Online communities arose in the early days of the Internet, even before the birth of the World Wide Web. So while ROI models for “traditional” Web sites are relatively well understood, it is perhaps surprising that well-defined ROI models for online communities have remained somewhat elusive.

While overarching ROI models do evolve through time (as they did with the Web), there are indeed effective ways to define ROI and measure success for online communities. This report presents our customer-centric approach, which is based on the premise that a successful community is one in which the members feel that their needs and objectives--their Customer Scenarios--are met. In other words, your success stems from your community members’ success.

To illustrate this, this report breaks down communities into six general types, and presents selected customer scenarios for each. It also provides example Customer Metrics, Operational Metrics, and Business Metrics that can define and measure success for each scenario.

The report also outlines seven key steps in building a business case for developing (or enhancing) an online community, and identifies common pitfalls to avoid.

INTRODUCTION

The Internet has come a long way in a very short time. From its origins in research, it has grown and adapted to support communication, collaboration, entertainment, commerce, and more. Because of the incredible pace of change over the past few decades, we have (perhaps unrealistically) high expectations about what the Internet can do and, especially, how we can measure its effects.

Online communities arose in the early days of the Internet, even before the World Wide Web. And communities themselves (i.e., offline communities) have been around as social interactions pretty much as long as there have been people. So while ROI models for “traditional” Web sites are well understood--it’s relatively easy to know if your Web site is successful or not--it might be considered somewhat strange that well-defined ROI models for online communities remain elusive.

Taking a Customer-Centric Approach to ROI

When facing a problem, it’s best to go back to basics. For us at the Patricia Seybold Group, that means putting yourself in your customers’ shoes. So your approach to defining ROI and measuring success for online communities should start with your community members’ perspectives and needs. By defining what constitutes success for your community members, you can then identify ways to help members achieve success. And this, in turn, gives you a way to define--and then measure--success for yourself, in terms of how well you help community members meet their needs.

Before going into specifics, though, it’s worthwhile to provide useful background and context. Looking at how ROI models evolved for Web sites gives us the opportunity to learn some historical lessons, and to see what analogous situations exist with ROI models for online communities.

THE EVOLUTION OF ROI MODELS FOR WEB SITES. First-generation Web sites, dating from around 1993 to the late 1990s, were typically developed by technologists. These were frequently IT staff and application developers, who were among the first to learn about HTML, HTTP, and Web servers. They brought the technical knowledge, the professional inclination, and the intellectual curiosity to dabble with this cool new stuff. So they did.

But it’s not necessarily best for the business to have your technology teams define online presence. These were the days of brochure-ware, with Web sites often being cobbled together from existing non-digital materials. While ecommerce and advertising models certainly existed--and some organizations experimented with some ahead-of-the-curve dynamic online business applications--the primary benefit of having a Web site in these days was the Web presence itself (and telling everyone about it at cocktail parties).

As business units--marketing, customer service, sales, and business development in particular--began to see the value of the Web in terms of dollars and cents, they (rightfully, if sometimes painfully) took control over their organizations’ Web sites. From the late 1990s to the present day, technologists were involved in the development and administration of these second-generation Web sites, but the applications have been driven by various business units. And with this ownership and accountability have come quantifiable value metrics.

For example, sales of products and services can be measured directly via ecommerce systems. The cost savings of Web-based support (email and phone) can be measured against call-center operational costs. Online ad and sponsorship revenue can be accurately estimated and monitored. And customer acquisition costs have been reduced for many companies in ways that are clearly attributable to their Web sites.

As the benefits of having a Web site become more apparent and easier to measure, everyone now has one.

THE EVOLUTION OF ROI MODELS FOR ONLINE COMMUNITIES. Interestingly, the first online communities pre-dated the World Wide Web. Usenet groups, for example, sprang up in the late 1970s/early 1980s, with users communicating via Usenet’s bulletin-board system. The WELL, one of the oldest virtual communities still around today, began as a dial-up bulletin board system in 1985, and later morphed onto the Web (it’s been owned and operated by Salon.com since 1999).

These early communities were predominantly labors of love. People launched and ran them because of their passions, the same reason that others joined and participated. Just having the community itself was the goal. There was, therefore, no need to think about the ROI or its measurement.

Second-generation online communities arose in the mid-1990s and are still largely with us now. Many of these communities started out organically, due to the effort of an individual or a small group that wanted to connect on an area of interest, or they identified a need that could be addressed by collaborative means (think user groups).

As with first-generation Web sites, second-generation communities provide a lot of value that can be difficult to quantify. Those who built first-generation Web sites knew on a gut level that it was an important thing to do; just having a presence was important enough, even though the bottom-line value was tough to measure. Similarly, many individuals and organizations have built second-generation communities on this same sense that it’s the right thing to do, not only for members and customers, but for businesses as well.

And just as clear ROI models for Web sites eventually emerged, we expect the same to happen with the next generation of online communities.

So as the benefits of building and maintaining an online community become more apparent and easier to measure (and as more and more customers expect to be able to connect with other customers), everyone will have one.

MEASURING THE SUCCESS OF ONLINE COMMUNITIES

Measuring Success…Against What?

Knowing if you’ve succeeded at something is always dependent upon what you set out to do. So measuring the success of your community starts from your previously-defined goals for the community.

MEASURING SUCCESS AGAINST BUSINESS GOALS. Business goals are ones that have an impact on the bottom line. These frequently include the following:

* Cost Savings: Reduced demand on other service/support channels, lower customer acquisition costs

* Increased Customer Profitability: The profits that flow from loyalty, retention, referrals; increased share of wallet

* Increased Revenue: Direct and viral sales, increased brand awareness, building trust, strengthening relationships, tapping into new markets

* Innovation and Speed to Market: New product/service ideas, validation of existing ideas

MEASURING SUCCESS AGAINST CUSTOMERS’ GOALS OR SCENARIOS. Our approach to measuring success in general, whether for an online community, Web portal, or enterprise search, is to define goals from the customer’s perspective. And this begins with Customer Scenarios.

Customer Scenarios are the sets of tasks that customers--in the broadest sense--would ideally like to perform to achieve a specific outcome.

Selected Customer Scenarios for online communities include the following...