When Community Becomes Your Competitive Advantage
If a company can transition from simply delivering a product to building a community, they can unlock extraordinary competitive advantages and create a superior business model. In fact, strong communities help support the ideal business model. Specifically: • Enthusiastic members help acquire new members, resulting in lower customer acquisition costs and a tight viral loop. • Members of a community are loath to abandon it, resulting in increased member retention and therefore improved lifetime value. • Members of a community support other members in that community, resulting in high gross margins due to a lower cost of service.
The result of this are very real network effects: as engagement grows, the community gets smarter, faster to respond, more globally available, and generates more value.
We’ve seen a precipitous decline in participation in civic organizations in recent years; membership numbers are down for religious groups, labor organizations and non-profits. A cynic could interpret these trends as a sign that we have all become digital hermits, with our noses buried in our highly personalized screens. The reality is that powerful communities are not just alive and well but also booming. They just look different than they did 50—even 20—years ago. They are organized around businesses and brands and providing profound opportunities for companies around the world.
Take Salesforce for example. While you might think its $140 billion valuation is due purely to its innovation of software delivered on demand through the cloud, it has also created a community of nearly 2 million members who support each other, organize events, produce content, and are a critical part of its global operations. This community is an international network of minds, talent, and time, all supporting the success of Salesforce. The company’s annual “Dreamforce” conference, which attracts nearly 200,000 acolytes to San Francisco each year, represents a mecca for its ecosystem to convene, build relationships, and advance it corporate agenda.
Other examples include Harley Davidson, which has created more than 1,400 local chapters around the world for enthusiasts to get together in person and discuss their bikes; Fitbit, which has a community of more than 25 million members, who share and refine their exercise regimes; and HITRECORD, which has brought more than 750,000 artists, writers, and filmmakers together to collaborate on productions, many of which have shown at Sundance. The list goes on.
While communities generate tangible value for businesses — such as content, events, online advocacy and marketing, technology production, customer support, and education — it is the intangible value that members derive from the experience that makes these environments truly “sticky.” Human beings are fundamentally social animals. Behavioral economics and psychological research have taught us that we fundamentally crave a sense of connectedness, belonging, mission, and meaning, particularly when performing our work. Theresa Amabile’s The Progress Principle and Daniel Pink’s Drive both demonstrated that making progress towards a shared mission is the most motivating force a professional can feel. Communities deliver these benefits, creating a sense of shared accountability and a set of values while preserving individual autonomy.
If a company can transition from simply delivering a product to building a community, it can unlock extraordinary competitive advantages and both create and support a superior business model. Specifically:
The result of this are very real network effects: as engagement grows, the community gets smarter, faster to respond, more globally available, and generates more value.
Codecademy is another example of a company that has figured out how to use community to support its business model. Since the company was founded nine years ago, more than 50 million people have taken one of its courses.
