About the Internet Society 

Board of Trustees

Board Meeting 22

INTERNET SOCIETY EXECUTIVE DIRECTOR'S REPORT

SAN DIEGO, CA, USA, 9 - 10 DECEMBER 2000

The year continued to be a difficult one following on from the losses in 1999 and we continued to focus much of our efforts on fundraising, managing payables and reducing costs. At the time of the last Board meeting – a loss for 2000 was quite likely. The Platinum program piloted by Geoff Huston and Barbara Fraser changed this and we expect to show a profit of approx. $220K in 2000 as a direct result. The Platinum program clearly ‘steered’ ISOC through a very difficult financial period.

At the last Board meeting, the priorities were clearly set as

1. Improve financial stability – retire debt and increase operating reserves to a more comfortable degree as soon as possible

2. Reduce expenses through restructuring and increased automation while improving the capacity of the organization to take on ‘higher value’ activities

3. Begin building cash reserves equal to or greater than deferred revenues

Restructuring Plan

Much of this was indeed already being undertaken as part of our Restructuring Plan and the last six months has seen significant changes in the profile of our staff and our operations. I have focussed the bulk of this report on the changes in operations as they have been significant and this new ‘base’ is critical for our future growth.

There have been five staff departures since the July board meeting (excluding Mary Burger’s departure in May). These were mainly the result of either a decision to outsource activities such as Systems Administration or the result of increased automation or changes to our business model, as in our education activities and the way we now manage conferences. These new models necessitated a change in our resource base and in our operations and these are summarized below.

- Systems Administration position - outsourced our systems administration activities

- Training workshop coordinator – headcount reduction due to changes in the evolution of our network training workshops

- Finance manager – plan to move to a part-time position and have hired Robert Vaughan on a temporary contract to help through this transition

- Director of Conferences – changes in our business model for conferences led us to review our requirements – ‘conference logistics’ are planned to be outsourced in the short term although we will need to hire someone(s) (may be part-time) to develop new Education and Conference programs in concert with the respective VP’s

- Admin./start-up support in the Geneva office was replaced by a fund raiser/org. member support resource (Martin Kupres)

This restructuring would save approx. $260K in salary costs on an annualized basis when net of outsourcing costs. These savings will be used to help stabilize our financial position in the short term and we will hire additional resources for the new ‘higher value activities’ as appropriate and as our financial situation permits. At the same time, we have refocused as much of our staff resources as possible (for the moment) on Public policy efforts and increased org. member support.

Fund raising

Fund raising continues to be a major focus and we have brought in $430K (cash) of new member revenues (55 org. members) since the first of the year. This does not include any funds received as part of the Platinum program which accounted for another $400K in cash on an incremental basis.

At the last Board meeting a goal was set for each board member to bring in $100K of new org. revenues. A special section of the web site was set up to enable this and several Board members have been very successful in their efforts. The total incremental cash raised to date through these efforts is: $475K and thanks go to those board members who have made such a great effort.

‘Future Directions’

The Board adopted in principle, the structure proposed in the ISOC Directions document (Resolution 00-14), and significant work has taken place to further develop and implement this proposal. It is a significant change to our operations and to our financial planning models.

We worked to the following Principles:

- eliminate structural cross-subsidization

- each ‘pillar’ should be financially self-sustaining and cover all ‘pillar’ specific costs

- each ‘pillar’ should service its own market needs with specific targeted programs

- must provide direct accountability of support to benefit

And we’ve:

- Assigned all of our activities to pillars

- Built financial models from the bottom up, e.g. from detailed operating financials

- Each pillar carries it’s own fully loaded cost, incl. appropriate G&A, rent, telephone, etc

- Total Org. member revenues split according to belief of what org. members were ‘buying’:

The ‘Profit’ logic for each pillar is the following (this can of course be dialed up or down depending upon the operating reserves we require/want for ISOC as a whole). The 2001 budget assumes a $328K profit for ISOC across all the pillars.

Standards – run under the assumption that we will use ‘all’ the revenues we are likely to get to advance standards activities and bring more value to members through standards related projects, etc.

Membership - run under an assumption similar to the above for Standards

Education & Training - meant to be self-supporting and should be a significant revenue generator, hence there's a relatively large profit shown in this pillar. This should in time allow us to increase our investment in this area as well as increase spending in activities which are seen as a significant benefit/value to our members such as the public policy activities.

Public Policy - we should bring significant funding to this pillar (after the Standards pillar has been ‘guaranteed’ and after membership costs and selected projects have been covered).

2001 Budget

The 2001 budget is now cut by pillar and this is how the business will be managed and measured in the future. Financial reporting to the Board will be done by pillar not by activity cost centers (although we will continue to manage much of the operations at the cost center level). The 2001 budget assumes a $328K profit for ISOC across all the pillars and this will serve to reduce the negative fund balance at the end of 2001 to approx. $700K. It will likely take us an additional 2 years to recover completely. The budget is covered in much more detail in a separate report so I will not repeat it here.

Membership

Membership in chapters and the number of chapters/chapters in formation continues to grow and we now have over 70% of our members in chapters. The overall membership level has increased only slightly and now stands at just over 7600 while the retention rate remains flat at 40%.

Next steps

Begin to build up the organization as funds permit focussing on increased value to org. members through increased support to the Organization Member Advisory Council, as well as to the Standards and Public Policy activities, etc.

Discussions are underway with the relevant VP’s to pull together operating plans taking into account the recent restructuring activities and are most advanced in the areas of Education, Conferences, Publications, Org. Membership and Public Policy. More detail will be in the VP reports or can be provided later.

Summary

The main challenge we continue to face is the need to build up a sufficient and solid financial base. While the Platinum program has helped significantly this year and it is expected to do so again in 2001 (and should even increase significantly), there still does not seem to be a silver bullet. Full recovery is expected to take another 2-3 years unless the Platinum program is wildly successful. While there’s scope for foundations to help in the longer-term (and we are keeping some low level activity going here) they will not be of help in the short-term and barring another ‘Platinum brainwave’ it’s not clear how we get financially sound any more quickly.

While these actions are all very necessary this is followed very closely by the need for a serious look at what ISOC should be in the future. As I pointed out in the last Executive Director’s report, we need to re-think our value given the pervasiveness of the Internet itself, the ubiquitousness of Internet associations, the growing involvement of International organizations in this area, and the expanding role of various foundations. The continued tightness of our financial situation and more importantly the resulting impact on our ability to make the needed contributions leaves little room for complacency. Our future opportunities depend upon how quickly our financial situation improves and in the short-term on our ability to add more value to our members. This is where we continue to expend our greatest efforts.

The staff and I can work to increase our effectiveness in operations and in fundraising but we will soon hit a natural limit imposed by a lack of resources, therefore it is imperative that we all continue our fundraising activities. We are critically dependent upon the Board for your support in these activities.