Community Building: Good or Bad for Ad Revenues?

This week we turn to a new topic and another great Internet buzzword with an imprecise meaning: community.

In general, people use the term “community” to refer to a site or aspects of a site that encourage interaction between users. Some popular community features include chat, bulletin boards, shared file space, list servs, and content around certain topics.

Many people tend to focus on chat when they talk about community, and, while that is one aspect, we feel that it is not the most important. Think, for example, about the community feel that eBay is credited with creating there is a sense of being in something together, and so we are inclined to trust a fellow eBayer, even though eBay allows us to email each other only about transactions.

Similarly, Amazon has successfully created a community feel with its customer review feature. So, it’s our sense that community is more about belonging and having a sense of trust and less about idle chat and some of the more typical features associated with community.

Some sites generally those that were founded specifically on the availability of a community functionality, such as chat or file sharing are so heavily focused on community features that they are actually labeled “community sites.” Examples of community sites would be Talk City, GeoCities, and eGroups, which offer users mini-intranets to share files, photos, and bulletin boards.

How does being a community-focused site play from an advertising perspective? Well, it depends. From our research with media buyers, we have found that it is not always a positive thing to be seen exclusively as a community site in their minds. For many media planners, community sites have become associated with large amounts of undifferentiated inventory and, as regular readers of this column will anticipate, that equals lower-range CPMs.

Is this a fair perception? Unfortunately, for many community sites, it has been pretty accurate. Many of them have struggled to create vehicles within their sites that allow them to capture good user information that is the basis of targeted, high CPM inventory. And, without a specific demographic, interest area, or individual user information to sell, it is hard to justify anything but low run-of-site prices. Barring a huge amount of inventory (and a great sales force that is selling a lot of it), that spells big trouble for many community sites.

And beyond the difficulty with creating targeted inventory, we’ve also heard from some media buyers and advertisers that they are wary of community sites because they fear that users are too engaged with each other to pay much attention to ads. In situations where there is extensive interaction between users, media buyers and advertisers fear that their companies can’t monitor what is said about them on the chat and bulletin-board features.

So, does all this make community sites undesirable from an advertising perspective? Not necessarily though the challenges need to be acknowledged and planned for early on in the site’s strategy. We think that community is an important part of what successful web sites have; there are very few really successful web-based businesses that have not achieved some degree of community feel. But the forms that community takes vary widely, and finding the secret sauce for a given web business is very tricky.

Next week, we’ll look at how adding community features actually can build advertising effectiveness.

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