posted on March 23, 2007 11:56
As I discussed in my previous few blogs, there is a lot of fuss being made of online community. In a previous blog, I defined online community – at least how I see it – I would like to start a discussion on the business purpose of online community and social networking.
In Mark Cuban’s blog, blogmaverick.com, he came up with a pretty good definition of a business model for online community in the context of video and youtube. And with a little editing, can be generic to all online social networks.
“A video based social network, in order to be sustainable, has to reliably be able to generate revenues from the uploaded video content. It has to be able to market the brilliance of its members and the product of their work to advertisers and sponsors. It has to be able to market its members video content online and offline.”
In addition, Peter Theil and Bambi Francisco have started company, vator.tv. Vator.tv targets “InnoVators” to upload their video “EleVator” pitch to the site. I find it very interesting to view the videos and analyze the trend of the uploads, in terms of business model viability. Theil points out a fundamental question that I mentioned a few months ago in Commercializing Web 2.0 which dramatically impacts the approach to the business model. Theil’s point is that there is a fundamental difference between a technology application versus a stand alone company. I argue that this fundamental difference dramatically impacts the short-term business model in terms of the type of infrastructure in which to invest.
Furthermore, it is my belief that a social networking application is not a social networking business. In Episode 2 of vatornews.com, Theil points out that:
“The basic idea [of social networking sites] is to learn more about their users and tell their users things about other people in their network that are interesting and relevant.…It’s at the core of the business model of these web 2.0 companies.”
Again, I would draw a further distinction between product and viable business. Social networks are not about technology product, they are about connecting users and sharing the users’ knowledge and information. They are essentially media companies for user-generated content. Therefore, in evaluating business plans that purport to be social networks, I find that they are in fact product companies. In fact, I tend to believe that social networking and online community, in-and-of-itself is not a business model – but has the ability to dramatically enhance a business model.
So with that said, what is the business purpose of online community and social networking in enhancing an existing business model? To start, social networking and online community affords businesses the following advantages:
• Build customer loyalty: Connecting users to each other by sharing opinions, knowledge, and experiences deepens brand loyalty. If it’s a product or service brand, then allowing customers to communicate about product experiences adds tremendous value. If it’s a fan-related network, such as sports or entertainment, then providing a space for fan interaction reinforces the positive experience with the franchise.
• Mass Market of One: The more customers visit and communicate, the more information the sponsor of the network has about the customers. Therefore, the more targeted and relevant the advertising and sponsorship can be in serving up related networking and product recommendations.
• Increasing Revenue: Of course, building a business model is all about building a base of revenue, increasing customer loyalty, brand recognition, and relevancy, will ultimately increase revenue. Depending on the approach taken, this connection can be tightly integrated or loosely integrated. Either way, there should be metrics in place to measure the impact of the social impact of networking on the business.
In addition to the business model benefits, there are some fundamental product functionality of social networking that enables these business benefits. These include:
• User ratings and comments: These are relatively commonplace at this point on such Amazon and ebay. This enables users to rate and review product. In addition, you often see a reputation system attached to this to get quantify the percentage of readers who felt that review was helpful.
• User-generated solutions: These are typically knowledge bases that are manifested in a simple message board. It is simply a community where users can post questions about a product and the community answers support-related questions.
• User-created complimentary product: This typically occurs with products that support or require customization, such as uploading custom user-generated ring tones for mobile phones.
• User-uploaded content or editorial: On fan sites for music, movies, or sports, fans thrive on building community, commenting on a performance, or critiquing a game. All of which ultimately builds fan loyalty.
And for all of the above types of online functionality for community, if a company does not support, encourage, and sponsor it, the company will lose out on the opportunity to build brand recognition, customer loyalty, and revenue – simply because customers are conducting these activities already online, and if there is not a sponsored location for community they will build it themselves.