Online communities evolve

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Despite last year's hype and hoopla, Net marketplaces continue to struggle to make a case for themselves. They face perhaps the biggest challenge for any business: changing user behavior. In doing so, they're looking to replicate on the Web the close-knit communities of old-line industries, from cereal to steel.

How critical are online community programs to the success of a Net marketplace? Some analysts—and more than a few marketplaces—say community plays an integral role in driving transactions, customer satisfaction and overall site usage. Other experts say community programs are a nice value-add service but do little for users who simply want to cut costs and gain efficiencies.

Both sides may be right.

However, recent research suggests a strong correlation between community use and marketplace transactions.

Case Study:
PharmQuest Corp.
According to a survey conducted by, a Chicago-based provider of community applications, 62% of marketplace users who visit at least once a week use community programs. Most important, the study also found that users who participate in online communities spend nearly five times as much on online transactions as non-community users.

Active participants, heavy transactions

But it's difficult to tell whether community programs indeed push some customers to transact more, or if customers who are heavy community users tend to be active participants anyway.

"At the end of the day, you don't really care," said Joseph Cothrel, VP-research for "Because if your best customers are the ones who rely on these community programs to get business done, you're going to want to provide them."

Marketplaces create community programs in a number of ways: bulletin boards, live chat sessions, distance learning, Webcasts, streaming video, collaborative work tools, user profiles, industry newsletters and expert advice.

Cothrel said the critical role of online communities is to provide information, whether it's about the functionality of the marketplace, the products being bought and sold, or relevant industry news. It's this information that helps users become more comfortable with an online platform for transacting business.

"These community platforms create a marketplace of information that supports the marketplace of services," Cothrel said. "Transaction capabilities alone will not create the change in behavior needed to support a Net marketplace. A lot happens in marketplaces that don't have anything to do with an actual transaction."

Echoing Cothrel's comments, Emily Meehan, a senior analyst at The Yankee Group, said b-to-b exchanges are embracing community programs on a large scale. Marketplaces are realizing that these value-add services can affect the bottom line by encouraging users to visit more often, stay longer and eventually, trade frequently, she said.

"It's increasingly more difficult to distinguish the community from the buying and selling," Meehan said. "The community interaction has a direct role in the ultimate sale."

Driving out waste, cost

That's certainly the case at Covisint L.L.C., the behemoth industry consortium created by automakers General Motors Corp., Ford Motor Co. and DaimlerChrysler AG to electronically link all of their suppliers and original equipment manufacturers.

Covisint offers some of the most advanced community applications on the Web. Users don't just communicate in online forums; they can integrate their supply chains together so that suppliers can know exactly how many parts to provide and automakers can know how many cars they can build—all in a platform that is updated in real-time. In addition, users can take advantage of a "virtual project workspace" that uses sophisticated streaming video to show parts in 3-D, allowing engineers to work together from literally anywhere in the world.

All of this functionality, said Dan Jankowski, Covisint's head of corporate communications, serves to drive out waste and cost for the marketplace participants, which is exactly why they would migrate to an electronic exchange in the first place. In fact, the average Covisint user generates only a 15% savings from purchasing on the Web site, Jankowski said. The rest results from tasks such as inventory and supply chain management, savings in scrap and warranty expense—activities that couldn't occur without a robust community of suppliers, manufacturers and end users.

Other exchanges and Net marketplaces are witnessing the same close correlation between community use and transactions.

"Marketplaces are the first step toward people getting basic information so they can move the decision process along," said Karen Cariello, VP-content and community for VerticalNet Inc., which operates marketplaces in 58 different industries. "If we are the place they come for community, then we will ultimately be the place they come online to buy."

VerticalNet offers newsletters, forums and live chats in each of its markets. While usage varies from industry to industry, Cariello said all customers are looking for two things when they join an online community: cost savings and efficiencies.

Strong community benefits

According to Emma Battle, who heads up content and community for the consumer-products consortium Transora, a strong community can create value all along the supply chain because users are sharing knowledge about best practices, problem solving and collaborative processes. It's this value creation that will encourage participants to transact more frequently and in greater volume, she said.

"If you're learning with us and we're engaging you on our forums, then you are more likely to participate in one of our transactions," Battle said.

But not all marketplaces have seen as many benefits from community programs. MetalSite Inc., an independent exchange for raw steel and finished metal goods, achieved limited success with its chat rooms. Eventually, they were dropped from the site altogether. According to Doug Schuster, VP-marketing and strategy for the Pittsburgh-based company, which launched in April 1998, participants didn't seem all that interested in interacting with each other in a community sense.

"There's value in community programs, but they're not the primary driver," Schuster said. "People come to do business, not to be part of a community."

Steve Butler, senior analyst with market research firm eMarketer Inc., said although most marketplace customers want access to content and information that's relevant to their industry, most users are "primarily interested in creating efficiencies and achieving cost savings. I don't think community is necessarily a priority for these exchanges."

Many participants are also concerned about how to safeguard trade secrets and company strategies once they join discussion groups and open forums, Butler said.

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