Revenue model for virtual communities

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Revenue model for virtual communities

• Profitability of communities

2
Whats on your mind ?

• What questions raise in your head when starting
  this topic?

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Revenue model for virtual communities

• Some basic ideas
• The economical environment
• A new business model
• The evolution of the virtual community
• Ways to make a virtual community profitable
• The organisation of a virtual community
• What does this mean for the future ?

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Food for thought

• Markets consist of people, not of segments.
• Internet provides people with a new means of
  communication.
• Companies who do not master the same language as
  their customers, will loose contact with their
  customers.
• Communities and interactive markets often know
  more about the products than the producers
  themselves.
• In order to survive companies will have to be
  part of the virtual community and actively
  participate in the conversation.

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Revenue model for virtual communities

• Some basic ideas
• The economical environment
• A new business model
• The evolution of the virtual community
• Ways to make a virtual community profitable
• The organisation of a virtual community
• What does this mean for the future ?

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Basic idea 1

• What makes a community thrive ?
• A common interest creates a bond.
• The members are in control.
• The members have their own identity.
• Interaction between the members.
• Social interaction is key.
• Members have different roles in the community.
• Similar to the real (physical) world !

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Basic idea 2

• The foundation of a virtual community the
  combination of useful information and the ability
  to communicate/interact based on confidence and
  mutual dedication
• Purpose help customers find an appropriate
  provider- and not the other way around

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Basic idea 3

• The core of a virtual comunity bring people
  together
• Integrate 4 basic needs
• Interests contact people with the same (field
  of) interest
• Relationships share personal experiences
• New/intense experiences in each stage of life
• Creates strong social ties
• Fantasies experiment with new personalities and
  role plays fe. sports community where you build
  teams with names of real players
• Transactions

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Basic idea 4

• Acces to information
• Determines the negotiating position in each
  commercial transaction
• Often the main incentive to join a virtual
  community
• Full commercial potential
• signifant number (critical mass) of members
• transaction facilities available

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Basic idea 5

• Power to the people
• In a virtual community members are looking for
  mutual influence
• Wishes and preferences are being shared and
  reacted upon
• Companies can draw the members attention by
  posting the right messages on the right spot in
  the right way

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Basic idea 6

• As a company, participate in all community
  processes
• Speak the language of the members.
• Communicate with them.
• Listen to what they have to say.
• Dont try to know better and dont impose
  anything. Give them room !
• Succes is more likely as neutrality is higher.

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Revenue model for virtual communities

• Some basic ideas
• The economical environment
• A new business model
• The evolution of the virtual community
• Ways to make a virtual community profitable
• The organisation of a virtual community
• What does this mean for the future ?

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Economical environment

• Relatively low start investment a little in
  technology, most in member recruitment and
  support)
• Short term profit under great pressure
• Economics of increasing returns
• Initial investment with low incremental
  production costs for extra units fe software
• Network-effect fe fax the more you sell, the
  more you sell

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From a commercial perspective

• The profits for a community come from
• Membership contributions Can slow down the
  member acquisition Mostly in B2B, in B2C with
  high involvement- low volume
• Revenues from advertisements need critical
  mass
• Revenues from transactions need critical mass
• Selling or renting user profiles or transaction
  profiles to third parties Can damage the
  relationship

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The dynamics of increasing revenues

• 4 dynamic loops reinforcing each other
• Dynamics of content attractiveness the more
  attractive the content, the more time spent by
  members, the more interactions, the more
  member-generated content, the more
  content/information, the more members,
• Dynamics of member loyalty the more personal
  relationships (communication/ interaction), the
  more chance members become loyal, the more
  personal your 1-to-1 communication can be, the
  more loyal

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The dynamics of increasing revenues

• Dynamics of member profiles the better the
  profiles, the easier it gets to attract targeted
  advertisements/ offerings, the more
  advertisements/ transactions, the more new
  advertisements/ offerings, that will be better
  targeted and the more effective they can reach
  the members
• Dynamics of the transaction offerings the larger
  / more interesting the range of products and
  services offered, the more members will be
  interested, resulting in more transactions, the
  more additional offerings you get

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Implications for management

• Targeting key assets that will drive growth
• Critical mass of members
• Critical mass of usage profiles
• Critical mass of advertisers/vendors
• Critical mass of transaction profiles
• Critical mass of transactions
• The members are the most important asset !B2B
  more transaction-intensive communitiesB2C
  probably more advertising-intensive communities

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Implications for management

• Managing the evolving role and (economic)
  contribution of community members
• The value and proportion of these categories
  varies over time and for different types of
  communities
• Tasks
• Attract members
• Promote participation by editorial and
  member-generated content
• Build loyalty through customized interaction
• Capture value from advertising and transactions

Attract browsersAttractive contentFree
Promote participation by builders Attracts
advertisers
Build loyalty from usersUsage profiles
interesting for advertisers
Capture value from buyers Attracts offerings
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Revenue model for virtual communities

• Some basic ideas
• The economical environment
• A new business model
• The evolution of the virtual community
• Ways to make a virtual community profitable
• The organisation of a virtual community
• What does this mean for the future ?

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How customers gain a new business model

• A community offers a strong value proposition and
  helps aggregate purchasing power by
• Distinctive focus (as to membership)
• B2C
• Topical community (topics of interest)
• Geographic community
• Demographic community
• B2B
• Vertical industry community
• Functional community
• Geographic community
• Business category community

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How customers gain a new business model

• Integration of information and communication
• The range, richness, reliability and timeliness
  of published content
• The opportunity to interact with the publisher
• The certification of authenticity and
  qualifiaction
• Emphasis on member-generated content
• Opportunity to spread
• Opportunity to compare and aggregate experiences
• Not dependent of advertisers or vendors

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How customers gain a new business model

• Choice of competing advertisers and vendor offers
  
• Provide members with the opportunity to quickly
  and efficiently choose the best offer available
• Commercial orientation by community organizers
• Recognize and exploit the opportunity to shift
  power from vendors to customers
• Attractive return is needed to invest in the
  resources needed to run and manage the community

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leading to a power shift

• Aggregated purchasing power as a consequence of
  distinctive focus vendors have been
  conveniently aggregated to serve their particular
  needs (all members sharing the same interest),
  leveraging their collective power
• Improved access to information arm members
  with more information, thus moving away from the
  traditional information asymmetry, creating
  reverse markets
• Vendor choice
• Commercially motivated community organizers who
  earn an attractive financial return

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Key implications

• Members must be given the tools necessary to
  wield their new power
• member aggregation
• member-to-member interaction
• member-generated content
• Members must be given access to a broad range of
  competing and complementary vendors

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Key implications

• Members must be given the chance to maximize the
  value they receive from information about
  themselves
• Planning for growth
• A new mental model an organic approach to
  organisation

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How vendors gain

• Communities are a powerful vehicle for
  expanding their markets Through capabilities
  that are common in an internet environment
• Lower capital investment in bricks and mortar
• Broader geographic reach
• Disintermediation potential

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How vendors gain

• Communities are a powerful vehicle for expanding
  their markets through capabilities that are
  unique to the VC business model
• Reduced search costs for vendors and customers
• Increased propensity for customers to buy
  (customers perceive less risk of purchase and
  experience more excitement)
• Enhanced ability to target the right customers
  detailled profiles of members (in general) and
  their transaction histories incl the
  competition, information on demonstrated
  preferences
• Greater ability to tailor products and services
  and add value to existing ones

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Early action is imperative !

• Early entrants/first movers will gain the field
  because of
• Accumulated unique assets that differentiate one
  community from the other more members, more
  member-generated content, more builders/buyers,
  more profiles, more advertisers/vendors
• Barriers to switching communities are the
  relationships with members, the established
  reliability of the manager, the familiarity of
  the look and feel(interface) and
  personalization
• Community (marketing) skills will become more
  expensive
• Tendency to concentration over time and economies
  of scope
• Buying your way in will also be expensive

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Who benefits by a community

• At first communities will be started by newcomers
  and small players.
• Bigger companies will lose market share to these
  small players.
• Over time the big companies will consider it to
  be necessary to participate.

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Revenue model for virtual communities

• Some basic ideas
• The economical environment
• A new business model
• The evolution of the virtual community
• Ways to make a virtual community profitable
• The organisation of a virtual community
• What does this mean for the future ?

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The entry point

• Indicators of near-term economic
  potential(necessary to prepare a business case)
• Size
• Demographic statistics
• Spending information fe. the number of persons
  buying information about the topic (magazines)
• Membership in groups or organisations
  (demonstrates a more than casual interest)
• The relative value of an online presence
• How many people have online access ?
• What is the digital value ?

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The economic potential

• The value of community membership
• How important are interpersonal contacts
  (relationships/interests/fantasies/transactions)
  ?
• The likely intensity of commerce
• How many transactions ?
• Average transaction value ?
• How many advertising money is actually being
  spent to reach these people ?
• Usefull but less decisive
• Opportunities for fractal depth
• degree to which the community can be segmented
  and become even more targeted

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The concept phase

• Experience around a common topic of interest
  the right balance between emotion and ratio
• Emotion leads to more bonding
• Ratio leads to more information about needs and
  buyer behaviour
• Open community exclusivity is strictly
  forbidden
• What kind of information do we bring to the
  attention ?
• What functionalities do we provide ?

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The foundation

• Acquisition of a critical mass of members
• 3 phases
• Generate traffic attract browsers
• Concentrate traffic engage members who become
  users, builders and buyers
• Lock in traffic

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Stage 1 generate traffic

• Enter quickly (use off the shelve technology) !
• Get people to pass through
• Offer a directory to other resources on the
  network that would be of interest especially
  valuable if it includes
• evaluations or ratings
• thoughtful tips

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Stage 1 generate traffic

• Advantages
• It accelerates entry
• Reduces the need for investment in content
• Builds a brand image as reliable guide
• It gets target members in the habit of coming to
  the site
• It provides valuable information about interests
  and needs
• Possible extensions
• Bulletin boards with comments on referred sites
  and suggestions
• Chat rooms with experts and magnet
  personalities
• Simple and easy-to-complete registration program

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Stage 1 generate traffic

• Generate awareness
• Leverage information networks of existing
  physical communities
• Find powerful influencers /well-connected people
  
• Give them VIP-membership
• Establish an advisory board
• Encourage regular coverage in conventional media
• Feature on sites that are visited by potential
  members (reciprocal links)

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Stage 1 generate traffic

• Partner for pre-emption
• Companies with a strong brand image (not
  necessarily related to the communitys focus)
• Companies that own anchor published content
• Potential competitors (to neutralize their
  competitive threat)

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Stage 2 concentrate traffic (growth)

• Concentrate traffic It is no longer
  sufficient to travel through the site, it is
  essential that members spend increasing time
  there. Increased usage rates result in
• More detailed usage profiles
• More accurate targeting of
• Advertising messages
• Content providers and vendors
• Raising switching barriers

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Stage 2 concentrate traffic (growth)

• Engage members
• Tailor the individual members view of the
  community to his/her interest fe colors, entry
  pages
• Risk less unexpected discoveries
• Solution use agent technology (suggestions by
  comparing usage profiles)
• Create experiences that address as many of the 4
  needs as possible (IRFT) bulletin boards and
  chat rooms
• Transform lurkers into active contributors by
• Promoting the range of member participation
  opportunities
• Special discounts or areas for active contributors

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Stage 2 concentrate traffic (growth)

• Enhance the offerings
• The range and depth (opinions, feedback)
• By members themselves
• By new content providers (content development
  tool kits) and vendors (using aggregated
  profiles)
• Special events
• Chat sessions with experts or known personalities
• Member contests (challenges)
• purpose surprise and delight members
• Be careful not to erode the reputation of quality
  of the resources

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Stage 2 concentrate traffic (growth)

• Extract value
• capture, organize and use profiles of member
  activities in such a way that it maximizes its
  economic value without violating privacy concerns
• Let members specify the level and type of
  advertising they wish to receive
• Help members evaluate the qualifications of
  specific vendors

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Characteristics

• Members start to take over
• Welcome committee
• Different roles recognizable
• The community maintains itself when gt 5000-10000
  members
• Few advertisers/vendors
• Often no critical mass yet
• After 9-12 months
• Need to meet each other
• Members correct each other

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Lock in traffic (maturity stage)

• Foster personal relationships between members
  through bulletin boards and chat rooms
• Accumulate and organize member-generated content
• Accumulate rapidly
• Edit it (to maintain high standards of quality)
• Index it (to make it easily accessible)
• Expand and enhance the communitys functionality
• Leverage the usage profiles of members
• Build out service offerings (fractal depth)
• Develop more user-friendly interfaces and designs
• Tailor resources to the individual members needs
• Customize their user interface or directories
  they access
• Tailored newsletter

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Emphasis on organic growth

• Preserve the community members sense of intimacy
  and continuity
• Sometimes overwhelmed by too many newcomers
  encourage new, fractal subcommunities (must stay
  small)
• Establish tiering zones that are accessible
  to all and zones that have controls on access
• Calendar of events to encourage the same people
  to come back
• compelling transaction offerings
• Capture the benefits of scale
• Stronger negotiating power towards advertisers,
  vendors.
• Spread major expenses like marketing, customer
  service, information systems/management
• Balance between member empowerment and protection
  of the broader communitys interest

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Characteristics

• Certain members gain special status because of
• Their expertise
• Their contributions
• The link with the physical world grows circle
  of friends
• Members see themselves as the owners of the
  community
• They act as promotors and defend their
  community
• Content of companies are no problem if designed
  correctly, placed correctly. They should adopt a
  learning attitude.
• Usage profiles become sharper and more
  interesting for companies.
• Keep focus by introducing more detailled topics
• Members can participate in more than one
  subcommunity

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Win-win

• Members ask for commercial benefits
• Tailored product/service offerings
• Benefits that are for members only
• Members do not have the time or motivation to
  investigate their possibilities -gt the task of
  the virtual broker (community manager)

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Usage profiles a must

• Obligatory registration
• Record the right data
• personal data limited
• profile data characteristics related to the
  topic interests, needs, conduct
• Use them in the right way store the personal
  records in a different database than the profile
  records, never give both of them (unless with
  explicit permission)

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Usage profiles a must

• Reasons for registration
• Identitification (social control) -gt safety
• Recognition -gt accessibility -gt measurability
• Own homepage for members ID
• Compare profiles of active members with those of
  inactive members
• Advantage not pc-related like cookies

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Revenue model for virtual communities

• Some basic ideas
• The economical environment
• A new business model
• The evolution of the virtual community
• Ways to make a virtual community profitable
• The organisation of a virtual community
• What does this mean for the future ?

51
Some considerations

• The initiator of a virtual community usually
  wants to make a profit
• The commercial offers should correspond to the
  expectations and needs of the members ánd of the
  vendors
• A network of logistic partners needs to be in
  place for the fulfilment

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1. Exploitation of data

• Subscription to monthly reports from the profile
  and usage records
• Tailored market research
• Based on existing data
• Polls or online inquiries
• Never personal data!

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2. Shop

• Online shop of a limited and exclusive product
  range mostly put together by the members
  themselves
• Members that were actively involved in the
  composition of the assortment, usually actively
  promote the shop (for confirmation and status)
• The community manager gets a margin for each sold
  product

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3. Publications

• Publications related to the community topic
• Books, booklets
• Magazines
• Radio/TV-programs
• The content mostly comes from the members
• Advertising space for companies (not vulgar
  commercial)
• The community manager makes a profit from the
  sale of the publications and advertisements of
  companies

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4. Personal merchandise

• T-shirts, cups/mugs, caps,
• Sometimes mention a brand en passant
• Purpose promotion and bonding
• The community manager has revenues from the sale
  of these merchandising objects and contributions
  from companies

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5. E-commerce

• Links to the e-shops of other companies
• Online orders/payments
• Auctions
• Affiliate programs
• The sale must be tracable
• He community manager gets a commission for each
  sale

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6. Online marketing

• Customers circle as subcommunity
• Loyalty programs
• Company pages
• Testmarketing
• The community manager gets a fee partly fixed,
  partly variable

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7. Events

• Fairs
• Courses/seminars
• Meeting days / gatherings
• A lot of help from the members for the
  preparation and organisation of the event
• Revenues from entrance fees and sponsoring

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8. Exploitation of the community brand

• After some time the community gets a certain
  brand recognition -gt it becomes a hallmark and
  the community manager can give a licence to use
  the brand.
• Revenues from the royalties of the brand

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9. We-commerce

• Members aggregate their purchasing and
  negotiation power to buy product/services.
• Might be dangerous for the vendors because of
  peaks in the demand causing fulfilment problems.
• The community manager gets a commission for each
  sold product/service.

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10. Auctions

• A kind of garage sales
• A method to get rid of some things and get a hold
  of secondhand stuff
• Problem guarantee
• The sincerety/reliability of the participants
• The quality of the goods
• Revenues from fees partly fixed, partly variable

62
Revenue model for virtual communities

• Some basic ideas
• The economical environment
• A new business model
• The evolution of the virtual community
• Ways to make a virtual community profitable
• The organisation of a virtual community
• What does this mean for the future ?

63
Necessary resources

• Brands
• Effective tool for attracting browsers to the
  site
• Ensure that the associated context is OK
• Customer relationships
• Imply a strong understanding of what makes
  customers happy/unhappy and the ability to
  deliver what the customer needs
• Imply an ongoing interaction with customers
  opportunity to introduce them to a newly
  established virtual community by giving them
  extras
• Content
• In the short run a powerful draw to lure in
  browsers

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Skill requirements

• The skills to organize a community are equally
  important
• Ability to aggregate members
• Ability to retain members
• Ability to encourage members to make transactions
• Ability to serve members
• Ability to attract advertisers/vendors
• Not technical management can be outsourced.

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Organisation chart
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The role of the organisation

• Facilitating
• Neutral
• Proactive sees (new) marketing opportunities
• Advisory towards companies
• What activities,
• On what places,
• About which products
• Very strategic role on the internet
• bring together offer and demand according to
  theprinciple of Customer-Life-Time-Value (CLTV)

67
Revenue model for virtual communities

• Some basic ideas
• The economical environment
• A new business model
• The evolution of the virtual community
• Ways to make a virtual community profitable
• The organisation of a virtual community
• What does this mean for the future ?

68
Consequences for marketing

• Use the ideas of the customer for
• The development of new products
• The commercialization of new products
• The promotion of new/existing products
• Challenge the product quality being more
  important than the brand customers give the
  product its image(the brand image is reinforced
  by the customer)
• Advertising (if done right) becomes selling,
  selling becomes serving
• Prices become transparant
• Result true customer loyalty
• Determine which current and potential customers
  are more valuable than others (rich data are
  essential)

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Marketing objectives of community marketing

• More customer contact and more customer loyalty
  to a product
• Launch a new product
• Differentiate a product from the competition
• More sales throuhgh the internet
• Change in buyer behaviour
• Image change

70
Implications for companies

• Virtual communities
• Are a threat for traditional intermediaries
• Become a threat to big corporations
• Capital assets are no longer a competitive
  advantage
• Capital assets are no entry barriers anymore
• Offer a better chance for smaller companies
  (more willing to participate in communities)
• Stimulate companies to cross industry boundaries
• Stimulate partnerships and information-sharing
  (before considered confidential)

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Some considerations

• A different mindset is needed in companies
• Consumers as well as businesses must learn to use
  new, interactive opportunities a learning
  process that is faster for customers than for
  companies
• Consumers become more and more organised
• Digital media allow almost anything to be
  measured -gt result independent rates -gt new
  business models
• Mobile media -gt even more independent of space,
  contacts becoming even more frequent and intense
• Role of virtual communities ?

72
Recommended reading

• Net Gain Hagel ArmstrongISBN 0875847595
  Harvard Business School Press Nl versie Winst
  op internet ISBN 9025423876 uitgeverij Contact
  
• Net Worth Hagel SingerISBN 0875848893
  Harvard Business School Press NL versie De
  waarde van internetISBN 9025497454 uitgeverij
  Contact