Aug
12
Net Gain: expanding markets through virtual communities – Captured
Filed Under Business Ideas, Resources, Principles, etc., Favorite Books, Free Book Summary - Online, Search Engine Marketing
Net Gain: Expanding Markets Through Virtual Communities
Purpose:
How will virtual communities change the business world?
How can companies faciliate the organization of communities and extract value?
Central Message:
The Internet changes the power from the vendor to the customer because the customer has access to more perfect information.
Owners of the customer will be champions of the customer.
Companies that avoid the virtual community market may find their business is seriously threatened by small upstarts willing to learn and change.
Companies help a community grow by focusing on membership acquisition and the stickiness of the site (which is largely fueled by member-generated content).
Companies extract value through subscription services and member fees, advertising and transactions within the network.
Validations:
Amazon was using book reviews to build member generated content.
Motley Fool was beginning to gather a large membership able to attract the interests of investment and brokerage companies. Attracts any investment oriented individual, group or business.
Applications:
Value:
The author feels very strongly that membership fees and subscriptions should be very carefully weighed against the need to grow membership and gain marketshare. They encourage extracting value from transactions and advertising.
Key Lists and Summary of the chapters:
Part I: the real value of virtual communities
Chapter 1 – The Race Belongs to the Swift
Power to the customer
1. Distinctive Focus
2. Capacity to integrate content and communication
3. Appreciation of member-generated content
4. Access to competing publishers and vendors
5. Commercial orientation
Profit to vendor
1. Reduced search costs (find customers)
2. Increased propensity for customers to buy (less risk in the virtual environment)
3. Enhanced ability to target (profiles)
4. Greater ability to tailor and add value to existing products and services
5. Lower capital investment
The Challenge of Change
1. Members must be given tools necessary to wield their new power.
2. Members must be given ample opportunity to wield their new power (competing vendors info).
3. Members must be given the chance to maximize the value they receive from information about themselves.
Chapter 2 – Reversing Markets
Virtual communities arise from need for interests, relationships, transactions and fantasies. The power of the virtual community is that they can all build into one powerful brew. There is a fundemental shift in power in the community as consumers…
1. aggregate their purchasing power
2. receive the information advantage (no longer are vendors the wielders of information)
3. vendor choice
4. a reward for the intermediary who puts together the first three (speeds the process)
The vendor’s dilemma is why help make the shift in power?
Well, first of all it’s going to happen even if one fights it. The time will come when vendors can’t afford not to participate. Those who participate early will have lower costs in building the community and will have number of members on their side.
The positive outcome is that lowering of prices to the consumers advantage in the shift in power could push the supply and demand up, increasing the size of the entire market. Traditional vendors and business men would see the community more as the value that comes to the competing vendors and their profits. The community organizer sees the opportunity in the transaction and advertising opportunities. The community itself is more valuable than the products and services of the competing vendors.
Chapter 3 – The new economics of virtual communities
The community organizer who understands virtual communities and their potential see them in the economics of increasing returns. Like Microsoft and Federal Express, the community struggles to grow quickly in the revenues early on, but when the ball gets rolling the growth can be more exponential than flat. Static spreadsheets don’t work. Communities will not make the real profits until they reach a critical mass of members, member profiles, advertisers and vendors, transaction profiles and transactions. When these critical masses are met, then the new business opportunities emerge.
Sources of Revenue for Virtual Communities:
1. Subscription Fees – Fixed price for participation
2. Usage Fees – Charge based on number of hours or pages
3. Member Fees – Content delivery fees for downloads and Service fees for automatic reminders, etc.
Four Dynamics of Increasing Returns
1. Content Attractiveness (marketing and churn) -> hours online -> member relationships -> more content -> more attractive
2. Member Loyalty (customized interaction and relationships) -> hours online -> lower churn -> more content -> more members
3. Member Profiles (data gathering capabilities) -> targeted transaction opportunities -> more transactions -> more profiles
4. Transaction Offerings (bring vendors to community) -> member willingness to spend -> more attractive to vendors -> more vendors
Each of these has a dynamic loop that builds value into the community and increases the returns. Organizers should focus on facilitating these loops.
Organizing Stages
1. Attract Members (marketing, free, great content)
2. Promote Participation (engaging member-generated content, editorial or published content, guest speakers)
3. Build Loyalty (member-to-member relationships, member-to-host relationships, customized interaction)
4. Capture Value (transaction opportunities, targeted advertising, fees for premium services)
“In a nutshell, the dilemma for the virtual community organizer is that the most accessible revenue sources in the near term will be the least attractive from the viewpoint of driving growth. On the other hand, the revenue sources that are most attractive are likely to be beyond the reach of the community organizer in the early years of community formation. The result will be limited revenue generation from the virutal community in the near term.”
However, the costs are just going to get higher for those who wait to enter the market and build the community in the beginning.
Chapter 4 – The Shape of Things to Come
| Stages of Evolution | Description | Key Assumptions |
|---|---|---|
| Virtual Villages | Communities are highly fragmented but profitable businesses, each containing multiple small subcommunities. |
|
| Consentrated constellations | Concentration of core communities, and development of affiliate relationships with niche communities. |
|
| Cosmic Coalitions | Core communities aggregate across complementary core topic areas. |
|
| Integrated infomediaries | Communities and coalitions evolve into agents for members, managing their integrated profiles to maximize value to members. |
|
Part II: building a virtual community
Chapter 5 – Choosing the way in
First thing to do is examine the type of community that will generate the most value as well as your organization’s ability to execute on building the community.
Indicators of economic potential
1. Size potential: means taking the demographics, the size of related associations and estimating how big a community will become.
2. Relative value of being on-line: How many people how begun exploring online in the previous group? Why?
3. Value of being in a community: The need among the demographic to build relationships, explore their interest, transact and experience fantasies will determine the value of being in a community. New parents are intensely interested in community to learn about how to raise children.
4. Likely intensity of commerce: what is the transaction volume of the existing demographic in your interest area?
5. Fractual depth: How much can you segment the community as it expands?
Community Types
Consumer-focused communities
1. Geographic: Total New York: where new york hits the net.
2. Demographic: parents
3. Topical: interests
B2B communities
1. Vertical Industry: Physicians online, Agriculture online, etc.
2. Functional: Built around a specific business function. For example, marketing or purchasing. (MarketingSherpa.com)
3. Geographic
4. Business Category: small businesses community
Indicators of Long-Term Expansion
The fractal breadth is the most important indicator of long-term expansion as the community needs to be able to subdivide into powerful subcommunities as it grows. Topical communities may provide less fertile ground for long-term growth.
Assessing your ability to execute
Brand, existing customers and content are a good start but assets aren’t enough. Skills are as important.
Chapter 6 – Laying the foundation.
Community must be in place before commerce can begin. Speed and preemption are the key as getting ahead in growth will give the leaders an advantage. The stages to successful entry are:
1. Generating traffic: Enter quickly, get people to pass through, use the power of network to get started, generate awareness and partner for preemption (consider distribution partnerships, commercial partnerships, a content partnership and potential competitors before they become competitors). Start with a great directory or resources. Traffic is more important here than return visits.
2. Concentrating traffic: Engage the members. Ask them what they want. Track their usage. Enhance the offerings to the community. Make it easy and attractive for vendors to approach and participate in the community. Extract value.
3. Locking in traffic: Foster personal relationships between members. Accumulate and organize member-generated content. Improve the community functionality. Tailor resources to individual members’ needs.
Chapter 7 – The Gardener’s Touch
It is important to make the community scalable as it grows. This means
1. that people will not loose the sense of community even though there are millions of members. However, the organizer must maintain the benefits of scale because the economies of scale give the membership added value.
2. that you let go and create franchises and empower the members to shape the future of the community. Take an organic management model.
There are various positions to be filled in a community:
Hosts, archivists, community editors, customer service managers, information systems managers, community developers and community architects. However the two most important are the Information analyst and the community merchandiser. Their work extracts the value.
Even though organic management is better, it’s crucial to set and capture key metrics.
Chapter 8 – Equipping the community
Don’t worry about technology. Just focus on the needs of members of the community in choosing technology. This chapter focuses a lot on the challenge to choose between proprietary and standard technologies. This is not as much of an issue today.
Part III – positioning to win the broader game
Chapter 9 – Rethinking functional management
Management is turned on its head because customers have more power. It’s crucial to think about their increased power in marketing. Marketing becomes individually tailored in a virtual community. Focus on product not brand.
Implications for marketers
–
1. Reduce emphasis on value of vendor’s branding
2. Facilitate price comparisons
3. Allow comments to be made on product/service in public, not in confidence.
4. Increase volume of information to be analyzed.
5. Change the rules of advertising and promotion to leverage the customer’s ideas in promoting them.
+
1. Expand demand for product or service.
2. Increase word of mouth promotion of product or service.
3. Stimulate customer feedback.
4. Generate richer information on customers, markets.
5. Eliminate separation of advertising and transactions.
6. Allow advertising to be seen as helpful, not intrusive.
Chapter 10 – Reshaping markets and organizations
“Virtual communities redefine markets by expanding demand. They also redefine markets by focusing on customers rather than on traditional producer-driven notions of ‘industry.'” (page 204)
Comments
1 Comment so far
NetGain, the best book written about virtual communities by a couple business guys that have never built a virtual community