Online Communities as Business Model

Von yawave
am 01.02.22

There are a variety of online communities outside of social media. Some are funded directly through contributions, others indirectly through the many benefits an active community offers a company.

Directly funded online communities

Examples of direct funding through membership fees include:

  • Paid Media: With the emergence of the Internet, newspaper publishers were faced with a major challenge – free content. This caused their business model to collapse, and it could not be sufficiently compensated by advertising. Now, most publishers use a mix of print and online financing, sometimes more, sometimes less successfully. Print is still paid for, online only certain articles are “paid content”. Streaming communities – whether video or audio – also offer their members paid content, either bought in from outside or produced by themselves. They are now doing this so successfully that they have become serious competition for film studios, music publishers and event organizers.
  • Membership platforms: These can be gaming communities where users pay to play virtual group games. There are training communities that cover a wide spectrum from individual tutorials and webinars to complete virtual courses of study. Some social media platforms offer their members so-called “premium memberships” that either unlock further communication features (LinkedIn, XING) or ad-free content (youtube). Youtube is thus becoming a hybrid of publisher/media company and social media platform. But LinkedIn and XING are also trying to become publishers themselves by setting up their own editorial teams.
  • E-commerce: Retail platforms such as Amazon also offer their end customers premium memberships (Prime) and media subscriptions (Kindle Unlimited), which include faster, free shipping and exclusive content such as video and audio streaming.

Of the above examples, only streaming communities, gaming communities, and training communities are funded entirely by membership fees. All others use blended funding supplemented by advertising revenue.

Indirect funding: 5 community factors that are worth more than contributions

In the case of indirect financing models, membership fees are omitted completely. In this case, they are replaced by benefits that create more value than pure contributions. Five of these will now be discussed in more detail.

1. Data harvesting

Sports clubs and associations have a particularly strong emotional bond with their communities. Top clubs, but also smaller, regional clubs, have now built up active, loyal online communities. The business model behind this is called “data harvesting”: the fan pays for exclusive content with data gold, i.e., his or her personal details, which include not only contact data, gender, and date of birth, but also special preferences and points of contact with the club as a brand. In return, they receive exclusive content that is available only, or at least first, to community members. In this way, data and content reinforce each other: the better the data and the more precisely a club knows its fans, the more targeted the personalized content it can offer them. The more relevant the content, the more willing the fan is to disclose further data for it in the future. The currency accepted by both sides is relevance. The actual sources of money – sponsorship, fan store, online tickets, advertising – flow all the more, the more relevant and individual the offer made to the fan. In other words, monetization only works through legitimization.

2.  Cost reduction

If communities offer customer support or provide users with a platform on which they can exchange information and help each other with products and their application, this reduces the volume of inquiries to providers and thus saves costs and capacity in the support teams. In addition, massive advertising costs can be saved because convinced members of a community recruit other users and convince them of a company’s offering. Such “personal” networks and recommendations have a much higher credibility than advertising, and thus a greater influence on sales.  

3. Cross- and up-selling

The better a company knows its customers, the better it can satisfy their needs. In the case of the company’s own online communities, this means a great potential for additional sales. Product offerings can be personalized to users’ preferences, whether they indicate them in community surveys and feedback tools or are linked to a loyalty program. There, purchases are recorded and rewarded with points. Recommendations of the community or products can also be rewarded. The points collected can be exchanged for discounts, other products or a special status – such as “Frequent Traveller” with Miles & More. It is also possible for the member to be sold additional services that complement their product. 

4.   Customer loyalty

Online communities can be a very effective customer loyalty tool. They offer regular customers a virtual haven where they can exchange ideas with each other and with the company, and to which they can return as often as they like. Sports clubs and associations are another prime example of this: where better for fans to exchange ideas during breaks in the game than in virtual communities? The more active a community is and the more it grows, the greater the customer loyalty because, like any strong brand, it has an emotional pull. People want to belong, to be part of something bigger than themselves and thus increase their own importance. Especially in times of global crisis, loyal followers who ensure reliable sales can make the difference between the weal and woe of an organization.

5.   Image

Another important community factor that is worth more than membership fees is the external perception of an organization, its image. The more loyal followers a brand or organization has, the more likely it is to be perceived as relevant and as positive; after all, not everyone can be wrong. In addition, followers create greater opinion power in the media and politics, as well as greater market power. If the organization faces public criticism, it will be grateful for every advocate, just as it will be grateful for a good reputation when crisis PR is called for.

So …

In the business model of a company’s own online community, membership fees are the least important financial factor. Indirect factors such as data harvesting, cost reduction, upselling and customer loyalty can create much more value for a company in the long term.