Why Most Online Communities Fail

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That is the title of an extremely popular Wall Street Journal article from early July, 2008 reporting on a Deloitte and Beeline Labs study of business sponsored, online communities.
I guess sensationalism sells. The WSJ interpretation of the study is that over 60% of the online communities failed to gain traction as measured by the number of members. There are a number of problems with that conclusion. First, nearly 40% of the communities studied were less than 6 months old and another 15% had been around for less than one year.
A second and more revealing consideration is that the online communities studied were all over the map when it came to focus, underlying purpose, measurement of success and commitment of the sponsoring companies.
Fortunately, I was able to catch a webinar where Ed Moran from Deloitte and Francois Gossieaux from Beeline Labs gave their interpretation. If you are interested hearing them speak on the topic I suggest you Google the Society for New Research on Communication. I believe they are sponsoring additional webinars under the title of Tribalization of Business: Transforming Companies with Communities and Social Networks.
Here is my main take away:
Communities that have a SOCIAL FRAMEWORK were more successful than those with a MARKET FRAMEWORK. From the questions asked there was a distinction was between communities that were setup to for people to gain help and to help others versus those that were setup to serve the company’s agenda (like reducing customer acquisition costs, improving new product success and the like).
Gossieaux verbally brought out a parallel between Dan Ariely’s use of social versus market frameworks (his book Predictably Irrational.). I believe this get to the heart of the matter. Ariely’s position is that we simultaneously live in two different worlds—one where social norms prevail, and the other where market norms make the rules. Ariely’s research makes it clear that the two do not co-exist well.
According to Ariely, social norms are wrapped up in our social nature and our need for community. We do things for each other without the expectation of immediate payback—what sociologists call the law of generalized reciprocity. We don’t keep score and work under a lose assumption that what goes around, comes around.
In contrast, market norms are characterized by exchanges that are sharp-edged: wages, prices, rents, interest and cost-and-benefits. Ariely makes the point that this approach is not evil as they also include, self-reliance, inventiveness and individualism, but they do imply comparable benefits and prompt payments.
The key is this, when market norms are brought into the picture people tend to drop social norms and participate under the market framework. In the community environment, this means that people are less willing to help each other and become more self-serving.
Does this mean that companies cannot expect economic value from communities? Not at all. The most successful companies in the Deloitte study reported more word-of-mouth, increased brand awareness, greater customer loyalty and outside ideas where brought into the company faster. All of these are tied to social norms. In contrast, communities were least effective in decreasing customer acquisition costs and improving new product success—items related to market norms.

John Todor
John I. Todor, Ph.D. is the Managing Partner of the MindShift Innovation, a firm that helps executives confront the volatility and complexity of the marketplace. We engage executives in a process that tackles two critical challenges: envisioning new possibilities for creating and delivering value to customers and, fostering employee engagement in the innovation and alignment of business practices to deliver on the new possibilities. Follow me on Twitter @johntodor

4 COMMENTS

  1. John, this reminds me of the stories about CRM failure rates (50%, 60% or more) that made the media circuit in the mid- to late-90s.

    Yet, even the authors of those statistics admit the headlines didn’t represent what they said, for many of the reasons that you mentioned, starting with a muddled definition of success.

    I think that business-sponsored communities fail for the same reasons that their customer relationship don’t work well: not enough value for the customers/participants. Businesses that start with the premise “how am I going to sell something” invariably create an environment where the customers feel like targets.

    But there are some that get it right, as I wrote in Social Computing Enables Private Relationship Networks, Too, like “I Love My Dog” by Del Monte.

    I think you can boil down the reason for failure into one thing: lack of mutual value. If the customers/users don’t have a compelling reason to participate, it won’t work. On the other hand, if the business sponsoring the community doesn’t get some value, support/funding will dry up, and the community won’t survive long either.

    Bob Thompson, CustomerThink Corp.
    Blog: Unconventional Wisdom

  2. Bob,

    Many of the most successful communities were initiated by customers and function for customers. If corporations don’t figure out how to participate, they will lose. First, customers will dictate the terms to a greater extent than they already do. Customers will influence other customers and as we have seen in a number of case, this impacts the company. Maybe the training wheels for companies are to participate in public customer run communities to learn the ropes.

    In the long-term, communities without companies will create a chasm and both parties will suffer.

    John

    John I. Todor, Ph.D.
    Author of Addicted Customers: How to Get Them Hooked on Your Company.

  3. John, When fads come on, to be apart of it is often done to show that one is up-to-date with what is going on. With business fads, and virtual networking is a business fad, the theory of becoming part of this new community is enticing. The failure is that if one does not work it, just as if one were active in their local civic and cultural communities, it will not produce what it thought is should do.

    One of the falacies of the virtual world is because it is easy to join a virtual dommunity, the returns will come just as easily. That’s dreaming and not reality. Add to this, even with a picture posted in one’s virtual community, there is more to knowing someone than just a “pretty face.” It is voice, smile, twinkle of the eye, results of one’s actions that make networking a community work. That is what is lacking in virtual communities and that is why they fail if not given the time and energy usually given to traditonal networking.

    AlanAlan J. Zell, Ambassador of Selling, Attitudes for Selling offer consulting, workshops, speaking on all business topics that affect sales. He can be reached at [email protected] For more information, please visit his website, http://www.sellingselling.com Mr. Zell is the recipient of the the Murray Award for Marketing Excellence, He is a member of PNW Sales & Marketing Group,
    Institute of Management Consultants, and Linkedin.com

  4. Alan,

    I agree with part of your characterization of online networks. Many people are following the herd and expecting a “free lunch”. On the other hand, to suggest that online communities and social media are business fads, is throwing the baby out with the bath water. There are just too many powerful examples of successful business used of both. When you look at the case that are successful you will see real business strategy in action, rather than people trying to look like they are with it.

    John

    John I. Todor, Ph.D.
    Author of Addicted Customers: How to Get Them Hooked on Your Company.

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