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COVER STORY

Online Fundraising Revolution

Obama’s record-shattering successes put him in a position to become the first insurgent since Jimmy Carter to win a major party’s nomination.

It was an unusual time for a presidential candidate to extol the value of his small donors, but that didn’t deter Barack Obama. The Democratic front-runner told a roomful of supporters who had forked over $1,000 to $2,300 apiece to attend the April 8 fundraiser, “We have created a parallel public financing system where the American people decide if they want to support a campaign, [and then] they can get on the Internet and finance it. And they will have as much access and influence over the course and direction of our campaign [as] has traditionally [been] reserved for the wealthy and the powerful.”

To be sure, Obama’s prodigious fundraising machine has collected more than its share of large checks from the “wealthy and the powerful,” including $500,000 worth at the Washington event where he rhapsodized about the supporters who click in with more-modest contributions. And Obama’s advisers hastened to add that his comments were not a signal that he would opt out of the 32-year-old public financing system for the general election, something that no presidential nominee—Democrat or Republican—has ever done.

 

But the senator’s remarks underscored an amazing point: He probably could. In the past, a candidate who was spending $1 million a day in a fierce struggle for his party’s presidential nomination would hardly be in a position to consider turning down an $84 million check from Uncle Sam to fund a nine-and-a-half-week-long campaign in the fall. Then again, no other candidate has ever built such an enormous fundraising base.

Well over a million people donated more than $230 million to Obama’s campaign through the first quarter of this year. And, fueled by his Internet fundraising machine of small donors, the candidate pulled in more than 40 percent of that cash in just two months, $55 million in February and $40 million in March. During that brief time, Obama almost doubled his donor pool to 1.3 million, his campaign says. Obama hopes to have 1.5 million donors by early May.

In political circles, the generally accepted definition of a “small donor” is someone who contributes less than $200. Through February, about 90 percent of Obama’s donors fit that description, according to information from his campaign and the nonpartisan Center for Responsive Politics. If March continued that trend, Obama has more than 1.1 million small donors.

 

Even if that estimate is a bit high, Obama’s army of small donors is nevertheless very impressive. According to an analysis by the Campaign Finance Institute and the Institute for Politics, Democracy & the Internet, a total of 625,000 small donors gave money to a major-party presidential candidate in 2000. In the 2004 race, that number surged to between 2 million and 2.8 million. Obama is already halfway to that historic high—with six more months to add donors to his fold if he wins the Democratic nomination and opts out of public financing.

The significance of Obama’s record-shattering success as a fundraiser is enormous. His donor base puts him in a position to become the first insurgent candidate to win a major party’s presidential nomination since 1976, when Jimmy Carter won the Democratic nod in the first election under the public financing regime. Obama’s financial advantage over Democratic rival Hillary Rodham Clinton enabled him to outspend her in the string of post-Super Tuesday contests in which he built his lead in pledged delegates and established himself as his party’s clear front-runner.

Political analysts have traditionally viewed public financing as the ally of insurgents because the system offers a federal match for individual contributions of up to $250 once a candidate agrees to abide by certain restrictions. The system can give little-known candidates the ability to raise enough money to compete in the early primaries and caucuses against establishment candidates with national fundraising bases. The regime also puts caps on the amount of money that candidates can spend in individual states and in the overall campaign—limits that can help level the financial playing field. (In the current campaign cycle, all of the remaining candidates declined to participate in the public financing system for the primary season.)

Internet fundraising can often resemble “donors chasing fundraisers. It’s kind of an unnatural act.”
--—Hal Malchow, direct-mail fundraiser

 

Some political observers and scholars, however, suspect that the caps actually disadvantage insurgents by preventing them from raising enough money to overcome establishment candidates’ inherent advantages, such as endorsements and support from party leaders, elected officials, and interest groups.

To be sure, the grassroots energy behind Obama’s candidacy is a vital ingredient in his success, but having the dollars to build an organizational apparatus to harness that excitement has also been key. “There’s no question his fundraising capacity has been a big factor for him in some of these states,” said veteran Democratic presidential strategist Tad Devine.

So, is Internet fundraising likely to transform the next presidential contest and other races? “I think that we all are sort of learning some tactics and principles, ideas, and tools that will apply in the future,” said a Democratic consultant and senior Obama strategist who requested anonymity. “But I do think there is a foundation of uniqueness that drives this stuff for this campaign that is uncommon in campaigns.”

Obama’s Cash Cow

Obama isn’t the first contender to strike political gold on the Internet. In 2000, it was Republican John McCain who became the first presidential candidate to benefit from Internet fundraising. In the week after the senator from Arizona won the New Hampshire primary that year, supporters flooded his campaign website with $2.2 million in contributions.

“It was all over-the-transom money,” recalls Becki Donatelli, chairman of Campaign Solutions, an Internet fundraising consulting firm that counts McCain as a client. “There is still that today, but it’s also become part of Fundraising 101 [to include online] direct marketing in addition to creating a [website] where people bubble up.”

In the 2004 Democratic presidential nominating contest, former Vermont Gov. Howard Dean was the Internet’s darling. In the year leading up to the primaries, Dean collected more than twice as much money as his nearest rival on the fundraising front, Sen. John Kerry of Massachusetts.

Dean’s campaign used the popular Internet social-networking site Meetup.com to gather and galvanize supporters. The campaign also created an interactive baseball bat on its own website to periodically challenge supporters to send in contributions for a particular cause or by a certain time. As contributions rolled, in, the virtual bat would fill up like mercury rising in a thermometer.

In one novel challenge, Dean successfully exhorted his donors to contribute $250,000 in a single day to offset the sum that Vice President Cheney planned to raise at a luncheon with GOP fat cats. “What drove all of this was the enthusiasm that people had for Howard Dean. The Internet is a bunch of wires. If you have the juice, things will move,” said veteran Democratic direct-mail fundraiser Hal Malchow. Internet fundraising can often resemble “donors chasing fundraisers,” he joked. “It’s kind of an unnatural act.”

Internet fundraising tends to track the emotional highs and lows of a political contest, but sometimes in unexpected ways. Two days after Obama lost the New Hampshire primary to Clinton, he raised twice the amount that McCain had raised in the week after his 2000 victory in the Granite State—some $4.4 million. Clinton has had good money-raising streaks, too. In the two days after her strong showing in Ohio and Texas on March 4, she took in about $4 million.

Obama’s record $55 million haul in February—$45 million of which was contributed online—was boosted by his early victories. “There was that enthusiasm and excitement to giving: ‘Obama won another election,’ ” an Obama strategist said. “That’s one of the reasons why February was so extraordinary.”

Still, even an also-ran presidential candidate who barely drew any actual votes broke online fundraising records earlier this year. Rep. Ron Paul, R-Texas, raked in more than $4.2 million in a single day when a Florida music promoter linked an Internet appeal for the anti-war libertarian to Guy Fawkes Day, the November 5 anniversary of the attempt to blow up the British Parliament in 1605. Paul’s campaign went on to raise some $6.2 million over the Internet on December 16, the anniversary of the Boston Tea Party.

But Obama is the clear leader in taking Internet fundraising to new heights. In the spring and summer of 2007, the Obama campaign held rallies that drew 5,000 people, 10,000 people, or more. Partly to manage such large crowds, the campaign had asked supporters to sign up online or at campaign offices in advance to attend a rally. That sign-up process yielded a lot of e-mail addresses. At the same time, the Obama campaign was beginning to build its online community, giving supporters opportunities to meet one another and volunteer for door-to-door canvassing, phone-banking, and other activities.

The presidential campaigns have recently adopted an online fundraising tool linked to search engines. And once again, the Obama campaign has shown the way.

On Google, the Web’s most popular search engine, the company’s advertising program, AdWords, allows a campaign (or any other advertiser) to sponsor an ad that pops up next to the results page when a user’s search includes particular key words. The campaign pays Google only when someone actually clicks on its ad. If the campaign buys more than one triggering word—“Iraq” and “immigration,” say—the advertising program indicates which word lured the new supporter to its ranks. That information can help the campaign tailor messages to particular subsets of Obama boosters.

In the world of politics, presidential campaigns are today’s biggest users of search engine advertising to reach out to potential donors instead of waiting for them to find the candidate’s website. But down-ballot campaigns are increasingly joining in. “I think there will be a day pretty soon where everyone from presidential to state legislative candidates will be using Google AdWords and other tools,” predicts Peter Greenberger, team manager for Google’s Elections & Issue Advocacy business unit.

Social trends are likely to make that happen. Direct mail, the traditional mainstay for attracting small donors, has been most effective among the oldest voters. “As long as we have a constituency who doesn’t do [electronic] commerce—meaning, use their credit card to make a purchase or give a donation—direct mail will be alive,” said one 2008 presidential Internet strategist. “But as they die, so will direct mail.”

Raising money over the phone, another staple of campaigns past, has grown more difficult as people have given up land lines and rebelled against telemarketers. “The future for the telemarketing industry in politics is not especially bright as more and more state legislatures look for more-robust enforcement of Do Not Call lists,” said Philip Musser, president of New Frontier Strategy, a public-relations firm that focuses on state issues. Musser, who also advises Google on politics and state issues, noted that the Internet allows people to “consume [a fundraising appeal] at their pleasure rather than be forced to hear a message when they don’t want to.”

Whether future presidential candidates will replicate Obama’s Internet fundraising machine remains to be seen, but White House hopefuls of both parties are sure to try. Given the range of candidates who have succeeded to some extent at “Net-raising,” from McCain to Dean to Clinton to Paul, tomorrow’s contenders will probably expect to be able to light up the Net-roots.

Moreover, if Obama is the eventual Democratic nominee, political elites and the news media will surely expect future candidates to demonstrate the ability to raise money on the Internet just as they now must show that they can sign up impressive names for their finance committees.

If a candidate can’t milk the Internet like a cash cow, said University of Wisconsin political scientist Byron Shafer, an authority on the presidential nominating process, “then we know you’ll be limited to what the bundlers can drag out for you. You’re not going to start a campaign and say, ‘This wild Obama thing, I’m not going to bother.’ You’re going to hire a guy and say, ‘Make this work for me.’ ”

This article appears in the April 19, 2008 edition of National Journal Magazine.

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