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Virtual Community: Commercial Virtue?"Predicting the future of technology has gone from a minor sideline of the scientists and engineers actively building that future to a discipline of its own" - Microsoft's Nathan Myhrvold, Confessions of a Cybershaman, in Slate Son of an oil industry executive and now one of the highest-ranked partners in the lucrative mega-consultancy McKinsey & Company, John Hagel III is a peculiarly high-ranked, mainstream cybershaman. But he's a cybershaman nevertheless, with his own big idea and his own best-selling book. net.gain, which Hagel co-authored with Arthur G. Armstrong, sets out a future where huge tracts of the commercial landscape are planted with "virtual communities". Hagel and Armstrong define "virtual communities" as groups of people who come together on-line to share common interests and needs. The dialogues within these communities are an extension of the conversations we hold today, face-to-face or over the telephone - an extension into a future where people spend even more time communicating with each other. "Wherever we talk about networking, people spend time communicating", says Hagel, explaining how he came to believe in the idea. "People want to connect with each other". These virtual communities can be geographic (created by local newspapers, for example), demographic (the San Francisco '60s types who created The Well) or defined by interest (the parentsoup.com parenting site, and AOL's The Motley Fool investor site). Such communities both entertain and track their customers, and members often generate much of the content - through on-line postings of their ideas and viewpoints, for instance. Virtual communities earn revenue from both advertising and sales. The McKinsey pair say such communities are "a tremendous vehicle for increasing loyalty to a vendor's products". And they claim, in language designed to arrest the attention of people who buy books from Harvard Business School Press, that such communities presage a new and explosive business form which creates "very substantial economic wealth for organisers". In the sort of response which gratifies any cybershaman, Business Week magazine jumped right in to endorse this idea with a May cover story which claimed "netrepreneurs are finding they can turn the intrinsic cultural appeal of communities into a real business proposition". net.waitBusiness Week has it wrong. True virtual communities, as defined by Hagel and Armstrong, aren't creating products for "netrepreneurs" yet, or for anyone else apart from the odd consultant and author. Hagel frankly admits it. Right now, he willingly concedes, the Internet doesn't boast one single "compelling example" of a working, profit-earning virtual community. But Hagel and Armstrong say McKinsey's client work and computer modelling show that while it won't happen overnight, it will happen. In about ... five to ten years. This sort of ambitious medium-term prognostication should have a hefty justification. Right at the start, Hagel and Armstrong explain virtual communities as the product of "increasing returns economics". There really is such a thing in economics: it's better known as "new growth economics" and its one of the hottest areas of 1990s economic research. It recognises that in some parts of the economy, the first firms into a field can gain a lead which is abnormally difficult to overcome. Software provides the classic example of increasing returns: once people have Microsoft Windows and Word, they're loath to change to other systems or formats. So net.gain's first chapter shows a familiar hockey-stick graph of Microsoft's revenues. But those familiar with new growth economics will feel that the McKinsey pair are over-stretching legitimate economic research to support their idea. It's not clear that virtual communities will display strong increasing returns. In fact, net.gain's ideas need more than increasing returns economics. They need a lot of faith in a future where people somehow decide to give their abiding loyalty to a corporation. While Hagel and Armstrong don't ever fully define communities, it's clear they're talking about something more than a bunch of people who log on to the same chat site. They're talking about strong personal connections fostered by organisations which make a lot of money - that is, corporations. Community or just commerce?It might have been possible to create strong consumer loyalty to corporations in the 1950s. The world of the 1990s, with its post-modern distrust of business motives, seems more likely to foster weak connections than the strong, deep sense of community which the McKinsey pair champion. Real communities are bound together by something more than recognition of a corporate logo. They're bound together by deep ties, in a complex blend of psychology and sociology. But Hagel and Armstrong mostly ignore psychology and sociology - a matter, Hagel says, that is now of some regret to him. That's not to say on-line businesses won't eventually prosper. Businesses today are running Web sites with advertising, and they're running chat rooms - and seeing at least some revenue in return for their investment. But these activities are arguably mostly a synthesis of on-line commerce and traditional publishing, imported to the Web. Newspapers have long recognised the attractiveness of letters pages, and businesses have long recognised the value of supporting their activities with newsletters and the like. Some on-line businesses will eventually reap good returns from their Internet effort, though few have yet. None of these represent what you'd call "communities". They're the natural evolution of existing business practices under the influence of new technology - a fine thing, but one much harder for a cybershaman to write a snappy best-seller about. Better to declare that the Net is fostering a radical new business model and that you have to be there now. This is McKinsey meets Wired magazine. (No surprise, then, that Hagel has now popped up in a Wired magazine interview by none other than the Digerati Bible's editor, Kevin Kelly.) The two sites Hagel mentioned to me as the best pointers to the virtual community's future were The Well (which charges subscribers for connecting) and Electric Minds. As readers of Wired magazine's excellent profile of The Well earlier this year will probably recognise, The Well really has generated deep ties among its members. But The Well's 1980s community formed out of a specific cultural experience, the California of the 1960s, whose intensity the average commercial operator will struggle to duplicate. And in mid-1997, creator Howard Rheingold almost closed the heavily advertising-reliant Electric Minds when it didn't bring the revenue for which he hoped. Oops. Hagel and Armstrong wouldn't be surprised. Remember, they claim that the creator of the typical virtual community will have to wait five to ten years for the big pay-off. But that's asking a lot of their followers. No wonder Hagel was willing to admit to me: "Clearly this has elements of religion".
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Read extracts from net.gain