And how does the Software Freedom Conservancy operate?
The Software Freedom Conservancy is a very different type of organisation from the FSF. Conservancy is what non-profit people call a "fiscal sponsor", although I find that term confuses most software developers. Specifically, the term doesn't mean that Conservancy gives money *to* Free Software projects, but rather, Conservancy manages the money and oversees the non-software operations of its member projects.
So, Free Software projects apply to join the Conservancy, and then become a member of Conservancy. To analogise the situation to the for-profit world, the project then is somewhat akin to a "wholly owned subsidiary" of Conservancy, or a "division" of Conservancy. The projects operate mostly in the way that it had previously. In fact, Conservancy delegates back to the project all details related to software development and documentation. Conservancy manages everything else: things like conferences, accepting donations, reimbursing developers for travel, and even more complex tasks like licence and trademark enforcement.
As for funding, Conservancy receives a diverse set of funding. First of all, many of our member projects donate a percentage of their own donation income back to us. Thus, in many cases, Conservancy gets between 5 to 10 per cent of each donation to support our general operations, and the rest of the donation is placed in an earmarked account and only is spent at the direction of the projects' leaders. (Note that not all our member projects do this; we don't make it strictly mandatory but we do encourage our projects to give back so that the organisation can continue to exist.)
Conservancy obviously accepts directly donations from the general public, and I do ask people to donate at http://sfconservancy.org/donate/. Conservancy doesn't have a high profile like the FSF, so we don't get very much of our income via individual donations to our general fund currently. I hope to change that over time by working hard to show the value that Conservancy brings to Free Software. Hopefully, the public will see the good that Conservancy is doing and will choose to give in the future.
Finally, Conservancy does receive some large donations from various companies. I don't want Conservancy to rely on these donations long-term, since, as I mentioned above, ideally Conservancy will be funded primarily by the percentages we receive back from our member projects plus individual donations directly to Conservancy. I treat our corporate donations primarily as "seed money" to help Conservancy get to a reasonable annual budget. I also go to great pains to avoid allowing Conservancy policies to be in any way influenced by these companies. I always keep in the back of my mind that if Conservancy isn't operating in a way that's best for the software freedom community in my view, I'm not too proud to quit and go work at a coffee shop. That gives me a healthy perspective to make sure I'm not beholden to any donors that support Conservancy.
BTW, it's useful to note that Conservancy was purely a side-project and volunteer effort on my part until 2011. From 2006-2010, I volunteered my time to Conservancy: part-time from 2006 until fall 2010, and as a full-time volunteer for the last few months of 2010. In 2011, the Board of Directors of Conservancy decided to start paying me a full-time salary, since it was clear that Conservancy had too much work to do for me to be only a (mostly part-time) volunteer. I think the "right" staffing level for Conservancy is probably three full-time workers, but it will probably be many years before Conservancy has that staffing level. Right now, Conservancy (from a general funding perspective) has just me as a full-time employee, a part-time person who works eight hours/week to help me out, and a few contractors who do work on demand.
Note, however, that Conservancy also funds a lot of software development through our member projects. Right now, for example, there are three people on full-time contracts to do software development. Matt Mackall, Mercurial's maintainer, has been paid full-time on contract to maintain Mercurial, using donations that various companies and individuals made to Conservancy, earmarked for Mercurial. There are many jQuery developers being funded, two of which are full-time, being paid on contract to work on various parts of jQuery through jQuery's earmarked funds. Conservancy also supports occasional work by various developers, and handles a lot of travel funding for member project contributors.
I really believe that funding of Free Software needs a healthy non-profit component. In recent years, most Free Software development is funded by companies allowing their employees to contribute code.
We'll always need this component of Free Software funding, and it will probably always be the majority. However, we should also have a healthy non-profit funding system that provides grants and contracts to help improve Free Software.
Funding through for-profits will generally always push codebases in the directions that companies want. Sometimes the interests of these companies will align with where the community wants the codebase to go, and in those cases, all is fine. But other times, companies will want to take a codebase in a direction that is in their corporate interest, and perhaps the community wants to take the codebase in a different direction. By funding development through a non-profit - which is set up to serve the public good rather than profit shareholders - we can make sure that there's a healthy dose of "what the community of developers and users want" in the funding of Free Software. Conservancy is committed to making this possible.
Finally, I'd like to note that folks should always read the Form 990s of non-profit organisations. In the US, these are the federally mandated documents that all non-profits must file (under the 501(c) section of the USA laws; Conservancy and FSF specifically are listed as 501(c)(3) organisations). I put Conservancy's 501(c)(3) filings (and the state-level filings for New York), on Conservancy's website. As a personal task, I also maintain a repository of Form 990s I've collected for various non-profit organisations.
You can get these documents from services like guidestar.com and others, but they are non-copyrighted public filings, so when I grab some, I put them up there so others can get easy access.
The reason it's important for individuals to read these rather dry documents is because they really tell you what a non-profit is up to and how it spends its money. If you donate your money to an organisation, the Form 990 is the best way to figure out if the non-profit did something useful with your funds.