The Marketing Scale Effectiveness of Virtual Communities
Jacques Bughin, Michael Zeisser · Electronic Markets · 2001
Virtual communities have been flourishing as a key feature, if not a full-fledged business model, of the World Wide Web. In a recent EM paper (Bughin and Hagel 2000), we argued (and provided empirical evidence) that virtual communities had witnessed stronger operational performance than other B2C models in their early stage of development, especially with respect to the building of a stable and marketable franchise. In spite of these encouraging results, we also emphasized that the current profitability of sites with strong community features was, however, dramatically negative. This was especially linked to the fact that marketing investments were remaining high relative to the 'monetization' potential of the built-in franchise. While retaining membership is a good objective on itself, making the model of communities work economically in the short-term is also critical in order to survive the present funding crunch. This paper pushes our early analyses further by investigating the economic returns of marketing spend for (sites with strong) communities. It draws important implications for the business model on the net - in fact, while communities have indeed been strong in marketing effectiveness with respect to membership development, marketing spend has however exhibited decreasing returnsto-scale along the funnel, and especially fell short of strong revenue generation. This urges that communities should reinforce their network effects in order to create more effectiveness and continue to grow for profitability as a crucial design model on the Internet.