Here is the conundrum.  The direct marketing model that has provided predictable and scalable income for so many cause groups is slowly failing.

On the Internet, we’ve spent much of the past decade on what one might call online fundraising 1.0.  The model is a simple adaptation of direct mail: build yourself a big e-list and then send the list email after email after email asking for money.

Here’s the first rub – it works great until it stops working.   Many “shock and awe” email fundraisers are reporting sharp drop-offs in email response rates after several years of constant solicitations.

Here’s the second rub – it’s an incredibly wasteful model.  For every one donor you successfully solicit online, you harangue 99 people who are never going to give, and who eventually conclude you have no use for them other than as a source of moolah.  If every email is an ask, what other conclusion should they draw?

Seth Godin likens the old model to a funnel – you pour leads into the wide end and after much sifting, a handful of donors come out the bottom.  In a seminal (and free) book, Seth argues that Web 2.0 technology provide an alternative – flip the funnel on it side and use it as a megaphone.

His message is simple: new interactive technologies from Digg to and social networks make it possible to project your story far beyond your own web presence, and to empower your most passionate supporters to act as evangelists on your behalf.

Instead of treating your non-donors as unwanted bycatch in the new donor fishing derby, give every constituent a job – enlist them as advocates for your message and your cause.  Not only will your online reach grow exponentially, so might the money.

Seth held forth this past Monday with 50 representatives from a range of causes, including Environmental Defense, Amnesty International, Heifer, United Jewish Communities, Southern Poverty Law Center and others.  Lively and animated discussion ensued.

Here are some assorted takeaways:

•    Online fundraising 2.0 has not taken shape yet, but since online fundraising 1.0 is fading fast, we better figure it out sooner rather than later.

•    There are a zillion ways to engage your list other than asking for money.

•    The key to fundraising 1.0 was to be the “charity no one could possibly object to.”  The key to fundraising 2.0 is to be remarkable, to do things that are worth talking about.

•    Playing it safe is no longer an option.

Lots of talk centered on specific tactics, and many organizations have already experimented with Web 2.0 engagements.  We’ll continue to highlight stand-out efforts on the blog.

Meanwhile, what are the Web 2.0 success stories that most inspire you?