It has been ten years since I wrote Net Gain and many people have asked me what my current view is on the economic opportunities associated with virtual communities.
Well, a couple of weeks ago I had the pleasure of delivering the opening keynote presentation at the Community 2.0 conference held in Las Vegas. It provided me with a long awaited opportunity to re-visit in a public forum the topic of virtual communities. Given the growing interest in this topic, I thought I would polish up my speaker’s notes and share this perspective with a broader audience.
I am deeply encouraged about the commercial prospects for virtual community. When I published Net Gain ten years ago, it unleashed a huge wave of investment – there was a period in 1998 when virtually every business plan submitted to VCs in Silicon Valley claimed to be establishing a virtual community.
Of course, few of these ventures were actually virtual communities and even fewer had any real understanding of what was required to build sustainable virtual communities. As a result, much of this investment was wasted, consistent with the broader pattern of the dot com bubble. An inevitable backlash set in – virtual community became a suspect term. Lots of interesting initiatives continued to be pursued under the radar screen without much publicity or visibility, but helping to build skill sets, experience and performance results.
Then something interesting happened. Over the past 6 – 12 months I have received a growing number of calls from senior executives from large, blue chip companies saying, “Remember that book Net Gain? We’d like you to come back and talk to us about it.” So, at least a personal barometer suggests a major climate change.
Challenges in building virtual communities
In reflecting on the experiences accumulated to date by companies seeking to build virtual communities, I’d like to focus on four challenges:
First Challenge – Language. What are we talking about when we use the term "virtual community"? During the last big wave of investment in virtual communities, the term was used so loosely that it lost all meaning. Let me offer my own definition of virtual community so that you will at least know what I mean by the term. For me, virtual community involves:
- establishing connections on electronic networksamong people with common needs
- so that they can engage in shared discussions
- that persist and accumulate over time
- leading to complex webs of personal relationships and an increasing sense of identification with the overall community
The key elements of virtual community, therefore, are shared discussions, shared relationships and shared identity. Now, these may seem arbitrary but, as I’ll discuss below, they contribute to building shared meaning, shared trust and shared motivation in ways that are distinctive and responsive to the growing needs among participants.
These elements also help to distinguish virtual communities from a variety of other Internet enterprises:
- Social networks – focus on identity creation and connection with friends, but lack the same degree of shared discussions and shared identity as VCs
- Electronic markets – primary focus on transactions rather than relationships
- Content aggregation sites – display and access interesting content but limited focus on shared discussions and shared relationships
Virtual communities inexorably seek to extend their interactions into physical space and a complex interweaving of physical and virtual communities occurs over time. This will become even richer and more powerful as presence and mobility technologies enhance abilities to connect anytime and anywhere, either in physical or virtual space or blends of the two. Similarly, virtual communities as economic enterprises represent a complex interweaving of social and commercial dimensions.
Second challenge – Integrating diverse skill sets. Three distinct skill sets (and cultures) must come together to create a successful virtual community:
- Content – effectively integrating published content with contributed content, making it easily accessible
- Social interactions – catalyzing and sustaining rewarding interactions among participants in ways that promote the creation of enduring relationships
- Economic business models – establishing rewarding and sustainable economics to support the growth of virtual communities
Almost every virtual community starts with deep spike in one of these three areas but has difficulty striking right balance with other two areas, leading it to stall rather than scale.
Third challenge – Shifting mindsets. This is especially a problem for large companies seeking to organize virtual communities. They must navigate through three major mindset shifts:
- Participant focus vs. vendor/sponsor focus – most companies spend a lot of time on what they want to accomplish with virtual communities but much less time focusing on what participants might want to accomplish
- Long-term value creation focus vs. short-term “get rich quick” focus – of course, commercial viability is essential for businesses, but the time frames are critical – with a short-term time frame, commerce becomes corrosive of community, but with a longer term time frame, commerce and community powerfully reinforce each other
- Bottom up emergent organization vs. top down imposed organization – executives fear loss of control but fail to understand the potential to shape and influence
As with most things in life, there is a balance that needs to be established, but most companies tend to bring mindsets from traditional businesses that are corrosive to community
Fourth challenge – Organizational barriers. These occur at three levels:
- Structure – who’s accountable? Do they have the status and influence required to mobilize appropriate resources? Are they too narrowly focused in terms of interests (e.g., marketing vs. customer support vs. product development)?
- Systems – what is measured/rewarded? How will a company define success? What are relevant operational metrics? Are there systematic reviews to enhance performance?
- Skills – who has relevant experience? This is challenging – the most critical skills sets such as discussion moderation and discussion archiving are in very short supply. Mindsets and measurement systems often don’t even reveal the need for specific skill sets
So, there are four big challenges to building successful virtual communities. But there’s an even greater set of opportunities that make me optimistic about the potential for virtual communities.
Opportunities for virtual communities
Companies need virtual communities in order to successfully respond to growing pressure on performance coming from two directions simultaneously – customers and talent. We all know the story about customers gaining more power and how the Internet is enhancing and accelerating this.
The talent story is a little less well known and yet it is increasingly relevant to the virtual community opportunity. Two forces are coming together to increase the bargaining power of talent:
- Talent is becoming increasingly valuable to companies. The basis of competition is shifting from structural and physical asset advantages to advantages based on intangible assets – intellectual property, networks and brand – all of these hinge on talent. On top of this, intensifying competitive pressure driven in part by growing customer power is making talent more central to sustained value creation
- At the same time, talent has more options available than ever before. The Internet provides greater visibility on alternative employers. Employees have more mobility – both geographically and institutionally. Talent has more opportunities to strike out on its own and continue to create value as an independent contractor.
Companies can respond to this growing bargaining power by paying talent more money, but a more powerful and sustainable approach is to provide institutional environments that accelerate talent development, including enhanced opportunity to connect into talent pools that extend beyond the enterprise.
Shifting performance metrics
Dealing with the growing profit squeeze from customers and talent requires a shift from conventional measures of business performance to a new set of metrics. To make it easy, I keep the same acronyms – ROA, ROI and ROS - but just attach different meanings. These metrics will increase the importance of virtual communities but they also make it imperative for community organizers to rigorously monitor these metrics in their own operations.
ROA – Return on Attention
This performance measure is driven by the proliferation of options available to us in all domains of our life, increasing the relative scarcity of an increasingly valuable resource – our attention. ROA must be measured both from a participant and organizer perspective.
The key question for community participants is: Of the total attention I allocate to this particular source, what is the productivity of that attention in terms of value received for effort and time invested? There’s a related question: How much attention do I receive from other participants and how much value do I derive from that attention?
The key question for community organizers is: How much effort and resource is required to gain attention from participants and how much value am I able to generate from that attention over what period of time? Virtual communities demonstrate compelling economics in terms of reducing cost to attract attention, leveraging resources of others to deliver value in return for attention and retaining attention for longer periods. The power of communities in these domains is well documented, although I am struck by how few companies track these metrics on an ongoing basis.
Virtual communities can be particularly powerful in delivering ROA – enhancing serendipity rather than just search. This is the highest form of ROA – finding highly valuable resources that I didn’t even know existed or were relevant to me. In this context, one of the biggest missed opportunities in virtual communities is to archive, edit and organize participant contributions. It is the most valuable asset of the community but often the most difficult to access. In this context, I recommend that everyone study Peter Morville’s Ambient Findability a book that I have blogged about here. Here are two key takeaways: usability presumes findability and findability leads to fundability.
In thinking about ROA, beware of framing the opportunity solely as one to one marketing or personalization. From a one to one marketing perspective, nirvana is one vendor connecting with each individual customer in a walled garden. In contrast, the real opportunity is to help connect customers with a growing array of resources, including each other, in environments that maximize relevance. This expanded choice can be exhausting, but virtual communities can help filter and present relevant choices.
This is one challenge that vendors face in sponsoring virtual communities. Most participants want to find the full range of resources relevant to them, regardless of vendors, so third party sponsors may be best positioned to offer greater ROA because they have less incentive to restrict options.
ROI – Return on Information
In this context, I emphasize information in the form of participant profiles - participant backgrounds, interests, activities and relationships. Again, ROI needs to be evaluated from both a participant and an organizer perspective.
From a participant perspective, the key question is: How much information about myself and my needs have I provided, how much effort did it require and, relative to both of these, how much value have I received in return from the information provided?
From an organizer perspective, the question becomes: How much effort and cost did I invest in acquiring information about individual participant and how much value have I been able to generate in return, both for the participant and for me? I am struck by how few community organizers explicitly focus on leveraging the profiles of their community members – they accumulate large amounts of information but invest little time in leveraging.
Some of the specific questions this metrics leads to:
- Are we fully utilizing the information we already have about participants in terms of delivering value back to them?
- What more can we do to learn about participants and their needs by watching their interactions? (We all know the drawbacks of lengthy registration forms.)
- How can we be more helpful to participants through recommendations of resources based on prior behavior? This ties back to serendipity in return on attention.
- How can we shorten the time between information collection and value delivery?
ROS – Return on Skills
This more accurately should be return on talent, but I find it hard to get executives excited about maximizing ROT. Besides, ROS has better symmetry with ROA and ROI.
As before, we need to measure ROS from the perspective of both participants and organizers.
For participants, the key question is: given the amount of effort I devote to participation, how rapidly am I improving my ability to deliver value to the people that matter the most to me? This could be either through development of my skills or amplifying the value of my skills through social and structural capital available in the virtual community. Could I develop my skills even more rapidly by participating in other virtual communities or collaboration environments?
For organizers, the question is: am I able to attract and retain the most valuable contributors to this community? What can I do to enhance the ability of these contributors to deliver greater value to the people that matter most to them?
Blurring of boundaries
These metrics will become more tightly integrated for virtual communities. Today, it is common to make a distinction between communities of interest and communities of practice. In communities of practice, people come together to generate joint work products as in open source software communities. I expect that we will see an increasing blurring of boundaries between these two types of communities for two sets of reasons:
- As pressure intensifies for people to deepen their skills and increase the value they deliver from those skills, they will tend to adopt their passions as their professions and seek out communities that enable them to accelerate their talent development while pursuing their passions. We see this very much in open source communities where talent development and reputation building are key motivations for participation
- As customers gain more power, they will want to become more deeply involved in the design, delivery and tailoring of products and services to meet their needs. This is also a prominent factor in open source software communities where many of the participants are users who want to tailor functionality to their specific needs.
Today, we also see communities emerging around all three of the core processes that define most enterprises – customer relationship management, supply chain management and product innovation and commercialization. These are relatively segmented now, but over time I anticipate that we will see a significant blurring of boundaries, especially driven by prosumer trends. For example, customers will want to connect with other customers to learn about products, then get involved with product developers to tailor products and then want to track and perhaps reroute shipments of products, all in one integrated environment.
The Bottom Line Opportunity
In this context, the evolution of virtual communities will be a key catalyst in the shift from push programs to pull platforms that JSB and I have written about. As we have written,
push programs treat people as passive consumers even when they are producers like workers on an assembly line. In contrast, pull platforms treat people as networked creators even when they are customers purchasing goods and service. In this context, virtual communities have the potential to become kernels of massive pull platforms.
Across the business landscape, we are moving to more collaborative forms of commerce: collaboration marketing, creation nets and global process networks. Virtual communities will become a powerful foundation for collaborative commerce on three levels:
- Connection – communities are not just helpful in finding people with relevant interests or capabilities, but help to foster broader and deeper trust-based relationships among these people.
- Conversation – by providing rich discussion environments for the sharing of common interests, virtual communities accelerate the building shared meaning
- Construction/creation – virtual communities can provide platforms, governance structures and tools for building jointly developed work products, as the open source software arena confirms.
In short, we are moving from a stage where virtual communities were largely associated with consumers and hobbies to a new stage of opportunity where communities become a rich environment for bringing people together to accelerate their talent development and deliver even more value to their relevant constituencies. In the process, the value creation potential of virtual communities will exponentially increase.