The Marketing Scale Effectiveness of Virtual Communities

Virtual communities have been a prominent business model of the World Wide Web, leveraging the potential of the IP infrastructure to deliver a unique combination of reach and selectivity based on user needs. In a recent paper (Bughin and Hagel, 2000), we argued and provided empirical evidence that virtual communities had witnessed a stronger operational performance than other B2C models in their early stage of development, especially with respect to the building of a franchise (i.e., repeat membership conversion of visitors). In spite of these encouraging results, we also had emphasized that the current profitability of the communities was, however, dramatically negative on average, especially linked to the fact that marketing investments were high relative to the “monetization” potential of the franchise. However, making the model of communities work economically is critical in order to ensure its social viability and autonomy on the web. This paper pushes our early analyses further by investigating economic returns of marketing spent for communities and draws important implications for the business model on the net—in fact, marketing spent has exhibited decreasing returns-to-scale, suggesting that communities should use more of their network effects in order to create more effectiveness and continue to grow as a crucial design model on the internet.