Hello Mr. Burkett, I greatly enjoyed your article on the state of Ga VC/Web 2.0, and found it to be very informative.

I’ve been running a couple of automotive forums for the past several years. I have several sites but my main one is www.REMOVED.com/.net and REMOVED.com. The sites generate some income (low five figures) from advertisers as well as from Adsense and CJ. I havent really tried in earnest to monetize the communities as it started as a hobby and wanted to build community and loyalty.

So, if you are reading this line, you are interested in growing a business. Great!

I will be launching several additional sites to leverage the traffic and expand out to political (REMOVED.com) and ethnic sites (I own REMOVED.com as well).

I’ve watched the online communities for automobiles grow, and have to some extent help shape it. REMOVED.com/.net is fairly well known within the online automotive communities as the definitive and largest online community for the REMOVED. REMOVED.com is probably 2nd or 3rd in size for the REMOVED.

Here is one method that worked particularly well for me in the past.

I do not know any VC’s or people within the finance industry who may be able to fund the next stage for the venture…or even if my sites would even merit interest in that regard.

I would greatly appreciate any information or contacts you may be able to provide to help guide and fund me through uncharted territory.

I thank you in advance and look forward to your response.

Cheers.

Trust me when I say that up until this point, we had tried everything. We were running a massive community site, with over 65,000 active members. Our message boards were very targeted, and incredibly hyperactive, receiving over several thousand new posts each day (almost 100K new messages per month). Our ad servers were pumping out over 10M targeted ad impressions a month. We had a number of niche tools and other services as well, each of them aimed at enriching the experience of our users.

We were hellbent on not charging our members a mandatory membership fee, but we had to do something in order to break even.

I should point out that in this day and age, the landscape is a little different. Widespread user adoption of online services is present, and as long as you have (a) a viable market and (b) a product/service worth paying for, you stand a reasonable chance of having users open their wallets for you. However, this isn’t always the case. There are a lot of other factors involved.

What I am about to share with you is probably not as applicable to B2B communities, where revenues are driven primarily via transactions or regulated subscription fees. However, reliable ways to monetize P2P communities have historically been hard to come by.

We tried a variety of twists on the sponsorship and online ad models, but with mixed results. Unfortunately, it was right in the middle of an economic downturn, and sponsors were hard to come by. The online ad market had long since dried up as well. We tried experimenting with things such as CafePress.com, as well as a variety of affiliate programs, such as the ones offered by Amazon and Commission Junction. Our results were mixed.

Ad revenues are a good way to augment community revenues, but unless you are one of the top traffic gatherers on the net, they won’t cover all of your expenses. Trust me when I say that by and large, the only people getting “rich” off of Google AdSense ads are the folks at Google. As one venture capitalist told me the other day: “If an entrepreneur’s business model is predicated on Google AdSense, I quickly run the other direction.”

Then, it hit us. It hit us so hard that our skulls were ringing for a week. While we didn’t want to charge a mandatory fee to our members, there was nothing stopping us from charging a voluntary subscription fee. Thus, our Name Your Own Subscription (NYOS) program was born.

In the beginning, we simply asked our users to “name their own subscription” fee. If you could afford $5, great. If you could afford $25, even better! If you could afford $100, wonderful! And if you can’t afford to pay a fee, then don’t. The results were staggering. In the first year alone, we signed up roughly 1,000 paying members, and grew it incrementally beyond that. In the end, we built a nice recurring stream of revenue for that business.

We later evolved the program into a voluntary, but tiered program, using bronze, silver, and gold levels to denote pricepoints. Eventually, we evolved it even further, to where each of the levels had a 6 month, 1 year, and 2 year option. We used a special set of icons to denote membership status in our forums, as well as through other areas of the site. So, it was pretty easy to see who was a paid supporter and who wasn’t.

Now, I know that some of you are probably already making the comparisons to “charity” donations. However, that wasn’t the case at all.

First and foremost, our community members participated in our community to enrich their professional careers – therefore, the subscription fees to our community site were, by all accounts, a tax deductible professional expense!

Community sites have to diversify in order to survive. Ad revenues are generally not enough to sustain operations, much less growth. A combination of things such as subscription fees, ad fees, shopping cart sales and affiliate programs can provide a nice mix of revenues for a growing community site.

It is also important to point out that this subscription model has an added bonus side effect of increasing customer and member loyalty. Members realize that you need revenues in order to survive, but are generally grateful for not being “forced” into something. The acceptance rate of our NYOS program was so high, that we even had members paying for the subscriptions of those who could not afford it on their own. The lesson here is to never underestimate the value of building loyalty among your customers. Loyalty is an asset that can be leveraged for financial gain, provided it is treated respectfully and with a soft touch.

Cheers.

Before Arthur Andersen was caught diddling around with Enron’s general ledger, they published a 1999 report on “online communities.” They studied 15 different online communities, ranging from intranet-based corporate communities and B2B communities to Internet hobbyist groups. They found that the successful online communities were almost always the result of grassroots efforts, and all filled some sort of social or professional need among their members. The study offered the following principles for a successful online community:

1) Invest in the means, not the end. To get an online community (OLC) off the ground, companies need to put a great deal of energy into activities designed to increase participation and traffic to the community. Throwing something up on the web with the expectation that a community will automatically result is a recipe for failure.

2) Focus relentlessly on the needs of the members. In successful OLCs, the coordinators are completely focused on the needs of the members, figuring out what kind of work they do, what tools and information they need and what kind of relationships they want to form with other community members. One way to do this is to appoint former members of the community to facilitate portions of the site.

3) Resist the temptation to control. Any attempts to restrict or control communication in OLCs can discourage participants from freely sharing the very information that makes the site worthwhile. Many companies circumvent this issue by creating implicit guidelines that encourage sharing tempered with common sense. An example of such a warning would be, “Don’t say anything online you wouldn’t say in the office or with clients and customers.”

4) Don’t assume the community will become self-sustaining. OLCs are seldom self-sustaining. In most cases they require significant investments of time and effort to continue to grow and often need a dedicated facilitator to champion the site.

5) Consider environmental factors. A company also needs to consider the cultural environment of its organization when deciding how and whether to try an OLC. A company in which information is hoarded and sharing is discouraged is unlikely to act much different online, and that will surely thwart community building.

6) Extend community-building beyond the discussion space. Rather than being frustrated by low traffic in discussion areas, companies need to realize upfront that successful communities extend beyond discussion forums into other areas like e-mail and applications such as Lotus Notes. Any growth in community interaction, regardless of the medium, is a credit to the site.

7) Seek out and support members who take on informal roles. When users are willing to take on positions of responsibility within the community, it indicates that they appreciate the value it provides. Possible roles for users are community advocates who encourage others to participate, leaders who guide the discussion and are knowledgeable, and instigators who provoke controversy and raise sticky issues.

Some Additional Tenets for Success

Building on the solid list of recommendations from Arthur Andersen, I’d like to offer a few additional, real-world principles for successful community building. These tenets come as a result of many personal lessons learned over a five year period while running a large, highly active P2P community with over 65,000 subscribers, as well as two different niche B2B communities.

1) Follow the 7 principles laid out above – even though the results of the Andersen study were published in 1999, they ring true even today.

2) Give your members a way to communicate openly – plain and simple. Without this, you don’t have an online community – you have nothing. Freedom to communicate is indeed one of the driving principles behind the success of the Internet (as well as the blogging phenomenon).

3) Strive for “mass stickyness” in the form of the targeted “killer app”. If at all possible, there should be many such “killer apps” within your community. More is better. What can you offer the community that will differentiate you from others? Transactions and content are sometimes not enough. What tools can you give them that will make their job (in the case of B2B communities) or experience (P2P, B2C) easier, and provide mass stickyness?

4) “Collaboration” should be an over-arching theme. This is the glue that holds your community together, and simultaneously grows it exponentially. Encourage and empower them to contribute to the community. Create a SWAT team to rapidly incorporate community suggestions into the system. This sends a powerful message that will spread virally. Communities that are mandated from the top, and driven without customer feedback, are doomed to fail – period.

5) Establish a captivating backstory. This is one of the patterns from physical communities. If you look at communities in the physical world that have sustained themselves for a long time, they always have an interesting “backstory” or history which is communicated to new members. How was the community formed? How has it evolved? What great success stories can you share with your members that will get them excited about participating? The act of communicating it to new members becomes part of the ritual of membership, a community building act in and of itself. In general, people like to associate themselves with something greater than themselves. There are a number of practical things you can do online to make this happen. One is to express the backstory through words and images right on the website, in the community and make it accessible to visitors. You can call it “our story,” “how we got here,” or it could be a subsection of “about us.” Also, consider not sharing the entire backstory on your website. You want your evangelists out there sharing the good word as well. You can encourage these more experienced members to tell the backstory, and you can make it part of the training program if you employ greeter, content/channel “guides”, or moderators.

6) Foster a sense of trust. This is critical to the success of any community. In other words, “if you build it, they might come – if they do come, and the site exhibits tangible value, and they trust you, then they will stay”. This is especially true in B2B scenarios where transactions are at stake.

7) Mitigate security and privacy concerns. Privacy policies are a must – be sure to remind the community members from time-to-time that their privacy is just that. Also, invest in the appropriate level of information security. A few months after we sold one of our community sites, the new owners fell prey to international hackers who attempted to extort “protection money” from them. After not hearing back, the hackers broken in and maliciously destroyed the data on their servers. Luckily, there were reliable backups from which they recovered, but the lesson is still there!

8) Facilitate “relationship conversions” whenever possible (online-to-offline, offline-to-online). When your online members take their relationships offline, and vice versa, this provides a tremendous increase in the stickyness of the community. In my opinion, relationship conversions are a veritable “nitrous-oxide boost” for a thriving community. Converting online relationships into offline business and/or personal relationships will add fuel to the growing fire in the community.

9) Be persistent, but don’t force things. Plod along, and keep your eyes on the prize, and listen to your members.

10) Don’t be afraid to reinvent yourself from time to time. Change is good, and while it won’t always be initially welcomed by everyone, it is a necessary evil. Change tells people that the community is growing … evolving.

11) Don’t toss out those ideas that don’t initially work! Often times, good ideas are simply a little premature. Bring them back at a later date (when the community has evolved and scaled a bit more) and see what happens. You may just be surprised! Sometimes, the community just isn’t ready for all of the goodness you are trying to bestow upon them.

Cheers.
]]> http://www.scottburkett.com/online-communities/tenets-for-succesful-online-communities-17.html/feed 0 http://www.scottburkett.com/online-communities/the-lifecycle-of-online-community-members-60.html http://www.scottburkett.com/online-communities/the-lifecycle-of-online-community-members-60.html#comments Mon, 09 Jan 2006 11:00:57 +0000 Scott Burkett http://www.scottburkett.com/index.php/archives/60 Continue reading →
]]> When building an online community from the ground up, you have to set your growth and adoption expectations accordingly. To do so, it is important to understand a bit about the lifecycle of a community.

When someone first discovers your online community, they are probably nothing more than curiosity seekers. It doesn’t matter if your community is of a hobbyist nature, a consumer nature, or a business-to-business (B2B) alignment. They may take a look around, and if they see enough value there for a possible future visit, they may possibly bookmark it. Future visits will either solidify that value for them, or convince them that there are better places to spend their time.

If they decide to visit periodically, they become what we call “lurkers”. These lurkers will rarely, if ever, post or publish anything within the community. Instead, they are content to simply view the musings of other community members. These lurkers are most often seeking a certain type of information, and are content to simply read the opinions of other members.

Eventually, some of these “lurkers” may progress into being regular participants. However, do not be fooled into thinking that you will have a meteoric conversion rate. Historically speaking, online communities have always had many more “lurkers” than regular participants. I have seen the ratio of unique lurkers to unique participants be anywhere from 5-to-1 to 25-to-1.

It is important to point out that the success or failure of an online community is usually determined by only a small percentage of the site’s audience. This loosely follows in the tradition of Vilfredo Pareto’s so-called 80/20 rule (also called the Pareto Principle). A study performed by Arthur Andersen found that only 5 percent to 15 percent of all members contributed frequently to the communities they visited. While there are always exceptions to this, the community-owner should strive to support those frequent contributors. This is the fast-track to expanding a membership base.



Using the above diagram, you can see the evolution from passers-by all the way through to evangelists. The typical member starts off in the passer-by/stranger quadrant, then moves over to lurker status once they start having repeated visits to the community. Once a lurker comes “out” of the shadows and begins participating they enter into the participant quadrant. This is where they are both showing up and participating. By the time a member reaches the “evangelist” quadrant, they are quite adamant in their support of your community – even fanatical at times. This is a good thing.

Consider the following graph, which shows the growth in total membership of a community site that I founded back in 1999. This shows the growth from 1999 to early 2004 (a five year span).



It is a little hard to tell by this chart, but at the end of the first year of operation (1999), we had a total of 210 members (pretty pathetic, really). At the end of the 2nd year, we had a total of 1,911 members. We concluded the third year with 5,509 members. So far, so good. Something happened in the fourth year of operation, however. We ended that year with 16,201 members. That’s a pretty nice bounce. We ended the fifth year with nearly 40,000 members – also a rather nice gain. By the next year (not shown on this chart), the membership had climbed to 65,000 members. This was all done with word-of-mouth advertising. Not one dollar was spent on traditional advertising.

Why did we experience such a dramatic jump in the 4th and 5th years? That’s how long it took for us to convert enough lurkers to participants, and enough participants to evangelists. Once you hit a critical mass of participants, a certain number of those folks will become evangelists for your community, and will go to some pretty unbelievable extremes to promote it. These evangelists represent that aforementioned small minority that will effectively make or break your community. If you don’t have people out there who are emphatically spreading the good word about you, then you are sunk – I don’t care how many marketing dollars you throw at the problem.

Once our evangelists started promoting the site using word-of-mouth (WOM) advertising, the community participation begins to scale up in an almost logarithmic fashion. Remember the old saying, “If you build it, they will come?” Well, that sounded great in the movie Field of Dreams, but it doesn’t work that way in the real world.

If you build it, they will not necessarily come. If you believe they will, then you are setting yourself up for a really nasty disappointment. Many communities fall by the wayside and close up shop because of this very reason. The owners of the community become frustrated with the lack of traffic or adoption, and lose interest. In a B2B community with a reasonable business model and value proposition, patience is a virtue that will have an ROI in the end, I promise you.

If you build it, and promote it, they will come, at least once. It is then up to you to give them a positive impression of your community through your content, tools, presentation, and policies. It is of vital importance that these areas be addressed early and often if you want to maximize your ability to attract and retain members, and subsequently, participation.

Growing a community is an iterative approach of repeated trial and error, but always keep your eye on the end game. It will most likely not flourish overnight. Do not become discouraged when you don’t have 100,000 members at the end of the first year. Keep your eye on the end game, which is quality content and the facilitation of dialog between your members.

Cheers.

]]> http://www.scottburkett.com/online-communities/the-lifecycle-of-online-community-members-60.html/feed 3 http://www.scottburkett.com/business/resurgence-of-b2b-communities-13.html http://www.scottburkett.com/business/resurgence-of-b2b-communities-13.html#comments Wed, 28 Dec 2005 11:00:53 +0000 Scott Burkett http://www.scottburkett.com/?p=13 Continue reading →
]]> What do Atlanta-based MFG.com and upstart RFQWork.com have in common? One is highly capitalized, the other is not. One has a robust transaction platform, the other does not. One is the proverbial Goliath, the other his potential David. Both have communities behind them, but as you’ll see in this article, a “community” can mean a lot of things.


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.

]]> http://www.scottburkett.com/business/resurgence-of-b2b-communities-13.html/feed 0 http://www.scottburkett.com/online-communities/going-south-10.html http://www.scottburkett.com/online-communities/going-south-10.html#comments Tue, 20 Dec 2005 14:48:58 +0000 Scott Burkett http://www.scottburkett.com/?p=10 Continue reading →
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A good family friend, Dr. Willliam Cast has recently published an excellent book entitled “Going South: An Inside Look at Corruption and Greed, and the Power of the HealthSouth Message Board”. Not only does it detail the fall of HealthSouth from the customer’s perspective, but it illustrates the hidden power and influence of online communities.


Meet a charismatic CEO, a group of disgruntled investors, and outspoken employees on a Yahoo! message board, eager to uncover corporate scandal. In Going South, national recognized physician and business partner of HealthSouth, William Cast, mixes this wild cast of characters with a tale of cyber technology in one of the most compelling business books published in recent years.


Publisher’s web site: Book information here.

Amazon link: here

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