I have been working with various forms of online communities since the days when people interacted asynchronously in social settings over 300 baud modems. We’ve clearly progressed quite a bit since that time. Online communities have taken on lives of their own, often playing integral roles in vendor-to-consumer relations. The following is the first in a series of articles which I hope will provide some value around what online communities are, how they function, and what value they can bring to the table. Given that B2B net markets are poised to make a comeback, I will drive most of the discussion in that direction, although much of what I will discuss will have a certain applicability to B2C or P2P/social communities.

During the Internet boom (or bust, depending upon your perspective and choice of stock broker), the concept of community-building was taken pretty seriously. Everyone wanted to “build a community” or “aggregate eyeballs.” Granted, many community builders wanted to aggregate eyeballs using some rather questionable business models, but community building offered a nice, sticky path to bringing those eyeballs together. However, many communities took a pretty hard hit during the economic downturn (a politically correct way of referring to the time when “we all took it in the shorts”). As many online communities relied heavily on advertising revenues, the vast majority of these communities fell by the wayside as the ad dollars became as hard to find as an easy path from Alpharetta to downtown Atlanta at 5pm on a Friday night.

However, now that the global economy has turned the corner, and investors and entrepreneurs are getting back to more proven business models (the ones that make money rather than bleed it), we are seeing a resurgence of the community concept. As an industry, we’ve always recognized the value of fostering communities online, but now the dollars are finally starting to flow back into it. In today’s competitive environment, the net market makers that win will be the ones that get closest to their key customers, suppliers and employees. One effective way to do that is through community. Every online business can benefit from community - end of the story – no questions asked.

Online communities (OLCs) offer tangible benefits across all three types of communities: business-to-business, business-to-consumer and employee-to-employee. According to an Andersen Consulting report, for all types of communities under active management, companies have experienced very favorable return-on-investment figures, with community ROIs exceeding 500% of invested funds/time.

Some specific B2B benefits include:

• Strengthen relationships with hyper-affiliated business customers to increase loyalty, retention and revenue opportunities
• Actively listen and respond to business customers
• Lower operating and customer acquisition costs
• Drive interaction within net markets
• Improve channel effectiveness through sharing of best practices

A fantastic example of these concepts in action can be seen in the manufacturing RFP/RFQ sector. At Atlanta-based MFG.com. CEO Mitch Free and his team have built a truly amazing transactional platform (the technology part of the equation). Members of their fast-growing network of over 40,000 industrial buyers and suppliers have the ability to conduct business together using a sophisticated set of tools. The operating costs for their members is much lower than it would be if the transaction were conducted offline, and they are driving interaction within their market by constantly improving their tools based on customer feedback. But how do they integrate more personal aspects of “community” into their offering? The short answer is, they really aren’t. True, MFG.com has the ability for buyers and sellers to interact with one another using a constrained set of transactional tools, but they are not allowed to interact together beyond that (at least as far as I can tell).

On the other side of the spectrum, you have a new upstart called RFQWork.com. They have a much simpler technology platform than MFG.com – they are using a customized version of the $150 vBulletin forum software, rather than a sophisticated procurement platform. Instead of using sophisticated workflow tools to marshall a transaction through from origination to closeout, RFQWork uses simple posts in their forums to allow buyers and sellers to communicate their needs. It doesn’t take Werner von Braun to realize that MFG.com spends a heck of a lot more of its capital on information technology than RFQWork.com, and likewise, it doesn’t take Einstein to figure out that there also exists tremendous value in MFG.com’s tool-driven approach. However, RFQWork was apparently born out of a perceived need by a group of machinists for an alternative to the bigger, flashier MFG.com. The RFQWork model is based around members having a more “personal” or “social interaction” with one another.

On a related note – in 1999 I found myself in a very similar position as RFQWork.com. I founded a community web site in a sea of larger, more established competitors using the same platform that RFQWork has chosen (vBulletin). I sold that community five years later after eclipsing 65,000 subscribers and becoming the largest player in the space. While RFQWork.com clearly has its work cut out for it, it isn’t entirely out of the realm of possibility that it could achieve much greater heights.

Nevertheless, while RFQWork may never eclipse the larger and more heavily capitalized MFG.com, their membership will most likely, over time, become more loyal. Why?

Because personal interaction, even in the online sphere, is critical to the long-term health of the community. Think about it pragmatically for a moment. If you are standing in a room by yourself, and your only outlet to other people in the world was a small document-sized opening which fed into the next room, you would be inherently limited in what actions you can perform. You could interact with the person in the next room by exchanging documents through the small opening in the wall, but that’s about it. Now consider being able to stand in the same room with the other folks in the building, and being able to communicate freely with them, as well as the people who actually own the building. Now we can get somewhere.

If you think about the two forms of community value being illustrated with the MFG.com and RFQWork example, you can quickly spot the relationship. On the one hand, you have the freedom and flexibility of allowing your community members to have more of a say in what is going on, to be in a position to develop non-transactional relationships with other members, and to feel empowered. However, this free-for-all format can lead to undesirable inefficiencies, inconsistent data, and even political issues. The long-term value will come from the cult-like following you will develop as the community takes on a life of its own.

On the other hand, you have the constrained interactions whereby technology is used to limit or constrain the interactions between community members. This will provide exponentially more transactional efficiency and data consistency, but will likely not allow the community to become “sticky” beyond the value of the economic transaction taking place.

At the end of the day, there should exist a balance between the two. If I could take the grass-roots community feeling of RFQWork and throw it into a blender with the robust transaction platform offered by MFG.com, I’d make a nice big fat B2B margarita, sit out on a veranda overlooking Peachtree Street and count the dollars. The ideal model is a workable blend between the structure you get from having logical constraints in place, and the loyalty you breed by creating an environment conducive to open and honest communication between members.

This is a classic David vs. Goliath scenario. A few years ago, if you asked the editor of your local newspaper if he or she knew who Craig Newmark was, they would have most likely said “no.” If you asked them today, they would probably say “he’s the guy who is taking a lot of our revenue through his really low-budget, low-tech, open-community web site at craigslist.com.”

Until next time …

Cheers.