Tech Billionaires Seek to Disrupt Philanthropy -- But Will Their Approach Work?

Just as they've helped change the way we communicate, educate, investigate and navigate, the maverick founders of eBay, Facebook, PayPal, Napster and other pioneering tech companies are applying their brash style to philanthropy. The sheer scale of their wealth and their willingness to give it away means these young billionaires could dramatically alter how the world's social problems are attacked. But will their approach be more effective than conventional philanthropic models? Despite some potential risks, we are optimistic it will have outsized impact.

This is a demographic revolution in giving. According to The Chronicle of Philanthropy, nearly 25 percent of last year's top 50 philanthropist dollars in the U.S. were given by tech entrepreneurs age 50 or younger, compared with 19 percent in 2013 and 4 percent in 2012. Facebook co-founder and CEO Mark Zuckerberg's recent pledge to give away 99% of his Facebook shares to charitable causes offers the latest example of this trend and makes clear, this is not business-as-usual philanthropy.

Microsoft's Bill Gates paved the way with the Bill & Melinda Gates Foundation. Now, Zuckerberg and a number of other high-profile entrepreneurs--including Skype founder Nicklas Zennström, PayPal co-founder and Tesla Motors CEO Elon Musk, and Napster co-founder Sean Parker--are investing their fortunes in philanthropy in ways that reflect fresh thinking and new approaches to the field. These new tech philanthropists are willing to make big, often risky bets, disrupting philanthropy the same way they've disrupted their own industries.

What makes these young moguls different than prior generations of philanthropists? For starters, they don't want to build monuments to themselves like university research centers or fancy museum wings. They want to change the very process by which social change occurs and stay personally involved in the details along the way.

PayPal co-founder Peter Thiel, for example, built on his experiences in the startup and investing arenas to establish Breakout Labs, which uses philanthropy to support a growing portfolio of early-stage companies in areas ranging from food science and biomedicine to clean energy. The group provides capital, network support, and access to partnerships to "radical science companies" too risky for traditional venture capital. its stated goal: to "change the world and take our civilization to the next level."

Another difference with new tech philanthropists: their iterative "prototyping" approach to solving problems, which involves rapid cycles of testing, failing, learning, and refining. This is a standard practice in software development. Not so much in traditional philanthropy.

Napster's Parker has put it like this: "We must move fast, make concentrated bets based on our convictions, have the courage to make mistakes and learn from them." Or as Zuckerberg and his wife, Priscilla Chan, wrote when announcing the gift of 99 percent of their Facebook shares to the Chan Zuckerberg Initiative, "We must take risks today to learn lessons for tomorrow. We're early in our learning and many things we try won't work, but we'll listen and learn and keep improving."

While tech philanthropists are aware of the importance of intellectual property, they also prize transparency and sharing data, ideas, insights, and solutions. Like open source software development, this approach taps into the expertise of many and can accelerate progress, reduce duplication of effort, and increase the odds for success. This collaborative mindset pervades their efforts to solve the world's social problems.

Parker recently announced the creation of the Parker Foundation to "aggressively pursue large-scale systemic change" in the life sciences, global public health and civic engagement. Scientists receiving foundation funding are encouraged to share their findings early on with other scientists in the foundation's network. Parker, a believer in radical transparency and the power of scientific collaboration, hopes this will lead to the next big breakthrough in immune disease treatments.

Disrupting the field of philanthropy is not free of risks. If a tech entrepreneur provides a massive infusion of funds into a single school district or a narrow area of research, this could crowd out alternative approaches and other important players, such as government, universities, private investors or other nonprofits. It further concentrates power in the hands of a few--and though those few are experts at many things, they are new to many of the fields in which they are now major stakeholders.

One of the more attractive features of the new philanthropy is also one of its potential pitfalls: Many tech billionaires may not fully appreciate the fact that rapid cycles of testing, failing, and fine-tuning may work better in software development than in social welfare programs on which lives depend. Failure can be catastrophic to beneficiaries who have no voice or little margin for error.

In the for-profit world, disruption is generally a force for good. It can deliver newer, faster, more effective--even transformative--products and services for consumers and better ways of working for employees and business partners. Whether the same disruptive approach will work well in philanthropy, unlocking new discoveries, curing social ills, and advancing humanitarian goals on the scale and timetable that these new billionaires are hoping for, remains to be seen. But their commitment to new ways of working, unprecedented use and sharing of data, and unwavering focus on measurable outcomes offers real hope for generating important insights into new models for philanthropic success--an exciting prospect in this critical sector.

Nicole Bennett is a project leader at The Boston Consulting Group. Jason Zajac is a BCG partner. Both are based in San Francisco and work with clients in the technology and social sectors.