The Economic Value of Communities

Every time a customer submits a question or answers a question in a support forum they are creating value for an enterprise. Every time an influencer with no direct economic ties to an organization, mentions a product to someone they are creating value for the enterprise.  Every day, for large enterprises, there are millions of very small pieces of value created.  However, in most cases these little pieces of value are lost to the winds of time because they cannot be captured, centralized, and organized for re-use.  Online communities are part of the way to address this knowledge capture and distribution so that the value already being created can be extended and shared with more people.

Historically, these little bits of value were not formally recognized by organizations because the transaction cost of finding, capturing, organizing, and distributing these small bits of value was much higher than the value of the bit of information itself.  The Internet, particularly with the addition of social networks, has drastically changes the cost of information discovery, capture, and distribution making it possible for smaller and smaller bits of value to be used in an economically viable way.  And while each bit is not worth much on its own, collectively this value creation can fundamentally shift the cost of sales for an organization by creating marketing, sales, product, and support documentation faster and more accurately than the enterprise itself can.

The big trick in all of this, of course, is discovering the small bits of value, aggregating them and incenting those who are likely to continue to add value to make it even easier/cheaper for you by bringing them to both outposts and central locations where the enterprise can more easily collect, manage and distribute the information. That is not easy to do unless there is some value created to attract those individuals to your outposts or your home on the web.  The enterprise has to provide some value freely to attract whose who will create even more value.  Once this flywheel has started, the organization can shift into more of a curation than a value creation mode because participants will create value for each other.  This is the essence of online communities.  Communities are a constant process of its members creating and using value.

So what does this mean for enterprises in terms of their social strategy?  I like to think of it in economic terms and it is helpful to segment the various audiences of an enterprise and identify those segments by thinking about the ratio of value consumption to value creation.  The closer that ratio is to 1:1 (for example, employees), the closer tied to the enterprise they need to be so that all of their value creation is captured and used.  As you address audiences less connected to the organization – leads or the general public – the value proposition to capture and distribute value becomes weaker and the tactics to do that necessarily are less centrally integrated with the core business.  The implications are that employee and customer communities will produce the most value back to the organization but the cost to the organization will also be higher than for other groups.  This is interestingly, however, not how many enterprises get started with social media and online community initiatives because, while the value proposition is higher, the cost and complexity is also quite a bit higher.  So many organizations start by aggregating mentions of their brand by the general public (social listening) and using that for insight and public relationships management. This is a great way to dip the enterprise toe in the water, so to speak but it is also The Shallows, or the least valuable bits of information for the enterprise to collect and often not worth re-distribution. It has limited impact on the fundamental value structure of the enterprise (although not engaging in this way has some direct risks for public companies whose stock has been affected by public outcries).

The opportunity – and the appeal – of online communities is not that they make everyone feel better about their relationship with an organization, although that is a nice side affect, it is that they contribute tangible economic leverage back to an organization.  For companies that figure this out, they will have significant advantages in their markets but the process of building a robust and integrated enterprise ecosystem is disruptive, expensive, and challenging – and many enterprises who launch discrete support forums may not always realize that they have put one foot down on the road to changing the way the organization thinks about its value chain.

If you would like to learn more about developing and creating communities, download our report The State of Community Management or consider joining The Community Roundtable – we would love to have you.  More about membership can be found here.

Tagged as: Business case, ROI