Why Most Online Communities Fail

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.