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In my update on the 2008 Tribalization of Business study on business communities that we are doing with Deloitte and The Society for New Communications Research last week - I pointed out how some companies are totally misaligning their measurements of community effectiveness with their goals.

As you will see from the slides, many companies measure effectiveness by looking at page views and time spent on the site. Yet not one company listed ad revenue as a goal for the community - which is what page views and time spent on the site would be good for. Let’s assume that your goal is to have a support community - one in which people can help one another or get help from some your employees. If you could deliver the support in a way that never required people to come to your site, you would still achieve your goals. In fact, if you build your community so that people do not have to come to it, chances are that you will have more people participating in it. There are only so many destinations that a person will visit on a regular basis, and chances that your business community becomes one of them are fairly slim.

Another interesting wrong-headed metric-related finding from the study is that a majority of respondents found that “getting people to engage” was one of the biggest obstacles to making a community work. Now if you have a small community, chances are that you could get a fairly high engagement rate. The larger your community becomes, however, the more its profile will resemble that of large public communities - 1% of hardcore contributors, 10% of active users and 80-90% of lurkers. Now does that mean that the lurkers do not get value from your community? In the case of the customer support community, lurkers who do not contribute could still find the help they need and feel better about you than if they had not found it and also save you the cost of a call into the call center. So measuring community effectiveness by measuring engagement is just not a representative metric of community success.

Now the real issue with all this is that if you have a community development team who is being measured by those wrong-headed metrics, they will invariably develop bad behaviors in order to maximize these metrics. They could in fact develop community features that will stand in the way of success for your communities, or close down communities that are in fact doing really well.

If you missed it, there is a dynamic conversation on managing communities going on right now…Chris Brogan kicked it off and Nancy White wrote some interesting musings and also kept track of many of the other interesting links.

Based on research in the field of virtual communities, most business thinkers will agree that there are 4 fundamental pillars to successful communities - content, members, member profiles and transactions. If managed properly, these 4 dynamics can lead to economics of increasing returns that characterize most successful communities. The more members you have, the more content they will create. That in turn will increase the value to the community members and attract more members. If you capture information about your members and you make it easier for them to find stuff in the community based on their profile, the higher the value of the community to the members and the more members you will attract. It’s easy to understand the workings and to get the benefits of the dynamics of increasing returns that happen in successful virtual communities. Many of those were first described by business thinker and management consultant John Hagel in Net Gain more than a decade ago.

There are other aspects that drive and define communities, such as the social and technology infrastructures of communities as well as the business processes that they support. But none of those characteristics have the power to create the positive value creation loops that the original four can.

While most successful communities will have a mix of all of the ingredients - we can characterize communities by their dominant dynamic.

First there are content-based communities, where members interact with one another primarily in the context of content - either consumer generated or licensed/acquired. News sites or blogs are communities that would fall in this category.

Then there are communities that are primarily member-based. Member-driven communities can take on many different forms. Brand communities like the Harley or the Ducati communities are clearly member-centric communities, even though some companies mistakenly think that the brand is at the center of those communities, and not the members. Networking communities like LinkedIn and Facebook are clearly communities that have members at their core. Many developer communities in the tech world also fall within this category.

Lastly there are transaction-centric communities. eBay and Amazon.com come to mind when talking about those communities.

Of course, all of those communities have content, and all have members, and most have transactions - it’s just that they are more heavily tilted towards one of the community ingredients than another. And in some cases communities with the same end-goal can take on very different forms. Brand communities could also be set up as content-centric communities or as transaction-centric communities. Customer support communities or developer communities could also be started as content-centric communities - and perhaps evolve into transaction-centric communities.

The reason it’s important to understand the different types of communities is because of the requirements to get them started. You cannot start a member-centric or a transaction-based community without a critical mass of members or offerings - something most companies do not have. Without a critical mass of members or offerings, there will not be enough content generated (i.e., customer reviews, etc.) in order to make the interaction for the community members valuable. So if you have a total potential number of users ranging in the hundreds, you will never be able to set up a vibrant customer support community as Intuit. Microsoft or Apple can. That does not mean that you cannot leverage customer support communities, it means that you have to start them up as content-driven communities. Instead of relying on the community members to re-write your manuals and to create meaningful FAQs, you may have to hire a few people to kick-start the process on a for-hire basis.

While the economics of increasing returns may be somewhat diminished with a smaller number of members and some hired guns, they are still very much present. Most likely they will handily beat the economics of diminishing returns that most business practitioners face when trying to interact with customers and prospects in the old-fashioned interrupt-driven way.

Some of these thoughts have been triggered by the many conversations I have had the pleasure to have as part of the Community Effectiveness Study that we are conducting with Deloitte and the Society of New Communications Research. Some of the preliminary results of this study will be discussed at the Society for New Communications Research Forum in two weeks and more detailed results will be unveiled at the Community 2.0 Conference in May.

As a senior research fellow with the Society for New Communications Research I can extend a special discount to some of my friends who want to attend the forum. Email me if you want to attend at a special rate (francois [at] emergencemarketing [dot] com). Note that there are also 1/2 day flex passes available for those who can’t attend the full event.

In interviewing a person in charge of communities at a Fortune 100 company as part of our community effectiveness study that we are doing with Deloitte and the Society for New Communications Research, I learned about a real neat side effect of business communities - the ability to sell products in the long tail.

Large companies typically cannot afford to pay attention to relatively small business opportunities. If your company has billions of dollars in revenue, and a goal of growing that revenue by 5% a year, and you identified a $50M new market opportunity, chances are that you will not be able to justify a business plan to tackle this new opportunity. Some of the more innovative companies have found ways to monetize those opportunities by selling or licensing the IP or partnering with companies for whom a $50M market makes sense.

With large business communities surrounding your company, you could potentially do it yourself, and in a profitable way. Say that you developed a software application that only has a tiny market potential relative to your company’s size. You could make that application available in your community, and rely on the community to deliver support, refine the documentation, etc. So in effect you developed a channel to enable your company to serve the long tail in a cost effective manner and in a way that is not defocussing. In the long run, leveraging business communities to serve the long tail could also increase your share of customer wallet as well as increase your customer switching costs for the bigger applications - all benefits that deliver dollars to the bottom line.

That is the question that MIT professor in behavioral economics Dan Ariely tries to make his readers think about in his new book, Predictably Irrational: The Hidden Forces That Shape Our Decisions, as he proves that most people are indeed predictably irrational.

Take the following experiment as an example. In the experiment, students were introduced to six products - two different wine bottles, a trackball, a wireless keyboard and mouse, a design book and a box of Belgian chocolates. Students were then given a form that listed all the items and asked to write the last two digits of their social security on top of the form and also next to each item in the form of a price. So, if someone’s last two digits was 23, they were asked to put $23 next to each item on the form. Next they were asked whether they would pay that price for that item with a simple yes or no. When the students finished that, they were asked how much they would be willing to bid for each item. Well guess what? The students with the highest-ending social security digits (from 80-99) bid highest, while those with the lowest-ending numbers (0-20) bid lowest. In the case of the cordless keyboard, the top 20 percent bid an average of $56, while the bottom 20% were willing to pay an average of $16. Overall the top 20% were willing to pay prices that were 216 to 346 percent higher than those of the students with social security numbers ending in the lowest 20%.

And that is just one of the many examples given in Prof. Ariely’s book.

So what does this all mean? As an economist, Ariely believes that fundamental economic principles like the one where supply and demand determine pricing, or the claim that free markets and free trade benefit everyone involved in those transactions, may in fact be bogus. The first one is based on the assumption that the supply and demand forces are independent from one another. The second is based on the assumption that all players in the market know the value of what they have and the value of the things they are considering getting from the trade. But if our choices are affected by random initial anchor prices as demonstrated in the experiment above as well as other experiments listed in the book, then the price that I am willing to pay (demand) can be heavily influenced by the supply side through MRSP (manufacturers suggested retail price), promotions, discounts, etc. So it is not the consumers’ willingness to pay that influences the market price, but instead the market prices themselves that influence the consumers’ willingness to pay. And for the same reason, the choices and trades we make in free markets may not at all reflect the true benefit that we would derive from the things we trade.

So what does that mean from a marketing perspective? For starters, and as it relates to pricing, it means that marketers may in fact have more control over buying behavior than they are currently given credit for. Additional research described in the book as well as on Ariely’s web site and blog, indicates that marketers may in fact be able to influence much more than the price a consumer is willing to pay for something, but also influence their general buying preferences.

In the end, the consumer may not be as much in charge as you think…

In reading Influencer: The Power to Change Anything, authored by multiple authors (more detailed comments from the book coming soon - definitely a good and recommended read), I came across this interesting set of studies that look at the impact of the “conspiracy of silence” that reigns in many organizations.

One study focused on hospitals, and looked at how the conspiracy of silence held in place powerful norms that kept people from speaking up when colleagues violated hygiene, safety or any other protocol - leading to unnecessary deaths. Take those numbers - 84% of doctors have seen co-workers taking shortcuts that could be dangerous to patients, yet fewer than 10% of physicians, nurses and other clinical staff directly confront their colleagues about their concerns. The main drivers leading to this type of culture in hospitals are the risks of lawsuit and infamy. You can find more on that study at www.silencekills.com.

Another study looked at other industries and found that the same code of silence sustains unhealthy behavior across the board. The vast majority of product launches, reorganizations, mergers and improvement initiatives fail or dissapoint because of it. In fact, the researchers found that 91% of all large scale corporate projects collapse because people fail to speak up and be heard. They argue that a deadly form of corporate silence lies at the root of all failed projects. Project problems are in fact people problems. For more information about that project and to download the findings of the study, go to www.silencefails.com.

Most of us have been in organizations where it is politically unacceptable to speak openly about what is going wrong - only to see projects fail because of weak sponsorship, unreasonable constraints, unmotivated team members, or plain old politics. It is sort of ironic that while not speaking up will eventually kill the organization in which you work and thus your current job prospect - it is job preservation that drives this behavior.

What most organizations do not realize is that this is not based on individual behavior, but rather on social behavior. Fixing this problem will not happen by focusing on changing individual behavior first, but instead by changing the social norms that drive the social behavior - and that is not a trivial task.

I had the pleasure to meet JP Rangaswami in person last week, who I had invited to speak as a keynote speaker at the FASTForward ‘08 conference. He spoke of the three main forces that are causing a powershift towards the individuals within the enterprise.

The first one is that of youth versus expertise. In this day and age, expertise is no longer connected to age, and while that is causing a fair amount of friction between the geeks and the geezers, it is an inevitable force that is driving change.

The second one is the democratization of participation. No longer is participation elitist, no longer do you need to ask for permission - the amateur hour has arrived.

The last one is that FAST is the new GOOD. Releasing alpha software, having perennial betas is the new way of doing business.

While there is major resistance to all those forces, combined they will cause a massive transformation within the enterprise. Combined with the powershift which already took place between companies and their customers, they could very well alter the way we think of firms forever.

Many organizations worry about how employees feel about their management, their owners and their companies, and what they might say about them about it in public. The paranoia is so high that the number non-disparagement agreements that employees are asked to sign is at an all time high - with some companies going as far as making people sign non-disparagement agreements that cover their entire family.

Focusing on controlling what employees might say about you in public is a sure road to killing any possible enthusiasm and passion around your company, its products and its management. What companies should do instead is to focus on figuring out how employees feel about themselves in the context of being employed with the company. If you can help employees feel good about themselves, then they will automatically feel good about you and your company, and you would never need non-disparagement agreements.

Just like you cannot control what your customers say about you, you cannot control what employees will say about you either. In fact you should take a totally different tack - encourage your employees to talk about you, and deal with the good and the bad that comes out of that.

John Hagel delivered a great speech at FASTforward ‘08 this morning (more here). One of the interesting take-aways from his talk is that in the face of talent being the new scarcity in this new economy, most companies are developing plans to better attract and retain that talent, instead of developing it in house.

Those who will be become great developers of talent will automatically attract and retain outside talent as well. Those who will play the old attract and retain game will lose, because at the end of the day, control lies with the talent - not the firm.

One of the most fascinating companies at the BRITE conference was Eli Lilly, represented by Marc Kershisnik, Executive Director of Market Research.

It is one thing to talk about putting the customer at the center of your offering instead of your product or your company – but how do you do that when you are a pharmaceutical giant?

Eli Lilly seems to have figured that out – they no longer look at the drug as a way to fix a discreet biological/physiological problem, but instead at how the drug will fit within a sick patient’s lifestyle – so in effect putting the patient at the center of the offering. And that is not just in marketing, it starts at the time of product conception and product/market requirements, continues throughout the drug development phase, into clinical trials, and all the way to market introduction.

A good example of that is how they started the oncology on canvas community, which enables cancer patients to express how they deal with their disease though stories and art. They did not start this community after launching a new oncology drug - they started it before having any oncology drug offering.

Another example is how they dealt with their osteoporosis offering in France. The drug is for people with severe bone loss – the type who cannot take a child on their lap without causing a fracture. The treatment regenerates the whole bone structure and cures the disease in 18 months. The only problem is that patients need a daily injection of the drug for 18 month – something that many patients would give up or skip frequently enough to bring the outcome of the treatment in jeopardy. So how did they solve the problem? They enlisted an army of paid nurses to help patients with their daily treatment. In doing so they did not disrupt the patient-doctor trust relationship by injecting themselves into the process (which probably would not have worked anyway). They also focused not on the biological problem that the drug was curing, but instead on the patient ‘s lifestyle during the disease treatment process. The success ratio of the treatment in France: 90%.

No wonder then that a company with this amount of foresight would also transform itself from the inside out. Most recently they conducted one of the largest Vision Jams within their company – 6 days of 24 hour online brainstorming among 40,000 employees on the future strategy for the company. The whole strategy for Eli Lilly’s 15 year plan was created from the bottom up and not from the top down.

Now who said that you cannot teach an old dog new tricks? Of course it helps that the company does not think of its main purpose as making money for shareholders, but instead of considering its primary purpose and duty in the marketplace as treating diseases.

Guess what – with a strategy and market attitude like that, long term profits and shareholder returns will probably never be the problem.

PS - also check out my partner Lois Kelly’s post on the same topic…

The BRITE conference at Columbia was a great one. Much has been written about it already by David Berkowitz, Tom Guarriello, Max Kalehoff, Lois Kelly, Valeria Maltoni, Amanda Mooney, Christine Whittemore and then also on the BRITE blog.

Here are some of my (heavily biased) takeaways from the conference:

• Many companies are truly in need of help - their traditional marketing programs to attract and retain customers have become much too costly.
  And when a competitor in their space figures out the secret formula, the benefits to that competitor are game-changing, not just level-setting.
  There were some good examples of that at the conference - including Eli Lily (more on them in a future post), Cisco, GE, P&G and Lego.
• Companies have to radically rethink how they do marketing and how they staff it - marketing can no longer be viewed as a collection of programs, but instead as way of behaving in the marketplace.
• Many marketers are complaining that in the new social media world there are not enough opportunities to reallocate their traditional fat advertising budgets - i.e., not enough keywords in search marketing, etc. Forgive my French, but isn’t this looking at marketing in the social media age totally ass-backwards? Maybe you do not need the same traditional fat budgets to achieve the same results - what do you think it cost to produce the coke/mentos video, which resulted in increased sales of 5-10% for Diet Coke and 15% for Mentos? Sure, programs like this may not be replicable, but neither are the results of ad campaigns. Another good example is Amazon – with zero “interrupt” marketing dollars in their budget – which does not mean they don’t do marketing, in fact they are a marketing machine.
• It is clear that agencies are trying hard to redefine themselves, which is a must if they are to survive. Most of them are just using new buzzwords to talk about the same old programs that they’ve been doing for ages. Saying that you will be delivering 3D marketing programs – the right message to the right person at the right time and in the right place does not make it so. Interrupt marketing messages delivered on a computer screen, a cell phone screen, even if powered by GPS, or in an electronic game will work no better than they do on a TV screen or in print. And to say that TV viewing has not gone down as a way to continue to justify non-measurable expensive ad campaigns is totally ignoring what really happens in that marketplace.
• Many marketers have learned that they need to put the customer at the core of their offering, not their company nor their product. It does not matter how a person feels about your product; it matters how they feel about themselves in the context of your product.
• In an attempt to fix the fact that 90% of all new product introductions fail - mostly because they do not address the right market requirements - there may be a bit of an over-correction in the direction of getting your customers involved in designing your products. In certain product categories as with disruptive innovations, getting your customers to help you design your products may in fact not yield the best results. Do you think we could have had the walkman or the iPod through customer co-creation? All that said, an over-correction is still better than the alternative.
• The barriers to marketing innovation are still based on the same fundamentals – which are mostly organizational and cultural in nature. Maybe we need to invent a new marketing department – one in which either nobody reports to the CMO, or one in which most people report to the CMO. And like Eli Lily, maybe we need to change our event horizon and measure it in years instead of in quarters.
• While most companies are confused about what communities really are and how to leverage them, some examples presented at the conference, including the Eli Lily communities, the Lego community, or the P&G innovation communities, clearly demonstrate the power of those communities on achieving game-changing results or results that would just not have been possible without them. You need to be willing to let go of control, go where your most ardent community members hang out, and be supportive but not necessarily provide incentives.

So all in all BRITE was a great conference, with some thought provoking session & presenters, some great insights, and best of all – good discussions and conversations among the audience members. Let’s hope that the blog conversations will extend the life of those great face-to-face conversations.