Browse Books

Reviewer: Lou Agosta

The authors describe a new institutional form of business, the virtual community. Many engaging family resemblances are gathered together. Virtual communities are different from, but related to, Internet bulletin boards, chat rooms, email, and online services. They are also different from a venue such as Amazon.com's space for readers' book reviews, but they build on the idea of providing incentives for user-developed content. The defining characteristic of the new virtual community is that it creates net gain, or profit in the network space, as a going business concern. This new structure is a framework within which vendors bid and compete for the business of members. The community organizers are rewarded with revenue from vendors and advertisers as well as commissions on transactions and sales. The basis of a viable economic engine of commercial enterprise is the participation of members. They are the major asset gathered and nurtured by the community. Member profiles, carefully and respectfully protected and maintained by the community organizers, are a significant source of leverage with vendors and advertisers. Thus, the community represents an opportunity and an institutionalization of a shift in buyer-seller relations in the buyer's favor. Instead of credit card companies having the most detailed customer profiles in their data warehouses, the community functions as an information mediary based on trust and insight into members' basic needs for relationships based on shared interests (p. 18). When the time comes to conduct a transaction, the community is well-positioned to negotiate with vendors for bargains for its members. While dozens of examples exist for which this business model works, travel is one of the more accessible and intuitive. A forum is provided for members to compare experiences, evaluate packages and services, and develop community-based content. Thus, in Part 1 of the book, markets are reversed and customers gain the upper hand. However, vendors stand to gain too as markets grow (p. 32). The breathless style of Part 1—seemingly reflecting the urgent need to move fast—is moderated as the outline of a business plan is provided in Part 2. Perhaps the most controversial aspect of the authors' approach is its underlying economic model. A classic law of economics is the law of diminishing returns. As businesses and machines scale up, forces come into play that limit additional growth. Here, without discussion or argument, the authors apply the dynamics of increasing returns (which state that ideas and innovations are exceptions to the rule of diminishing returns) to the revenue generation model of the virtual community as if this were uncontroversial. I would have liked to see an executive summary saying that innovation and ideas are candidates as exceptions to the law of diminishing returns, and that the growth rate is determined by the rate of underlying technological change. This would have provided useful context, restored perspective, and prevented misunderstanding and loss of objectivity. Since this omission is potentially devastating from both a results and a methodological point of view, it should be mentioned that the result seems less in jeopardy than the method. Reinforcing virtuous cycles (p. 49) are quite consistent with the economies of scale of classical economics. To their credit, the authors are cautious about predicting a bonanza of benefits for community organizers. What they do predict is that those who do their homework and stay the course will succeed. What that will be like is treated briefly in the third and final part of the book. Since it is hard to perform market research for products and services that do not yet exist, the authors arguably provide an “if you build it, they will come” business proposal. Their anecdotal evidence is widespread and persuasive. The uncertainty and risk to latecomers are increased by early entrants who gain advantages in credibility, market share, and barriers to entry. Risks and uncertainty are reduced by the relatively low dollar cost of startup and the advantages of member-generated content. These mom-and- pop economies of institutionalized word-of-mouth advertising hold significant power to transform corporate landscapes, the electronic commerce economy, and the balance of power between customers and vendors. Venture capitalists, entrepreneurs, implementers, Webmasters, forum moderators, and sysops are the ideal audience for this book. The authors project a possible future for the electronic economy, and it is significantly different from what one might imagine based on current business models.