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Net Gain: Expanding Markets through Virtual Communities Hardcover – January 23, 1997
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Building relationships with customers has been a buzz phrase in many business circles for years. Now John Hagel and Arthur Armstrong declare that's not enough. They make a strong case that business success in the very near future will depend on using the Internet to build not just relationships, but communities. The payoff, they maintain, will be phenomenal customer loyalty and high profits. But, they warn, this race will definitely go to the swift. Here's a cyberspace book that could make your business future. Not everyone agrees with Hagel and Armstrong, but with stakes so high they deserves a serious reading.
From Library Journal
According to Hagel and Armstrong, both with the multimedia firm McKindey & Company, virtual communities are the marketplaces of the future. Representing more than a physical place on the Internet, they are an evolution in business dynamics. By providing a common forum on the Internet for consumers to share information, the authors argue, vendors are seeking access to these valuable market enclaves, hence creating a power shift from the vendor to the customer. The authors clearly demonstrate their professional experience and business acumen regarding this new market forum. Their book is a manifesto for a generation of entrepreneurs hoping to learn about the future of the online economy. Recommended for those seriously interested in the direction of business markets.?Dennis Krieb, St. Charles Cty. Community Coll. Lib., St. Peters, Mo.
Copyright 1997 Reed Business Information, Inc.
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Up until this book, I have seen little written on the longer term business models on how to make money by aggregating users. This book will explain the rationale of why there is enormous value in web sites with a large base of users.
The book has a very interesting chart which describes the return on various strategic investments for a startup trying to build a virtual community. The conclusion was that far and away the most important investments were vendor acquisition (i.e. companies wanting to sell products to the members of the community), member-generated content, and member acquisition. Interestingly, usage fees for the site had an enormous long-term negative impact for the site (despite their short term ability to generate revenue).
There are a couple of points that I think were not well addressed in this book:
1) I don't believe that the authors make a compelling argument about how to sell the first vendors on the advantages of being a part of the virtual community. From my experience, vendors don't sign up for a new product or service because "that's where the market is going". They need to be convinced that there's an advantage for them to be first, and that reason was not adequately described in the book.
2) The book states the importance of member-generated content as a way to build up the community and keep traffic coming to the site. It was never clear to me from the book how to do this through a commercially sponsored newsgroup versus the already existing Usenet newsgroups today (which already have a pre-existing and active community). For instance, there are already many Usenet newsgroups related to Travel. Why should potential travelers use a commercially sponsored site instead of a Usenet group? Clearly there are sites that have been successful at creating their own newsgroup areas so I believe that there are justifiable reasons. I'm just not sure what those reasons are and the book didn't explain them.
Overall, an interesting book and well worth your time.
If you're skeptical, consider my experience trying to purchase Sony's WebTV+. I thought I would try to order it online, through Best Buy, Circuit City, etc. Guess what? All their web sites do is direct you to their local stores. So, I call my local Best Buy and find out they are out of stock, but to place a special order I must nevertheless make the trip to their store (to give them my address and credit card number!). So, I drive for 25 minutes to get to the store, waste 10 minutes finding someone who can help me, waste 25 minutes at customer service just to place an order, and spend an additional 25 minutes returning home. The whole trip took an hour and a half. Guess what? When WebTV arrives at their store, I have to go back to pick it up -- they won't deliver it to my house!
Best Buy is widely considered the ascendant leader in bricks-and-mortar. Could a virtual community with online ordering deliver greater value at lower cost than Best Buy? You bet. It's only a matter of time before consumers pull the plug on this nonsense. In fact Best Buy is selling the engine of their own destruction: once Sony can reach me directly through my TV, they don't need Best Buy, Circuit City, or anyone else to push their products. Virtual communities will displace whole retail categories, to the benefit of their customers.
Net Gain describes why and how this will happen. Is anyone at Best Buy reading this book?