. The daily work of government innovation primarily comes down to IT spending and implementation. A recent report projects that worldwide IT spending by government organizations will reach $450 billion in 2013. US government IT spending accounts for $74 billion of that total according to the Government Accountability Office, which also reports that one quarter of the government's major IT programs are not performing to expectations. To savvy tech entrepreneurs, that spells opportunity.

Addressing Barriers

Nevertheless, there will be challenges for innovative entrepreneurs to realize for-profit opportunities for civic innovation. Three current inhibitors include:

• The Access Problem. Complex procurement policies and practices prevent new players from securing government bids and reliable revenue streams; bulky and scattered government data make it difficult for entrepreneurs to access and innovate from public information; and information asymmetry between entrepreneurs and government prevents productive collaboration between the two.
• The Investor Problem. A traditional reluctance to work with red-tape-ridden bureaucracies makes both entrepreneurs and investors skeptical of revenue models dependent on government agencies.
• The Entrepreneur Problem. Tackling public sector challenges from the private sector requires an understanding of government processes, technical knowledge, and management expertise—a unique combination not easily found in the tech or public sectors, which often operate in silos.

Where to Start: Government Procurement

So where to start? Several entrenched issues have contributed to the private sector outpacing the public sector in innovation, but at the root of the problem is one wonderfully exciting issue we need to crack: IT procurement. (We know—it keeps us up at night, too.)

The current state of government IT procurement is a maze of red tape and dead ends that consistently rewards historic partners for lackluster, redundant technology services. The difficulties of the Healthcare.gov launch are the most recent and highly visible instance of this systemic problem. A system that was originally designed, in the words of Omidyar Network grantee Code for America, “to ensure quality and competition, to fight against corruption and patronage, and most of all to ensure that public dollars were spent fairly” is now doing the opposite, as recent news stories attest. In fact, the system, which was intended to reduce risk, actually promotes large-scale failures rather than facilitating the small-scale risk-taking required for innovation. The results are outdated tools and inefficient public services—government that is operating below its optimal capacity and at considerable taxpayer cost.

Fortunately, there is increasing momentum building from both outside government and within to make change. Recently, Omidyar Network grantees Code for America and Sunlight Foundation completed a survey of 28 city government IT purchasers. Seventy-five percent of respondents indicated that procurement reform was a priority, and 32 percent have already initiated “work-arounds” to enhance their ability to innovate. New start-ups such as Screendoor and SmartProcure are focused on the problem. Screendoor was actually conceived based on a project, RFP-EZ, that founder Clay Johnson created when he was a Presidential Innovation Fellow at the White House. That original project enabled more than 250 new players to bid on government IT projects, with bids that were on average 30 percent lower than those received through the standard procurement channel.

Video: Pierre Omidyar on how our “age of connectedness” offers hope for working with government and other institutions.

If we want government institutions to evolve with the innovations of our digital age, we must first shift the IT procurement processes that get those innovations through the door.

It Takes a Village to Innovate

Across the United States, city, state, and federal government agencies could benefit from the creative energy and effort of new companies dedicated to the unique challenges of the public sector.

Whether you are an entrepreneur, public servant, venture capitalist, data analyst, or policymaker, we hope you will take up the torch, join the fray and light the way to greater government transparency and innovation in the United States.

Read more stories by Stacy Donohue & Matt Bannick.