The real lesson of the Intel-One Laptop per Child split

GiveWell aside, the story of the year so far in the charitable world has been the split between Intel and One Laptop per Child. Jack Siegel cites this to argue against the viability of charity/business partnerships, thereby prompting Give and Take to whether such partnerships are doomed.

My answer: no. There's a lesson to be learned from the Intel/OLPC split, but it's not the inevitable failure of joint ventures or social enterprise.

For this incident to be a model of failure, the partnership between business and charity would have to have actually failed. But it didn't, not completely. As the Business Week story linked above observes, OLPC continues to have substantial and lucrative for-profit corporate ties, such as eBay, Amazon, and Rupert Murdoch's News Corp. No doubt dozens of charities would view such alliances as desirable, if not a sign of roaring success.

To understand what really happened, scroll down to the end of Jack's blog post, where he notes that the Form 990 of One Laptop Per Child, Inc. describes it as an Internal Revenue Code section 501(c)(6) trade association,* not a charity. Far from being of no practical import, in reality it's the whole story.

On the surface, the OLPC campaign adopted a legal structure that is not at all uncommon in the charitable world, consisting of an exempt 501(c)(6) trade association and a related charity, the OLPC Foundation, which, unlike the trade association, is not only tax-exempt under 501(c)(3) but can also receive tax-deductible contributions. In your typical set-up like this, none of the activity of either entity is in competition with the businesses who belong to the trade association. The trade association can't be engaged in its members' business because that would disqualify it from tax-exempt status under 501(c)(6); the charity, because setting up a direct competitor to the member businesses would spark a political clusterf**k of such magnitude that the trade association would likely collapse.

And here is where OLPC-Intel went awry. Unlike the typical venture conducted either by the trade association or the charity, the mission of the OLPC Foundation--distributing its own branded laptops--put it in direct competition with one of the trade association's core members. What's surprising isn't that this partnership collapsed, but that anyone thought it was viable in the first place. It's as if GE, Ford and McDonald's formed a charity to distribute free fast food in developing economies--at some point McDonald's will probably get miffed.

The key to success in a for-/non-profit partnership is a symbiotic relationship, akin to plovers cleaning crocodile teeth or bone-crunching bacteria in oceanic tubeworms. The more the partners can benefit each other without impinging on the other's market or mission, the greater the potential for the partnership to succeed.

*What ties all the businesses in OLPC together? Per its 1024 (annual return), all member businesses must be "within the information industry," which encompasses, well, pretty much the entire universe.