[Foundation-l] [announcement] new staff member in business development

[Anthony]

On 5/19/07, Erik Moeller <erik at wikimedia.org> wrote:
> We have to distinguish tax-exempt activities here from those which are
> not.  Much business development is about basic logo & trademark
> licensing, e.g. for the purposes of setting up a mobile phone portal.
> Such royalties are tax-exempt if they are not combined with the
> provision of services, see e.g.:
> http://www.independentsector.org/mission_market/tax.htm
>
They are tax exempt, but they still are limited by section 509 of the
Internal Revenue Code.

> The other area of business development have been the live update feed
> agreements with companies like Answers.com. These are currently on a
> relatively small scale. I cannot comment on whether these need to be
> classified as UBIT, but if so, it should not pose a problem.
>
I could comment on this, but I'm not going to do so publicly.  Suffice
it to say that right now live updates serve a dual purpose of
disseminating free content and raising revenue.

The issue with this is one of focus.  I don't think I'm alone in my
belief that the focus in this area should be on disseminating free
content, and the data feeds should be managed by someone with this
goal in mind, not the goal of "analyz[ing] the price asked ... and
implement[ing] an increase if suitable".  These two goals are in fact
counter to each other.  My opinion is that data feeds should be *more*
accessible, not less.

Perhaps both goals, increasing revenue *and* disseminating more free
content, could be achieved in certain ways, such as making the data
feed more visible, providing a market price so that *anyone* could
subscribe, not just the big players who can negotiate individual
contracts.  I suppose it could be argued that this might eliminate
some monopoly market powers that the WMF currently has, and thus
reduce revenues, but as we're talking about free content it's probably
only a matter of time before someone starts competing with the WMF if
it doesn't get its act together in this manner.  In fact, there's
probably nothing stopping your current data feed partners from turning
around and reselling the data feed to others, as any contractual
restriction on doing so would violate the GFDL.

> Should the scale of business development exceed our expectations, we
> can spin off a taxable subsidiary if necessary:
> http://www.asaecenter.org/PublicationsResources/whitepaperdetail.cfm?ItemNumber=12175
>
> This is what, for instance, National Geographic or Mozilla have done.
>
What are the expectations?  I would assume the expectations are
significant if someone is being hired to work on business development.
 Obviously you don't have to answer that if you think it's
confidential, but you're the one who brought up expectations.

> Vishal was hired on Carolyn's recommendation. He has previously worked
> for us as an intern, and if we had not hired him now, he would likely
> have moved on. He is working on business development on a part-time
> basis. I do not consider it unreasonable at all to devote staff time
> to this source of revenue. As noted above, much of it is not taxable
> to begin with, and the small extent to which it may be does not
> currently pose a problem. Even if it should become a problem, it's one
> of the type I wouldn't mind having.
>
> As for other priorities, we have spoken to candidates for the Legal
> and ED position and will likely meet two of them at the next Board
> meeting in Amsterdam, June 1-3.
>
Thanks for your openness on this.  I certainly wouldn't worry about
whether or not the income is taxable, after all taxation is always
(usually) less than 100%.  There are other tax issues which are much
more serious than whether or not the income is taxable, though.  Your
comments on the matter seem to suggest that at least someone has
informed you of them, which is a lot more than was suggested by Ant's
open-ended questions.

But I think the main issue has nothing to do with the IRS.  It's a
matter of focus.  Developing a profitable business competes with the
maximum production and distribution of content.  Charging maximum
prices for data feeds reduces the dissemination of the data.  Charging
licensing fees to DVD distributors raises the prices of the DVDs and
thus reduces the number of DVDs which are distributed.  Etc, etc (*).

Anyway, you've relieved my worry to some extent by acknowledging at
least some awareness of the legal issues (in contrast to Ant who said
"All questions difficult right now with no legal counsel though.")
But I hope you and the rest of the board can keep in mind the danger
of having someone on board focusing on business development.  Please
always keep business considerations as a secondary concern to the
mission of the foundation.  This new position is worrisome, but I
suppose it can be managed.

(*) That Cisco commercial was cool, though.  I had noticed Wikipedia
in it and had never considered that they actually paid the WMF for it.