We Should Not Minimize Obama's Fundraising Advantage

Today, the final fundraising numbers of the 2008 election cycle were released, showing Barack Obama climbing to a staggering $750 million haul for the election season. Obama's spending in the general election was $300 million to McCain's $84 million in public funding. Obama outspent McCain by $135 million to $26.5 million in the final two weeks of the campaign.

Several prominent conservatives have sought to minimize the significance of Obama's accomplishment, pointing to this Campaign Finance Institute study showing that Obama's mix of small and high dollar donations was roughly similar to President Bush's in 2004, or pointing to the Obama campaign's poor protections against online credit card fraud.

All of these rationalizations miss the point. Saying that the Obama campaign's fundraising is not noteworthy except for its scale is like saying Mount Everest is not noteworthy except for its height. Online fundraising empowers small donors -- but it also reduces the transaction costs for big donors and enables more people to join the ranks of large and medium donors through multiple donations throughout the course of the election season. Obama's fundraising marked a categorical shift, not so much in empowering small donors, but in building an infinitely scalable campaign that could be dialed up to virtually any level Obama wanted.

Let's take these claims one by one. First is the notion that Obama didn't fundamentally change the fundraising mix -- that this wasn't a "small donor revolution." There is some truth to this, but this is beside the point. Even on campaigns with large numbers of small donors, a single $2,300 donation is worth more than 40 times a single $50 donation. In any campaign without draconian donation limits ($500 or less), large donors will account for a majorly disproportionate of funds raised. This is the power law in action.

The real shift we should be thinking about is not the shift from large to small donors. It is the shift from direct mail to the Internet. Republicans have always had a small donor base (in contrast to the pre-McCain-Feingold Democrats). It is called direct mail, and it's why the RNC always outraises the DNC no matter what (even in 2008). But the problem is that 1) it doesn't scale, and 2) the transaction costs are very high -- usually around 30-40% for mailing a housefile and 100% to prospect for new donors.

To put this in direct mail-ese, the Obama campaign raised $500 million online after sending one billion "pieces" of e-mail. To raise half a billion, Obama spent no more than $25 million on all Internet efforts combined (I have to review the final numbers, but I think this is right), a 20x ROI. Sending a similar volume of snail mail would have eaten up the vast majority of the $750 million Obama raised overall.

A possible explanation for the similar mix of Obama and Bush fundraising is the "doughnut hole" nature of Republican fundraising. Bush did very well at the top of the spectrum with donors who maxed out, and he did extremely well with direct mail donors at the lower-end of the spectrum -- usually elderly donors who average about $30-$40.

Where Obama excelled was in filling in the middle tier, with the Internet donors who average higher than mail ($80 average), and with the ability to blast them with e-mail almost daily creating more repeat donors who fell in the $200-$999 range. So, Obama could easily have replicated the "mix" with (relatively) fewer donors at the extreme ends of the spectrum, and many, many more donors in the middle. The CFI study actually reflects this, with $1,000-and-up individual donations to Bush making up nearly double of Obama's mix (57% to 33%).

The point is not the mix. The point is the bottom line -- $750 million and 3.95 million donors to George Bush's 1.6 million for BC'04 and his GELAC committee. The point is that it will be impossible to construct the first $1 billion Presidential campaign simply by refining the Bush-Cheney '04 model -- as many, by hyping the CFI study's overhyped top-line, are implictly suggesting. The old methods of fundraising cost too much -- 30-40% in mail or event costs -- and don't scale. The candidate can only attend so many events, you can only mail your file so many times, etc. Longer term, it's better to concentrate on cultivating young, inspiring, grassroots candidates who (like Obama) can do well on the Internet -- an engine of massive, low-transaction cost participation.

This is not to suggest that we dump high-dollar events -- though more should take place virtually like Romney's call-a-thons -- or direct mail, which will continue to be a source of strength to the RNC for many years to come. But it does mean making the generational transition to online fundraising the #1 organizational priority. And educating the media to kill its brain dead "money primary" and bundler recruitment stories for 2012. Hillary's $26 million in the first quarter of '07 looks kind of puny and meaningless in hindsight, doesn't it? When it mattered, the money wasn't there for her.

The second myth is that Obama was only able to raise that much because of the lax credit card protections on his website, something I've covered here. I am intimately aware of the mechanics of online credit card transactions as part of my business, and can tell you that the Obama camp's disabling of AVS could only have been a deliberate attempt to sacrifice quality for quantity, opening the door to fraud. But there is also no evidence that these questionable transactions made up a majority, or even a significant percentage, of his fundraising. To put this in perspective, even if $25 million was fraud, that's a huge amount and something people should serve jail time for -- but it would barely be 3% of Obama's overall fundraising. The fraud issue is important, but very likely irrelevant to the magnitude of Obama's haul.

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Comments

We need to consider this when selecting the RNC Chair

The Chairman has his name on TONS of fundraising letters and material. Anyone that high up in any organization, let alone a political one, does not put their name and signature on something without completely understanding the nature of what is being signed.

We need someone who understands how much skrilla we're going to need and that we will likely need it quickly because tomorrow might be an indicator of turning the public tide back in our favor for 2010 as Sean Oxendine pointed out earlier today. 

In other words, we need a Chairman that knows what skrilla means or else how can we expect to raise any? Cause if he don't know he better ask somebody.

 

Appoint Sarah Palin as Party Chair.

Have her mount a back-to- basics campaign with your grassroots help and an online donation, and see how many over 40-year-old members know all they need to know about the Internet.

Don't believe me? Ask Saxby Chambliss

ex animo

davidfarrar

I believe you, I must say. I

I believe you, I must say. I am right thanks for asking. Mike. chicago storage unit and riding lawn mowers guide.

I wonder if the Dems will "pull up the ladder behind themselves"

I could see them passing "campaign finance reform" legislation making it tougher to do some of these things in the future, while still rigging the system for their own benefit.

 

 

That advantage is even more staggering. . .

. . .if you consider that Obama was getting regular informercials and multi-page print ads for free due to the fawning coverage in the mainstream media.

The old school "this was just a fluke, we don't need to change the way we do things" mentality is flat-out dangerous. The GOP will ignore the new media at its own peril.

But what can we expect from a

But what can we expect from a system that blocks grants to help states with their programs?  this pretty much prevent guaranteed issued coverage and will also help federal mandates harder to impose. Thanks | Joe Coleman | small business | Consultant/Advisor

Anyone that high up in any

Anyone that high up in any organization, let alone a political one, does not put their name and signature on something without completely understanding the nature of what is being signed.

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