Building a Virtual Community

The decision to create a virtual community requires a lot of planning since it involves new ways of doing business. Business models in the new medium are different from brick and mortar business models, and these models are evolving. There will be lots of change over the next few years. In the remainder of this section we outline some of the fundamental considerations that we believe will continue to be important even in the maelstrom of change that is the Internet.

The first step is to choose the focus of the community. Be specific about the target audience; this is the group for whom the community developer will be an agent. Identify which group or category of people can be best served with the knowledge, relationships, services, and resources available to the organization that will create this community.

The primary directive for any virtual community is that its operations be focused on serving the needs of its members. Many businesses that play an agent or broker role are well positioned to extend their current operations to the creation of virtual communities. Travel, real estate and financial services agents base their businesses on meeting the needs of customers today and have an opportunity to extend their model into the new commerce medium: the Internet. Organizations which provide services to existing, real world communities have the greatest opportunities to create virtual communities. Examples include professional, hobbyist and alumni associations, schools and training organizations, health care organizations, government departments, etc..

Companies in distribution and retail businesses also have significant opportunities to form virtual communities within their current market segments. These businesses are already serving their customers needs in selecting the manufacturers/products that their customers want and rejecting those that they do not want. There will certainly be startup virtual community businesses that will compete with existing sales channels. Some of the product categories which we believe offer significant virtual community opportunities are: recorded music, home repair, auto purchase and maintenance, children’s toys and educational products, clothing, sporting goods, food and dining.

Product manufacturers and high fixed cost service operations have more limited opportunities to build virtual communities. These production organizations have less flexibility in addressing the needs of community members while promoting sales of their products and services. They also face a greater risk of negative commentary becoming group-wide opinions that undermine sales. However, some producers will be successful in creating communities around customers’ support, application and service needs related to their products. Customers can help each other, and the manufacturers can reward the most helpful participants with perquisites such as advance availability of new products, discounts, status in the community, etc. In addition, producers can use the community to conduct customer research. Savvy manufacturers can, in a sense, create their own Nielsen or J.D. Power studies on an ongoing basis. With proper management, a manufacturer could conduct research that provides the information to dramatically increase efficiencies in product development and marketing.

There are three types of revenue that can be generated by a virtual community: 1) subscription fees paid by members, 2) advertising and sponsorship fees from organizations wishing to promote themselves to the community, and 3) margins or transaction fees from sales made to community members. There are trade-offs among these categories. For example, the amount of advertising and transaction fees that can be generated by a community will be directly related to the number of participants in the community. Subscription fees will significantly reduce the number of participants in the community and thereby reduce the amount of advertising and transaction revenue.

How will the community generate profits? Revenue growth can be difficult to forecast in the early stages of any business, let alone Internet businesses where value propositions, competition, technology infrastructure and market size are all changing rapidly. Internet businesses generally are receiving large amounts of capital these days, and virtual communities are beginning to be recognized as warranting significant investments. We believe many businesses should be making investments in virtual communities opportunities.

We recommend that, when deciding how much to invest in creating a virtual community, the investment be allocated as a function of management's understanding of real revenue potential (or other tangible measure of value to the organization). Following this dictate, "less sooner" will help keep costs in line with predictable values being returned. Launch a focused set of services, evaluate the numbers and the type people who use those services, sell a few sponsorships to marketers interested in that segment, learn step-by-step how to build value in the business. Over time the profitable mix of investment in content, promotions, staffing and infrastructure will come into focus. Plan to significantly increase investments in the venture after the architecture of revenue/value streams for the business is understood.

A common mistake in early virtual community businesses has been to invest too heavily in the acquisition or creation of editorial content. If advertising and transactions will be the major revenue sources, then investment in growing the user base will yield more near- and long-term revenue than investing in passive content. The management of interactive (member-created) content is more challenging, but fits the strategies of building the user base and mitigating investment requirements.

At SeniorNet, we used to say that members were initially attracted by the information provided by the organization, but they stayed for the community. The task of the community developer is to provide the means for the people (who come for the information and services) to interact with one another and become a community.

Trust is a central issue in developing virtual communities. Successful community developers work hard to earn the trust of the members. If members feel exploited they will move on. Whatever role marketers plays— sponsor, participant or developer—they must be respectful of the fact that the community in many regards belongs to the members. Serving the members is the first and foremost goal, decisions that subordinate this goal can undermine the trust relationships in the community and jeopardize the stability of the group.

A specific example of building trust is the issue of privacy. Privacy of personal information is fundamental for growth of virtual communities. Community developers must assure individuals that their personal information will not be used without their knowledge or permission. Marketers’ needs to know member demographic, psychographic and purchase profiles, and even their need to deliver promotions to individuals with specific traits, can all be met without compromising individual privacy.