How can virtual communities create value for business?

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ersityOnline communitySocial contractsTrust theoryVirtual communitye etieso pys bomitieof transaction-oriented, interest-oriented, relationship-oriented, and fantasy-oriented communities.ythinglaying. Thebe levee benignoring or ostracizing the rm (Rose, 2007), abandoning the com-munity, or speaking out against the rm (Jarvis, 2007). Therefore,continued presence and action of a rm in a community is evi-dence of success. Success could also be dened in terms of positivecash ows. Positive cash ows may come as a direct result of activ-ity in the community. Examples include positive cash ows as a re-sult of participation in eBay, or as an indirect result of outcomessuch as marketing and brand recognition (Kerin and Sethuraman,tual land fees from over 85,000 paying residents (Krangel, 2007).The Second Life economy transacts about US$ 1.5 million a dayin virtual and real goods (Reuters, 2008). Many more traditionalonline communities stay protable by selling ad space or keywordadvertising. Still other rms have tried to simply participate in vir-tual communities. For example, Dell has been successful in movingpart of its product support to online communities (DellCommunity,2008). On the other hand,Wired Magazine (Rose, 2007) reports thatSecond Life corporate locations for Coke, Nissan, Pontiac, H&RBlock and others are devoid of virtual life. Much like the dotcomrush, rms have jumped into virtual communities to promote theirElectronic Commerce Research and Applications 9 (2010) 3849Contents lists availabes.eE-mail address: Trent.Spaulding@ASU.edupurpose of this research is to understand why some business ven-tures in virtual communities fail and others succeed. In this re-search, the denition of a successful venture into a virtualcommunity is acceptance of the rm or rm activity by the commu-nity. Community members express rejection of rm activity byRevenue from these virtual communities represents billions ofdollars in software sales, subscriptions, and ad revenue. BlizzardEntertainments revenue pushed over US$ 1.2 billion in 2007 duelargely to the success of World of Warcraft (Vivendi, 2007). LindenLab generates much of its revenue through subscriptions and vir-of Internet users who form webs of personal relationships. Thehave not always been realized. Following Kannan et al. (2000),Rheingold (1993), virtual communities are dened as aggregations Which rm activities are the best candidates to benet fromparticipation in virtual communities?1. IntroductionVirtual communities include everto massive multiplayer online role-pvirtual realities such as Second Lifesumed that virtual communities canto consumers and consumer data. Th1567-4223/$ - see front matter 2009 Elsevier B.V. Adoi:10.1016/j.elerap.2009.07.004The value chain provides an instructive background to understand which rm activities are candidatesfor being included in virtual communities. Success in virtual communities depends on an attitude of con-tribution, dedication of resources, building a critical mass, and matching community and business needs.Because many social technologies are in the disillusionment stage of the hype cycle, further research inthe business use of virtual communities is needed to guide business practices as we move to fulladoption. 2009 Elsevier B.V. All rights reserved.from discussion boardsgames (MMORPGs) andbusiness world has as-raged to provide accessets of this assumption1998). Because of the lack of data and examples and the theoreticalnature of this article, this research must use acceptance of the com-munity as a measurement of success. This article explores two re-search questions: Why do virtual communities accept certain types of businessactivities and not others?Business valueInformation technologyfrom being positioned in virtual communities? The theories of social contracts and trust explain howrms can successfully participate in virtual communities. The theories have implications in the contextHow can virtual communities create valuTrent J. SpauldingDepartment of Information Systems, W.P. Carey School of Business, Arizona State Univea r t i c l e i n f oArticle history:Received 11 June 2008Received in revised form 13 July 2009Accepted 22 July 2009Available online 30 July 2009Keywords:a b s t r a c tVirtual communities including games and virtual realinities can be leveraged tassumption have not alwaness ventures into virtual ctain types of business activElectronic Commerce Rjournal homepage: wwwll rights reserved.for business?, Tempe, AZ 85287, United Statesverything from discussion boards to massive multiplayer online role-play-such as Second Life. The business world has assumed that virtual commu-rovide access to consumers and consumer data. The benets of thiseen realized. The purpose of this article is to understand why some busi-munities fail and others succeed. Why do virtual communities support cer-s and not others? Which rm activities are the best candidates to benetle at ScienceDirectearch and Applicationslsevier .com/locate /ecraA social contract is an implicit or explicit agreement to give upesearights for other benets such as power and social relationships(Rousseau, 1762). Social contracts are often studied in relationshipto governance. Governance of an organization is not always a for-mal bureaucratic process. In many communities the social contractis enforced through the actions or reactions of the members of thecommunity. In virtual communities there are both explicit and im-plicit rules. Explicit rules often describe how to join the commu-nity, how to act as a participant, and why one should be expelledfrom the community. Implicit rules also govern how a membershould participate and often extend to why a member participates.Kaufman et al. (2005) are the rst to explicitly discuss howsocial contracts have changed with technology, particularly as itrelates to privacy. According to them the social contract is chang-ing at an accelerated pace. For example, the social contract ofbehavior and interaction in urban communities developed overan extended period as people gradually gave up the privacy andfreedom of rural homes and moved to metropolitan areas and fac-tory jobs. Later, social contracts developed around use of the tele-phone. This social contract species that there are certain timeswhich are appropriate to call a neighbor and that close friends havemore discretion to call at any time of the day. A solicitation callduring an inconvenient time of day may have negative implica-brands and products without understanding how these communi-ties work and how to use them successfully. Communities such asFacebook are creating interfaces for business to create a presenceand providing tools for targeted advertising.To understand why some business activities are accepted andothers are not, this research will explore social contracts and trusttheory. Every community is subject to social contracts. Communitymembers give up time, money or other resources in exchange forthe benets of the community. In virtual communities, the expec-tations created by social contracts dictate what a rm can or can-not do. When these social contracts are not upheld, long-termrelationships become impossible. The value chain provides a lensto view business activities to increase our understanding of whichactivities are potential matches for virtual communities.Section 2 describes the theories of social contracts and trust,and how they relate to each other. Four different types of virtualcommunities and their social contracts are described. Section 3 dis-cusses how different parts of the value chain are likely to benetfrom activities in virtual communities. The nal section presentsseveral principles for successful participation in virtual communi-ties and closes by evaluating the impetus for four different catego-ries of future research.2. Trust and social contracts in virtual communitiesThe success of a venture into a virtual community will hinge onthe ability of the business to work with that community. Virtualcommunities have their own cultures and expectations. The com-munity stays together by adhering to the values and norms ofthe group. These expectations come from the social contract. Indi-viduals or groups who do not understand the social contract are of-ten looked on with suspicion and can be excluded from thecommunity. Application of trust theory and social contracts theoryexplains how and why companies will succeed or fail in workingwith virtual communities.2.1. Social contracts and trust in virtual communities2.1.1. Social contractsT.J. Spaulding / Electronic Commerce Rtions for customer relationships as well as legal implications. Thesocial contract of the appropriate and acceptable use of the tele-phone is well known by the population because of the slow rateof adoption and the extent of adoption of the telephone. This socialcontract developed much faster than that of urban living. Internettechnologies on the other hand are being adopted at breathtakingspeeds. The speed of adoption and diffusion has made it difcultfor new users to understand the social contract of virtual commu-nity technologies. Evidence of the speed of change is the short hypecycles of social software which, from current press, seem to besomewhere between 3 and 7 years (Kee, 2009). A hype cycle de-scribes the initial excitement around a technology followed by dis-illusionment and nally full adoption.Because all communities including virtual communities aresubject to social contracts (Smith, 1999), trust plays a signicantrole in the governance of a community. Social contracts generallydevelop in harmony with the reasons that members join a commu-nity. Communities in general have been formed for many reasonsincluding group power (e.g., governments) and recreation (e.g.,motorcycle clubs). Virtual communities are a natural extensionto this phenomenon. Behavioral expectations are often dictatedby the purpose of the community. By allowing a person to becomea member of a community, the community is placing some level oftrust in that person to benet, or at least not harm the community.When that trust is broken, members may be removed from thecommunity.2.1.2. TrustAcademic denitions of trust provide two essential points tounderstanding interactions in a virtual community. First, deni-tions describe what trust is and when it is required. Second, thetheory gives the results of disconrmation of trust. Trust is morethan predictability. Predictability can come from economic incen-tives or from knowing historically how events have happened.Trust involves vulnerability and expectations. According to anearly empirical denition of trust, Person A has trust when he ex-pects Person B to behave in a certain way and that expectationleads Person A to make themselves vulnerable to Person Bs actionin a manner that the possible negative outcomes are greater whenexpectations are disconrmed than the possible positive outcomeswhen expectations are conrmed (Deutsch, 1958). A community isbetter off to admit someone they can trust to uphold the socialcontract than to not admit them. However, if the communitysexpectation is not conrmed, the community is worse off than itwould have been had it not admitted the member. This is obviousin many real-world settings such as the breakup of crime rings.Each individual admitted to a group that benets from illegal activ-ities provides some marginal benet to the group if that personconrms the trust of the group. On the other hand, if a member dis-conrms the groups trust (i.e., by working with law enforcement),that member may cause signicant damage or even destruction ofthe group. Second Life ad farms provide a virtual communityexample. Each additional member in Second Life provides the mar-ginal benet of another character with which to interact. However,some members join Second Life just to create ads for others to see,littering the landscape and violating the atmosphere of the fantasyworld (Krangel, 2008a). The atmosphere of the fantasy world is themain attraction for many participants.Modern denitions of trust (e.g., Ba and Pavlou, 2002; Lewickiet al., 1998; McKnight et al., 2002; Rousseau et al., 1998) are in linewith Deutsch (1958). The most-recognized denition of trust usedin e-commerce is given by McKnight et al. (2002). They build onthe theory of reasoned action (Fishbein and Ajzen, 1975) by usingtrusting beliefs as an antecedent of trusting intentions and trustingactions. According to McKnight et al. (2002), four basic concepts oftrust help to explain online behavior. First, each person has his ownrch and Applications 9 (2010) 3849 39disposition to trust. Firms must work harder to gain the trust ofindividuals and groups that are less inclined to trust. The otherthree concepts are grouped into trusting beliefs. Trusting beliefs re-fer to the users perception of the other partys competence, benev-olence and integrity. A user believes the other party has competencewhen he perceives that the party being trusted is able to accom-plish what is promised or inferred. Benevolence refers to a beliefthat the other party is not acting maliciously. Integrity refers tothe belief that the other party will not take unfair advantage ofshared information or incomplete contracts. Trusting intentionsare a function of the users disposition to trust and trusting beliefs.A user is more likely to trust if he is more disposed to trust and hasa belief that the other party has competence, benevolence andintegrity.2.2. Types of virtual communitiesPavlou (2002) and Bolton et al. (2004) nd strong evidence thatrating systems do affect trust and that the effect of trust is strongerwith more expensive items. Pavlou and Dimoka (2006) report thattext comments signicantly improve our understanding of pricepremiums. Dellarocus (2005) nds that eBay feedback mechanismsare almost able to maximize efciency. Hu et al. (2004) describe athird party escrow service to mitigate the effects of risk.Psychological contracts are closely related to social contractsand are useful and applicable to transaction-oriented communities.Psychological contracts are the beliefs a party has about the expli-cit or implicit reciprocal exchange agreement with another person(Rousseau, 1989, 1995). In contrast, social contracts refer to thegeneral population and what that group expects in return forthe rights or freedoms forfeited. Pavlou and Gefen (2005) applyl pericematposformrmpectnt o40 T.J. Spaulding / Electronic Commerce Research and Applications 9 (2010) 3849As suggested in the telephone example, solicitors can damagetrust by using telephones for advertising in a manner that is notcongruent with the social contract. Thus the social contract dic-tates what a business can successfully do in a community. Becausesocial contracts vary between different types of communities, I dis-cuss social contracts and trust as they apply to each type of virtualcommunity. Kannan et al. (2000) divide the virtual communityspace into four categories (see Table 1). A thorough listing of allthe social contracts for each category of community is impossible;nevertheless, there are aspects of social contracts that are commonand key to the different types of communities.The main function of transaction-oriented communities is tobring sellers and buyers together. Many communities such facilitate completion of the transaction. Others such only help members to nd one another. Completingthe transaction is up to the individuals. Because of the substantialrisk associated with transaction making, transaction-oriented com-munities cannot exist without trust. To reduce risk, participantsneed to know that the other party has the competence to completethe transaction, has no ulterior motives, and will not act mali-ciously to harm the other party. Without trust, risk increases andprices deate causing sellers with valuable goods to take theirgoods elsewhere. The market becomes a market for lemons(Akerlof, 1970). eBay is easily the most successful consumer-to-consumer auction site on the Internet. Trust is so vital that PayPalwas purchased by eBay, in part, to guarantee transaction comple-tion to buyers and sellers. The critical mass that eBay has builtmakes moving to other auction sites unattractive for many sellers.Therefore, eBay is more likely to function as a market than lesswell-known sites. The critical mass gives the market depth andavailability of information. Business practices are well dened forparticipation in eBay and other transaction-oriented communities.The connection between trust and contracts in transaction-ori-ented communities has been well studied. Of particular interest arethe trust mechanisms built into eBay, Amazon and others. Ba andTable 1Types of communities, social contracts and trust issues.Community Social contracts Trust issuesTransaction-oriented (TO) Accurate representation of sales Use of information for transactionalpurposes A very smallosses in prInterest-oriented (IO) Accurate information Information must be on topic Biased informunity andRelationship-oriented (RO) Use of information for communitypurposes When participating in the community,you want others to contact you Misuse of inage to the Fantasy-oriented(FO) Respect for the purpose of the virtualcommunity Lack of resabandonme Respect for anonymity and privacyNote: Community categories are taken from Kannan et al. (2000).the theory of psychological contract violation in a survey of eBayand Amazon customers. Psychological contracts form from theunderstanding buyers and sellers have of the environment. Theyexplain why users feel that the implicit contracts are violated evenwhen the explicit promises are not and vice versa. They also ndthat the psychological contract violation has a negative impacton a buyers trust of a group of sellers as do Bolton et al. (2004).Business participation in transaction-oriented communities isthe most well-adopted and understood business practice in rela-tion to virtual communities. A long-term approach to a transac-tion-oriented community requires an effort to keep feedbackscores positive. Research shows that feedback scores have a posi-tive impact on price premiums (Ba and Pavlou, 2002) and that neg-ative feedback has a stronger impact on price than positivefeedback (Bolton et al., 2004). Meeting and exceeding expectationsof these contracts will contribute not only to buyers sense of trusttoward that individual but to a group of sellers in general (Boltonet al., 2004; Pavlou and Gefen, 2005).It is a common practice for retailers to liquidate old, aging or ex-cess inventory on eBay or Often the account usedto liquidate inventory is not publicly connected to the real-worldbrand. Gefen (2000) nds that familiarity builds trust. Leveraginga real-world brand is likely to decrease or remove price penaltiesfor risk. However, the benets of lower price penalties must be bal-anced with risks of channel conict if the brand is used online.Interest-oriented communities gather users around a commontheme such as Macintosh computers (,development on platforms ( and support of prod-ucts ( A salient social contract is the exchange oftime and quality contributions for access to the information of thecommunity. Users who create accounts to access information andnever contribute may lose their account. If a user starts a threadeddiscussion that closely relates to a previous discussion, they will betold to move their comments to that previous discussion. This al-lows expert members to answer questions in one place. IndividualExamplescentage of poor feedback scores can lead to large eBay, craigslistion can cause removal of the rm from the com-sible damage of the rms reputationParentsPlace, MSDN, DellCommunityation provided by the company can cause dam-s, LinkedIn,MySpacefor the community environment can lead tof virtual stores and virtual terrorismSecond Life, World ofWarcraft, Stagecoach Islandas it is in transaction-oriented communities. The social contracteseamembers, and in some cases individual messages, are rated fortheir expertise and the quality of information they share such asin ( a user believes that advice given in an interest-oriented com-munity is tainted by nancial motives or lack of integrity, negativeintentions or lack of benevolence, or does not come from a reliablesource, indicating a lack of competence, the advice will be ignored.In worse cases, the user will be defamed or removed. Interest-ori-ented communities use social pressure and moderators to reducenegative contributions. Without close moderation, too manytainted contributions will kill the community. When participatingin the community, businesses must be cautious that postings donot appear to have ulterior motives. Posts that seem to be taintedwill damage the reputation of the business. Matching communityand business needs can help to avoid this issue. To this point it isworthwhile to consider simple participation in a virtual community.A business may also sponsor and govern an interest-orientedcommunity. Sponsoring the community means supplying techni-cal, knowledge, and administrative resources. When sponsoring acommunity, the business must dedicate sufcient resources tomonitor the community and moderate its discussions. When postscome from a sponsor, the bar of untainted information is not heldas high. Porter and Donthu (2008) nd that a belief that a sponsorwill act opportunistically does not have an effect on trust in thissituation. This is because members of a sponsored community ex-pect that the sponsor will use the community for its own purposes.Members understand the motivations of the sponsor when theyjoin the community. These pre-set expectations effectively providea different social contract.Relationship-oriented communities generally focus on real-liferelationships such as family ( or business relations( However, in the last couple of years, sites such allow, and even seem to encourage members to de-velop online relationships with community participants they havenever met. One of the most important social contracts in a relation-ship-oriented community is that, in exchange for personal infor-mation, the user is assured that the information will be usedproperly. Relationship-oriented communities rely on real informa-tion to build real relationships. Users feel vulnerable or betrayedwhen their information is used for purposes beyond the scope ofthe community. This contract also implies that contact informationis accurate. Accurate information and authenticity of contributionsare vital because users will act on the information. The user islikely to go somewhere else if she does not believe that the com-munity is capable of delivering accurate information about con-tacts or if information is not from an authentic source.The lines between these communities can blur signicantly.MySpace ( was originally designed as a rela-tionship-oriented community. Groups such as music bands beganto list their band as a person in MySpace. The creators of MySpacehave adapted this practice formally into the system. As membersmark the band as a friend, they begin to form interest-orientedgroups. Interest-oriented communities may attract people for so-cial support such as with its cancer forums.It is easy to imagine such a community developing into a relation-ship-oriented community as users come to create support groups.Fantasy-oriented communities are seeing a surge over the lastdecade with the development of MMORPGs and recent popularityof virtual worlds such as Second Life. Over one million residents ofSecond Life were active in mid-2008 (Second Life, 2008). Residentsof Second Life are allowed to play out their fantasies in the commu-nity. Entertainment in fantasy-oriented communities has beencompared to watching a movie of yourself (Clemons et al., 2007).T.J. Spaulding / Electronic Commerce ROne of the strongest social contracts in these communities is thatin exchange for time involved in the learning and participation,the virtual environment will be respected. In World of Warcraft,does not dictate that information must be perfect. Users often omitor falsify personal information. This reduces personal risk due toother community members actions because interaction cannotmove into the real world.In some cases honesty is still expected. Private information isnot generally shared in Second Life transactions, but residents stillexpect that items being sold are properly represented. When userswillingly share personal information or engage in real transactionsin fantasy-oriented communities, the lines between types of com-munities begin to blur. Users begin to need trust just as in transac-tion-oriented and relationship-oriented communities. Second Lifetransactions can have real economic implications for participantsbecause Linden dollars, the currency in Second Life, can be ex-changed into real currency.Users of fantasy-oriented communities also expect that in ex-change for their time, the environment will be interesting. Whenparticipating as a sponsor, a business must respect the desire ofthe user to enjoy the virtual environment. Wells Fargos virtualworld, Stagecoach Island, only displays the Wells Fargo logo in acouple of locations on the virtual ATMs. Stagecoach Island is opento all and provides a way for young people to learn to manage theirmoney. Wells Fargo management seems to use Stagecoach Islandas an educational service they can provide to customers and poten-tial customers more than as a marketing tool.As a participant, the business must make itself part of the com-munity. Dell Island in Second Life is an example of an elaborate andinteresting creation. Dell Island is also one of few business ven-tures that can be perceived as successful to this point in time.The Senior Online Editor for Dell and Metaverse Evangelist, LauraThomas, describes their approach and reason for this success:We wanted to come in and add to the community, bring somethingthere that people would enjoy. We tried to make sure the things webuilt there were very beautiful, that we werent just putting up uglybillboards. We wanted to add to the community and the things that al-ready exist there (Thomas, 2008).Without an understanding of the social contracts of each com-munity, businesses are likely to throw resources into virtual com-munities in an unsustainable manner. Much like the dotcom era,many companies seemed to be working on the attitude of buildit and they will come. Companies such as Coca-Cola and H&RBlock did not seem to understand the expectations of Second Liferesidents and thus did not create new and interesting entertain-ment for residents. Only after rms know how to participate with-in the boundaries of social contracts can they hope to nd benetsin participation in these communities.3. How can businesses leverage virtual communities?Virtual communities can directly support most rm activities.The potential benets of participation in virtual communities de-pend on individual rm characteristics and whether the activityis core to the rm. The value chain divides rm activities into pri-mary activities and support activities. The characteristics of thesetwo types of activities qualify them for different types of participa-whether you are human, orc, or undead, you must stick to yourrole. Besides destroying the sense of reality, by not playing yourrole, you will make playing the game difcult for others. Residentsof Second Life can quickly become offended when a third-partyshares real-life information about another resident (Carr andPound, 2007).Beyond the contract that focuses on the ability to escape reality,trust is not as vital for interaction in fantasy-oriented communitiesrch and Applications 9 (2010) 3849 41tion in virtual communities. Primary activities relate directly to theprocess of producing goods or services for sale. The major differ-eseaence between primary activities and support activities in relationto virtual communities is the feasibility of sponsoring versus sim-ple participation. Two key considerations need to be taken into ac-count in assessing the feasibility of sponsoring a virtualcommunity around a business activity. First, a critical mass of po-tential participants must be available. Because of network exter-nalities that exist in virtual communities, the value of thecommunity to any given individual increases as the number of par-ticipants in the community increases. There must be some criticalpoint at which the community is valuable enough to attract andkeep new members without external incentives. Current researchhas not yet dened the size of that critical mass. The second con-sideration is potential value for the sponsor. Support activities bynature are not directly related to the creation of goods or services.Primary activities on the other hand are directly related to goodsand services and are often part of the core strategy and capabilitiesof an organization.The following section discusses merits of participation andsponsorship in specic primary and support activities. The theorysuggests that the following primary activities are the best candi-dates for sponsorship: product development, marketing, sales,and product support. Further, under appropriate conditions, allrm activities can be candidates to benet from participation invirtual communities.3.1. Primary activitiesPrimary activities can be candidates for sponsorship or partici-pation. Firms whose customers are end consumers are more likelyto have enough participants to sponsor an external virtual commu-nity. For these consumer-facing rms product development, market-ing, sales, and support can benet from community sponsorship asdiscussed in this section. On the other hand, logistics and opera-tions management are less feasible candidates for sponsorship ofan external community because rms have fewer parties involvedin these activities. In the case of very large rms, logistics and oper-ations management may also be feasible topics around whichexternal communities may be sponsored (e.g., as the Wal-Martsuppliers discussing and solving logistics issues). For rms whosecustomers are not end consumers, product development, market-ing, sales and support may fall into the same category as logisticsand operations. These rms must be very large to have enough cus-tomers to base an external virtual community on primary activi-ties. Harley-Davidson Supply Net is considered by some to be anexample of these external communities (Schneider, 2007). How-ever, because sellers only interact with Harley-Davidson and notwith each other, it seems more appropriate to characterize it as asimple e-commerce website rather than a virtual community inwhich users interact with each other.When rms are large enough, all primary activities can poten-tially benet from internal virtual communities. However, commu-nities around logistics for a specic rm do exist. In 2003,Raytheon organized the Raytheon Integrated Community of Prac-tice to bring together the logistics of seven departments. By2005, Raytheon claimed cost savings of $50 million (BMPCE,2005). In most cases, rms are not large enough to support internalvirtual communities around logistics and operations. These activi-ties are better candidates for participation in communities focusedon general questions. Participation in an existing community canhelp rm employees answer difcult questions that arise in theday-to-day management of a rm. In an active community, rmemployees can post a question and receive answers from individu-als facing similar problems across the world. Examples of these are42 T.J. Spaulding / Electronic Commerce Rnot difcult to nd. Fleetxchange ( hasbeen operating for at least 9 years. On Fleetxchange, individualsand organizations discuss their logistics issues from devices andmachinery to opinions of shipping rms. Discussions on thesetypes of communities are not focused on an individual rm buton issues that all interested parties face, such as the effect of differ-ent mud aps on gas mileage.3.2. Product developmentProsumerism is the involvement of the consumer in the develop-ment of new products. Involving the consumer in the developmentof the product helps a rm to develop products in accordance withcustomer desires and generate hype around the product. Severalexamples including the development of a car are discussed in FranzandWolkinger (2003). New product development is an appropriatematch with interest-oriented communities. In an interest-orientedcommunity, members often want to be insiders. They want to bethe rst to know what the next product will be and what it willlook like. Participants also want to know that their input is contrib-uting to the design of products or the direction of the rm. When aparticipant sees that their ideas and suggestions create action onthe part of the company, the participant feels like an insider (Porterand Donthu, 2008).The lesson from the social contracts of the interest-orientedgroups is that these communities will remain active as long as theybelieve that the sponsor hears them and will keep them insidethe group. The rm must dedicate sufcient resources to managea community so that a representative of the sponsor can readand respond to all or most of the participants ideas. Otherwise,the community may feel betrayed and leave, or worse, expressnegative feelings towards the sponsor through the community.Microsoft setup community forums for beta testers of Windows7 ( Onthe Microsoft forum, it is difcult to nd beta users unhappy withMicrosofts response to their feedback. Off of the community web-site, beta users are concerned that Microsoft does not seem to beresponding to their feedback (Kennedy, 2009).Not all product development initiatives are sponsored. The opensource software community is an example of new product devel-opment by the users themselves (Franz and Wolkinger, 2003).One of the best-known communities is organized through Source-Forge (, which can be viewed asa group of interest-oriented communities. Each project or categoryof projects represents specic interests. Over 300,000 projects arearranged into twenty subcategories. Individual projects includeApache (a web server), MySQL (a database engine), 7-Zip (a lecompression/decompression tool), and Openbravo (an enterprisesystem). Each project has a set of forums in which programmersand users can communicate, identify problems and resolve issues.IS research has begun to explore the use of open source commu-nities for commercial purposes (MacCormack et al., 2006; Raghuet al., 2009). Research is not yet conclusive on this matter. Whenbacked by an appropriate business model, open source develop-ment of products can be protable. Red Hat is an example of a busi-ness based on open source development and has been in businessfor over 15 years (Red Hat, 2009). However, most business modelscannot support open source development. When you sell a productdeveloped under common open source licenses, you sell the codeand rights to redistribute and make derivatives of the product.The product is also available to the community to reproduce. Thiskind of product development requires business models that re-volve around support of the product or add-ons, which are notopen source.The business model Sun Microsystems had hoped to useafter purchasing MySQL in early 2008 is built on both approaches.rch and Applications 9 (2010) 3849Sun announced its acquisition of MySQL in January 2008,effectively purchasing all of MySQLs clients which pay for support,including Facebook, Google, Yahoo!, and Nokia (MySQL 2005). Theeseatransaction was completed before the April 2008 Conference onMySQL, at which time Sun announce that certain features of theMySQL system, such as backup, would become closed source inversion 6.0 (Cole, 2008). As well as an example of mixed businessmodels, this is an example of conicting social contracts. Opensource developers participate in the project with the understand-ing that they will be able to use what they are building. Developingparts of the ofcial project that are not open source threatens theposition of the development community. On the other hand, SunMicrosystems obviously feels that they have a right to developand sell extensions to MySQL. This has caused serious criticismof Sun from the open source community. In May 2008, Sun decidedthat it could not successfully follow this model and kept the wholeproject open source (Arno, 2009).3.3. MarketingVirtual communities are used for both advertising and buildingbrand loyalty. There has been some success in this area; however,marketing in virtual communities is still very experimental in nat-ure. Each type of community requires a different approach to mar-keting. In interest-oriented communities, loyalty can be built intwo ways. As discussed earlier, interest-oriented communities fo-cus their trust on the exchange of reliable and objective informa-tion. A sponsor must do its best to listen to the community andpost clear, useful, reasonably objective information. If a sponsortries to manipulate information or bulldoze community membersthat do not agree with it, members will nd the information tobe less reliable. The sponsor then risks the dissolution of thecommunity.Sponsorship of an interest-oriented support community can bea marketing tool as well as a support tool. The participants of asupport community are likely to be repeat customers if they enjoytheir experience. The sponsor will need to show effort to respondto the community either through posts, real-world action or both.Indeed, the best opportunities for a company to shine are throughearnest responses to negative criticism. A great example comesfrom the Dell Community. In an article from Business Week, Jeff Jar-vis wrote: Terminally frustrated with a lemony laptop and torturousservice, I vented steam on my blog under the headline: Dell sucks. . . .Thousands of frustrated consumers eventually commented on andlinked to my blog, saying, I agree. . . . I blogged an open letter to Mi-chael Dell suggesting his company read blogs, write blogs, ask custom-ers for guidance, and join the conversation your customers are havingwithout you (Jarvis, 2007).In response, Dell developed Idea Storm. Dell hired bloggersand technicians to answer questions and solve issues. Dells blogslinked directly to the criticism and used responses to change cus-tomer service (Menchaca, 2007). This developed into Direct2Dell( Jeff Jarvis calls Dells Chief Blogger a crediblehuman voice for a large company (Jarvis, 2007).Building loyalty through fantasy-oriented communities doesnot seem impossible, but has yet to prove very fruitful. Many Inter-net users have become desensitized to ads and do not recall seeingthem (Clemons et al., 2007). Still an item or brand may becomepopular in a virtual community, and then spill over into the realworld. This effect is not likely to be possible with most physicalproducts. Brand loyalty with respect to fashions and fads in designmay be a candidate for this kind of marketing though. Businessesattempting to build brand loyalty or advertise in virtual worldsneed to know that they must continually offer something new orfree to attract participants. Otherwise the virtual store will beempty. Many businesses that have entered Second Life have notT.J. Spaulding / Electronic Commerce Rbeen able to attract residents. According to Rose (2007), most Sec-ond Life accounts are abandoned because there is nothing new todo after you have walked around a bit.In relationship-oriented communities, it is difcult to imaginemany ways to develop brand loyalty. The example about howbands are using MySpace was already discussed. Another possibleoption is harvesting relationship information to allow businessesto nd key social actors or hubs. If a rm can entice key actors touse or sponsor their product, they may be able to build someshort-term loyalty to the product. This can be done for developingbrand loyalty and advertising. Loyalty could last as long as the keyactor continues to sponsor the product and as long as the key actorremains a key actor. If a key actor sponsors a product in too blatanta fashion though, she is likely to offend the circles in which she isrespected and lose her status. Using information this way can havenegative effects if not done appropriately. The social contract inmost relationship-oriented communities dictates that informationwill be used for the purposes of the community. Business activitiesof this nature could cause participants who have real-world rela-tionships to nd new venues or return completely to the realworld.Advertising in interest-oriented communities and fantasy-ori-ented communities has been viewed from the marketing perspec-tive as a gold mine of viral marketing. If this truly is the case, noone has discovered how to open the treasure chest. Interest-ori-ented communities are very sensitive to improper use of their re-sources. Trust is easily broken, and reputations are easily lost.Fantasy-oriented communities are not likely to look kindly on di-rect advertising if they notice the advertisements at all (Carr andPound, 2007; Clemons et al., 2007). Interest-oriented communitiesmay discuss favorite brands, product quality and other commer-cially benecial topics. On the other hand, if there appears to beany commercial participation before the discussion builds momen-tum, the topic will be interpreted as biased and of no value. GoogleGroups aggregates many community posts. It is possible that Goo-gle Groups have become less popular because many lists are pol-luted with outright advertisements. Searches for information onGoogle Groups, and thus on the many communities that it aggre-gates, often returns useless ads posted in the form of contributionsto the community discussion. This obviously has a negative effecton the community.Garrett Hardins (1968) tragedy of the commons applies to morethan the interest-oriented communities aggregated by Google.Advertising on many unsponsored communities is considered freeor almost free. Management at Second Life has banned ad farms(Krangel, 2008a). Ad farms are places where residents have builtunattractive groups of ads. MySpace friend comments are plaguedwith advertisements, which do not contribute to the discussion ofthe person or group of interest. All of these forms of spam annoyusers and make using the community for the intended purposemore difcult.Advertising in transaction-oriented communities works well fora couple of reasons. First, participants spend money. Word ads orfeatured ads can produce results as long as the participants donot mentally or technically block ads. A second form of advertisingis selling products at or below cost for exposure to the market. Theobstacle to advertising on transaction-oriented communities isthat when participants are ready to make a purchase, they are of-ten focused on exactly what they want (Clemons et al., 2007).3.4. SalesParticipation in transaction-oriented communities providesrms with access to a broader audience than is available througha physical store. However, precautions must be taken to managechannel conict. In 2002, Accenture partnered with eBay to createrch and Applications 9 (2010) 3849 43an interface for large retailers to unload excess inventory in onlineauctions (BNET, 2002). Because of channel conict issues, retailersmay decide to have a third party such as Dealtree ( in Second Life bring customers into the virtual worlds liquidate inventory for them in online auctions. Dealtreeis a specialist in liquidation management that sells excess inven-tory on eBay. However, some retailers manage their own excessinventory on eBay. Circuit City used the name TradingCircuits tomanage excess inventory on eBay.Another avor of transaction-oriented community allows con-sumers to use group-buying power to request lower prices. eS-warm (, as of Spring 2009, provided buyers aplace to express their desire for a product and price. Firms can thensearch eSwarm for customers interested in their products. Use ofthese types of communities has not yet become widespread. Thesecommunities provide consumers with lower prices and retailerswith lower acquisition costs for customers. However, retailersand suppliers are not likely to use resources to search such web-sites until there are sufcient customers in the communityexpressing a desire for their products. Customers, on the otherhand, are not likely to spend time using the website when the bestexample is the sale of putters to four customers of a swarm of se-ven consumers (eSwarm, 2008). Research on the growth of thesecommunities could point to corrections which need to be madeto make these communities mainstream.Making transactions has been attempted through other types ofcommunities. For a short period in 2006, Dell sold physical com-puters through the Second Life interface (Menchaca, 2006). How-ever, updating the information and virtual objects involved in theselling the product proved too costly for the limited sales gener-ated through Second Life. This may be possible at some future datewhen costs of conguration are lower or the demographic of a vir-tual world is more apt to make purchases through the virtual inter-face or both. Initially, the fact that Second Life residents are likelyto be computer customers made entry into this market attractive.However, Second Life was not designed as a transaction-orientedenvironment; therefore the residents were not inclined to buycomputers through the virtual interface.Clemons et al. (2007) suggests that information goods, such asmusic, may be a candidates for marketing through these interest-,fantasy- and relationship-oriented communities. One of the mainobstacles to selling in virtual communities is that it is difcult tomarket information goods without giving them away. The obviousexamples are clips of videos, songs, or individual tracks from an al-bum. Copying branded intellectual property such as clothing anddesigns in Second Life has formed a virtual black market (Krangel,2008b). A rm that wishes to sell information goods through virtualcommunities must trust that community participants are honest,be comfortable with the fact that the good may be given away, orprovide a means of protection of the good.3.5. Product supportInvolving a community in product support reduces cost, speedand loyalty advantages. When users support other users, they solveeach others problems and leave a record for further use by usersand the business. This relieves the business of some of the burdenof more traditional support mechanisms. However, some costsmust be borne by the sponsor to help the community nd answersit cannot acquire on its own. The customer can benet by obtainingimmediate access to archived material. This allows customers toconnect with other users who have dealt with the same issueand from whom they are likely to receive sympathy. As customersbecome more involved in a product support community, they arelikely to become more loyal to that product and the sponsor. Mov-ing to a different brand imposes two costs on the customer. First,switching costs of learning a new or unfamiliar product without44 T.J. Spaulding / Electronic Commerce Rthe support of the community could be daunting. Second, userswill suffer social costs in lost connections with the previous sup-port group.have interests more in line with the business objectives of the rm.3.6. Support activitiesThe nature and purpose of support activities specic to an indi-vidual rm makes sponsoring a community around support activ-ities difcult. Because support activities are internal by nature,they do not involve as many participants as primary activities. Thismakes building a critical mass more difcult. However, virtualcommunities do and have formed around support activities as theyrelate to more general processes and professions. Interest-orientedcommunities that address support activities act as centers of knowl-edge. Professional organizations or rms whose primary activitiesare delivery of support activities to other rms sponsor these com-munities. A good example of this is ( supports a group of professional human resources manag-ers and workers. Members can share information on new research,problem-solving, and upcoming conferences and events.Support staff involved in these interest-oriented communitieswill be informed in professional standards and current practices.Active participation will provide networking opportunities withindustry professionals. As knowledge about the support disciplinesadvances in order to lower costs and meet the changing needs ofthe marketplace, support staff involved in the professional com-munities will be able to incorporate those changes into their rms.For example, if an HR professional is involved in a professionalcommunity, she will know of recent changes in hiring practicesdue to legislation and litigation. That knowledge will help her todecrease the risk of a lawsuit.Open source communities make technology developmentsomewhat different than the other support activities in that thecommunity works together in production as well as knowledgeInvolving a community in product support has several implica-tions. First, a community is made of people with preferences andskills. For a product support community to be successful, the con-sumer base has to be comfortable using the computer and theInternet to nd answers in the community. If this is not the caseor if customers prefer direct communication with the sponsor, suf-cient value will not be realized. Second, product support commu-nities often cannot take care of themselves; they require attentionfrom the sponsor. Many issues can only be addressed with the helpof a specialist from the sponsor. If the sponsor does not addressthese issues, customers are likely to lose the community followingor express negative feelings toward the company. When a discus-sion continues without resolution and without technician involve-ment, community users are likely to assume the sponsor is notattentive, does not care or is purposely hiding an answer. An exam-ple of this is a discussion of a power supply issue on Dell Commu-nity Forums that was never marked as solved, but had 79 posts(Dell Community, 2007).Many uses of virtual communities are still experimental in nat-ure. See Table 2. Virtual communities continue to develop andchange. Fantasy-oriented communities currently seem too focusedon encouraging their participants to live a fantastical life to enablebusinesses to successfully use them for other purposes (Fass,2008). Part of the success of Dell and Wells Fargo in virtual worldshas been their ability to attract a new type of users to the medium.Participants who come to virtual worlds for mixed-reality meet-ings, computer support and educational purposes have differentexpectations and goals. If enough of those users join the world,they will eventually inuence expectations and social contracts.This may open up new possibilities. Stagecoach Island and Dellrch and Applications 9 (2010) 3849dissemination and networking. In open source development, allinterested parties can participate in the development of a technol-nd sg inerio:muduct- adoppexpaase ton tthamoug bprovtracg vagng bdetar iseseaogy. Indeed, many rms benet from community-developed soft-ware such as the Apache web server and do not realize it. Theseare considered special-interest communities that focus on specictechnologies. An example is PSA Peugeot Citron, the second-larg-est automobile manufacturer in Europe. The company contractedwith Novell in January 2008 to set up 20,000 Linux desktops (Nov-ell, 2007). Linux is continually updated and developed in the opensource community.Technology development is generally not conducive to sponsor-Table 2How to approach virtual communities for business purposes.CommunitytypePrimary activityProduct development Marketing aTransaction-oriented (TO)Product development has not show promise inTO communitiescParticipatinrequires a pbuilding aInterest-oriented(IO)Sponsors must: Actively listen to community participants Act in a visible way on feedback bFirms must Pick comrm pro Not over Providenity toproductRelationship-oriented (RO)Using relationship networks, rms candiscover a small group of interested customersfor participation in development and testing ofproducts bRequires: A user bconnecti Productsword ofmarketinFantasy-oriented(FO)Requires: Attracting users to product exhibits orbrainstorming sessions Understanding how participants match toyour customer base cRequires: Alwaysesting at Providin Preservinand feelia Indicates that there are examples of continuing communities.b Indicates that early trials exist and are theoretically possible, but there are stillc Indicates that this use is very experimental, has few if any industry examples oT.J. Spaulding / Electronic Commerce Rship by an individual rm whose primary purpose is not technol-ogy development. Technically a rm could sponsor an opensource project and community. However, in most cases when theproject is successful, a spinoff organization will be created or thecommunity will take the project. Open source enterprise softwareOpenbravo ( and Compiere ( are good examples. The rst, Openbravo, was begun fromtwo individuals experiences in the mid-1990s with the develop-ment of software to manage a university. Those individualsfounded Tecnicia in 2001 which later became Openbravo. The sec-ond comes from the original development of Compiere in 1999. In2006 the community was dissatised with its ability to affect Com-piere and thus created a fork called Adempiere (Adempiere, 2009).Two characteristics of the project must be considered whentrying to build a community around rm software. First, sometechnologies are specic to a rm, which makes building a commu-nity around that software impossible. The technology in questionhas to be one that rms of many sizes and types must be interestedin. Otherwise costs of maintaining the community can be prohibi-tively high. Second, some technologies may be usable by manyorganizations; however, they provide a rm with strategic advan-tage. Building a community around these systems can reduce thosestrategic advantages. As other organizations discover the technol-ogy through the community, they may use it or copy it and thus re-duce the strategic advantage of the technology for the rst rm.Participation in virtual communities in connection with theactivities of the value chain suggests several guiding principlesfor business participation in virtual communities. It also suggestsseveral valuable areas of future research. Both are discussed inthe following section.4. ConclusionsThis article has used social contracts and trust theory to help usunderstand how rms may successfully interact with a transac-tion-, interest-, relationship-, or fantasy-oriented communities.This was done from the perspective of the activities presented inthe value chain. This section discusses a few guiding principlesfor success in participation with virtual communities accordingto these theories. However, this theoretical discussion leaves someales Supportany TO communityd of reputationA pure TO community is not naturally conducive toproduct support cnities that relate tosvertiseortunity for commu-erience and discussSponsors must: Actively listen to the community Watch for unresolved issues and bring them to a con-clusion ahat feels a signicanto the brandt become popular byth and require little Difcult to apply in RO communities A mix of IO and RO communities may provide rmsopportunity to nd and train customers who arego-to people for support on their products ciding new and inter-tionslue to uservirtual environmentRequires: Resource investments to keep virtual ofces staffed Customer base already in the community Incentives for customers to join community bils to be gured out.a mismatch of community and business needs.rch and Applications 9 (2010) 3849 45very interesting and promising questions. This section ends by lay-ing out the important questions to future research on rm partic-ipation in virtual communities.4.1. Principles for practiceThe application of social contracts theory and trust theory pre-sents several principles to guide rm participation in virtual com-munities. The most important principle according to the theory ofsocial contracts is to participate in the community within the boundsof the contract. The following suggestions all t in the frame of thisprinciple.4.1.1. Participation requires an attitude of contributionThe marketing failure of businesses in the fantasy-orientedcommunities illustrates this well. The social contract of most com-munities is that each participant will add value to the communityin one way or another. In fantasy-oriented communities, that valueis the creation of something interesting or new in the context ofthe community. The build-it-and-they-will-come concept doesnot apply here. HR Block and Coke did not do well in Second Lifebecause they created a virtual presence and believed that residentswould come (Rose, 2007). On the other hand, Dell created virtualbackpacks, virtual trees, interesting architecture, historical replica-tions and mixed reality meetings. Dells Senior Online Editor, LauraThomas, used the fact that Dell has not been subject to virtual ter-rorism or other protests as evidence that Dell has been able to tinto the culture of Second life (Thomas, 2008). This success comesfrom the Dells attitude of contributing to the community. This atti-tude may stem from Dells earlier failures such as the Dell Helleseaincident (Jarvis, 2007). Dell is one of the few real-life companiesthat have kept continued and positive interaction with residentsof Second Life.4.1.2. The primary activity should not be advertisingMarketing activities in interest-oriented communities requirerespect for both the social contract and the topic of interest. Thereis a temptation in interest-oriented or fantasy-oriented communi-ties to advertise everywhere possible (Krangel, 2008a). Advertisingonly costs a business the time to post the ad. The consequence ofsuch advertising is the negative impression created by pollutingthe forums and environments with unwanted material. This is akinto automated telephone calls to a home after 9:00 pm. Such callscan create negative feelings for the company. Advertising shouldbe kept within the bounds allowed by the community. For exam-ple, Facebook includes the ability to create business pages and pro-les. Interested customers can mark themselves as a fan of thebusiness. For most businesses, simple presence is not enoughthough. Facebook also provides a pay-per-click advertising systemfor targeted ads. Participating within the boundaries set by thecommunity will allow for long-term relationships with thecommunity.4.1.3. Sponsoring a community requires resourcesThe sponsor of a community is responsible to make sure suf-cient value is found in the community to attract and keep newmembers. For example, a rm cannot assume that a support com-munity will be able to solve all support issues on its own. Effortmust be spent to nd unresolved issues and contribute to the com-munity. When implementing a product development or enhance-ment program, managers must be willing to let the communityhave a visible effect on rm action. If the community does not feelthat it is having any inuence on the brand they love, they mayleave the community and possibly lose interest in the brand. Thisis evidenced by the open source enterprise system examples. Sim-ple participation also requires resources, but often on a smallerscale. Participation in virtual communities is more like buildingstrategic partnerships than like installing ofce productivity soft-ware. To implement ofce software requires an initial cost andthen minimal support. A strategic partnership requires recognitionof the other partys needs and existence and dedication to yourcommon cause. A virtual community manager and consultant with10 years experience stated, I will keep saying it until it becomescommon knowledge communities are hard work. They take re-sources to design and plan, but more importantly, they take re-sources to maintain (Johnston, 2007).4.1.4. Be willing to experimentParticipation of rms in virtual communities is a relatively newphenomenon. We still do not have empirical answers about howrms can participate. So experimentation can play a big role in dis-covering a rms role in a community. According to Dells SeniorWeb Editor, Laura Thomas, Dells strategy has changed severaltimes during Dells time in Second Life and still provides mainlyexperimental value (Thomas, 2008). After sales through SecondLife proved unreasonable, Dell offered customer support in SecondLife and continues to offer it. Dell also successfully held mixed-reality events, in which real product launches or townhouse meet-ings are broadcast into Second Life, allowing residents to see theactivities and participate in the community. Experimentation al-lows a rm to discover the social contract and learn to work in it.4.1.5. Match business and community needs46 T.J. Spaulding / Electronic Commerce RBefore embarking on a virtual community venture, managersmust evaluate their companys business needs and how the socialcontracts of a candidate community t with the business. Forexample, some rm cultures are not open to allowing the con-sumer to effect the nal outcome of the engineers. Such rms arenot a good t with a product development community. Not everybusiness has a need to build brand loyalty in interest-orientedcommunities or sell products in a transaction-oriented commu-nity. Virtual community users all have enough technical experi-ence to participate in an online community. A rms customerbase may not match this demographic. However, there is almostalways an interest-oriented community in which rms may partic-ipate for benets in support activities. The obvious conclusion isthat not all rms are good matches to virtual communities.4.2. Implications for future researchResearch opportunities that exist in one type of communitymay also exist in the others. However, each type of virtual commu-nity presents different research challenges because each commu-nity has its own social contract. It is worthwhile to categorizeeach research opportunity according to the type of communitywhere the research is likely to have a signicant impact on indus-try and theory. Transaction-oriented communities provide oppor-tunities for research in the variation of social contracts and inthe effect of social contracts on psychological contracts. Interest-oriented communities provide opportunity for research in attain-ing critical mass and a new perspective on trust in e-commerce.Relationship-oriented communities give researchers a fertile eldfor social network research including how to appropriately lever-age different roles in the social network. Fantasy-oriented commu-nities are experimental elds for advertising and the ability of arm to affect the social contract.Transaction-oriented communities provide an environment forthe study of two questions raised by the application of social con-tracts. First, what factors cause variation in social contracts?Although trust is well studied in the context of transaction orientedsystems (Ba and Pavlou, 2002; Dellarocus, 2005; McKnight et al.,2002; Pavlou and Gefen, 2004), variation in social contracts hasnot been studied. The social contract is likely to be dened differ-ently across different types of consumers, products and communi-ties. For example, there are different communities of customers oneBay. Customers who frequently buy computer parts and suppliesmay be different from those purchasing automobiles. Financial riskto participants purchasing automobiles is greater than the riskfaced by those purchasing computer parts. The social contractmay therefore require that descriptions in automobile auctionsare more thorough and that the bidder may have access to the itemupon request. Differences also exist in the method and speed ofpayment, shipping and returns.What is standard in one communitymay not be standard in another community. This complexity canmake entry into transaction-oriented communities difcult.Research on the variation of social contracts across differentcharacteristics of communities will provide theoretical and empir-ical evidence on how businesses can most successfully participatein transaction-oriented systems. Many anecdotal rules exist forhow to participate successfully in transaction-oriented communi-ties. Studying how product, consumer, and market characteristicsaffect the social contract can provide theoretical and empiricalfoundations for heuristics of participation in transaction-orientedcommunities. Research in online auctions has covered feedbackmechanisms, text comments, escrow services, and psychologicalcontract violation in an environment where the social contract isstatic (i.e., Ba and Pavlou, 2002; Dellarocus, 2005; Pavlou and Ge-fen, 2005). Indeed, prior research depends on social contracts beingthe same across all observations. Understanding how social con-rch and Applications 9 (2010) 3849tracts vary is the next step in expanding and understanding howsocial contracts apply to IT. This understanding will also lay thefoundation for evidence-based guidelines for practice.eseaThe second question is what is the nature of the relationship be-tween social contracts and psychological contracts? The theory ofsocial contracts describes a group phenomenon. In a transaction-oriented community such as eBay, part of the social contract maybe that immediate payment upon winning an item is a show oftrust. Buyers then expect sellers to react quickly and positively inshipping and issue resolution. Psychological contracts refer to theexplicit and perceived implicit promises of an individual transac-tion (Kaufman et al., 2005). A buyers expectation that the sellerwill respond quickly to issues after shipment of a specic item be-cause the buyer made immediate payment is part of a psycholog-ical contract. A new buyer may not be aware of the social contractandmay thus hold off payment until requested by the seller or maynot participate at all because of perceived risk. It is likely that psy-chological contracts come into agreement with social contracts asthe participant gains more experience in community and thuscomes to know the social contract.Interest-oriented communities should be studied as both a phe-nomenon internal to the rm and external to the rm. One of themost difcult challenges in creating an internal community isreaching a critical mass. Costs of launch and maintenance of thecommunity are higher when reaching a critical mass is slow. Thecosts of creating and administering these communities can beimportant because the benets of these communities are loweringcommunication costs. What rm characteristics enable reaching acritical mass? Is the required size of the critical mass smaller in thecontext of certain rm and employee characteristics? Partial an-swers to these questions can be found in previous work in inter-est-oriented communities. However, previous research focusesmore on encouraging the contribution of individuals (Ma and Agar-wal, 2007) and handling lurkers and trolls rather than reaching acritical mass (Preece et al., 2004). Of course, if participants of acommunity are more likely to lurk or act as trolls, a larger criticalmass is required to produce value in the community that will at-tract and keep new members.Research on business participation in external interest-orientedcommunities must reverse a perspective taken in transaction-ori-ented community research. Most research related to transaction-oriented communities focuses on buyer trust of a seller (Ba andPavlou, 2002; Dellarocus, 2005; Dellarocus, 2006; Gefen, 2000) orbuyer trust of the whole community of sellers (Bolton et al.,2004; Pavlou and Gefen, 2004, 2005). In interest-oriented commu-nities, business outcomes focus on business reputation, marketing,or customer loyalty instead of individual transactions. Therefore,rms must know how to manage trust and reputation with thewhole community. How do the expectations of rms changedepending on their role in the community or place in the socialnetwork? Research has already shown that when the sponsor par-ticipates in a community though content contribution, the socialcontract is more lenient (Porter and Donthu, 2008). It may be ex-pected that individuals representing a rm would be expected todisclose their afliation in every post or when giving advice. Insome social positions on the periphery of the network, rms maybe required to make quality contributions which do not directlypromote rm services or products. Knowing which roles are mosttrusted and which are most lenient to advertising in interest-ori-ented communities will enable business to participate effectivelywithout offending or harming a community.A third area of research in interest-oriented communities is so-cial contract engineering. Firm have several methods that may befeasible to affect the evolution of a social contract. First, a sponsorrm may include seeds of the social contract in a user agreement.Second, simple participation in the community may affect the so-T.J. Spaulding / Electronic Commerce Rcial contract, especially if the rm is the rst rm to enter the com-munity. Actions of the rm during this time may set precedence forhow similar users will participate or if the community will allowsuch users into the community. Finally, rm participation in a vir-tual community may attract customers to the community. Undercertain circumstances, these new users will affect the developmentof the social contract.Relationship-oriented communities provide opportunity for viralmarketing through interpersonal relationships. However, a com-munity does not always pick up on a rms product without any ef-fort on the part of a rm. Using social networking techniques rmsmay locate important community members. They can then offerthose members goods, services, or special treatment in exchangefor reviews of those goods and services. Comments that are judgedto have different levels of bias may have different effects on thestanding of the member that made the comments. The feasibilityof this kind of activity is largely unknown. Before recruiting com-munity members to introduce a rm into the community, the rmshould know the effect of such actions on the standing of the mem-ber in the community.The record left by relationship-oriented and interest-orientedcommunities can also be used for market research. For example,Kozinets (2002) collected data over 33 months from a communityof coffee lovers. Without the record of the virtual community, thisprocess is time-intensive, requiring the researcher to read the titlesof each thread of discussion. Using automated collection agents,market research could become much more efcient. Such agentshave been used to collect large amounts of data to understandmarket mechanisms in online auction research (Kauffman et al.,in press; Wood and Kauffman, 2005). Such agents can be used toenhance research in social contracts. Internet agents used to collectinformation from virtual communities should follow standard eth-ics (Allen et al., 2006) and design principles (Kauffman et al., 2000).The data collected can then be used in design science work to de-velop market research tools.Fantasy-oriented communities are still relatively new. Current re-search and business use of fantasy-oriented communities is veryexperimental in nature. Research on fantasy-oriented communitieshas begun to appear in IS conferences and practitioner-oriented lit-erature (Clemons et al., 2007; Kim et al., 2008; Parise and Guinan,2008). A couple of interesting questions arise given the social con-tract to respect the environment of the online community. First, ifwe assume that participation in fantasy-oriented communities willbroaden to include target advertising audiences, we can ask whattype of advertising in fantasy-oriented communities will be suc-cessful. Anecdotal evidence suggests that some Internet users donot see traditional ads when they are placed on search pages. Itis possible that ad space in fantasy-oriented communities may bepractically invisible to users immersed in the fantastical experi-ence. If an ad can become part of the experience, it is much morelikely to produce positive results. In 2006 Toyota opened a dealer-ship to sell virtual Scions in Whyville and Second Life (Goodstein,2006). Residents could customize the cars and drive their friendsaround in them. Though this kind of advertising provides namebrand recognition, it is not exactly experiential advertising. A res-ident cannot actually feel how the car drives, taste the soft drink orsee how the jeans t. Experiential advertising in fantasy-orientedworlds may be limited to information type goods. Researchersshould design effective business activities around these types ofmarketing strategies.Second, can the activities of a business change the social con-tract? The largest obstacle to using fantasy-oriented worlds is thatresidents do not wish to participate in real-life activity and oftenare not of the same demographic as rm customers (Clemonset al., 2007). Dells use of Second Life for technical support and tohold mixed reality meetings attracts new residents with differentrch and Applications 9 (2010) 3849 47expectations. When users join Second Life with the purpose ofinteracting with a rm, they are using the virtual community asa meeting place rather than an immersive fantasy. Dell can theneseaproduce real-world benets from the virtual community such assolutions to customers technical questions and improved atten-dance at town hall meetings. Firms may be able to change the so-cial contract by simple participation and patience. If this is feasible,real-world rms could draw real value from participation in fan-tasy-oriented communities.4.3. Concluding commentsResearch on business use of virtual communities has the poten-tial to be both timely and timeless. Many businesses are currentlyfailing in their attempts to use virtual communities. After 2 years ofactive coverage of Second Life events, Reuters is pulling out of Sec-ond Life (Pasick, 2009). The Gartner report on social technologiesputs the public use of virtual worlds near the bottom of the troughof the hype cycle (Gartner, 2008). Now is the time to lead industryin nding answers to the question of how businesses should partic-ipate in virtual communities. For rms to succeed in using virtualcommunities they must respect social contracts. On the one hand,social contracts enable businesses to participate in communities.On the other, they can limit what activities are feasible. Participat-ing according to the communitys social contract allows the busi-ness to develop trust with the community.AcknowledgmentsI thank my doctoral colleagues Degan Kettles, Yong Jick Lee, ArtiMann, Daniel Soper, Hina Arora, and Aaron Baird for their thought-ful input and reviews. Especially, I thank the special issue co-edi-tors, and Rob Kauffman for his direction and input throughoutthe development of the ideas and paper. I also acknowledge the in-put from Laura Thomas at Dell inc. and Steven Angelo at Linden Labfor their valuable input.ReferencesAdempiere. Project charter; 2009. . Adempiere community website (last accessed on 07.09.09).Akerlof, G. A. The market for lemons: quality uncertainty and the marketmechanism. Quart J Econ, 84, 3, 1970, 488500.Allen, G. N., Burk, D. L., and Davis, G. B. 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How Madison Avenue is wasting millions on a deserted second life. Wired;July 24, 2007. (last accessed on 07.09.09).Rousseau, D. M. Psychological contracts in organizations. Employee ResponsibilRights J, 2, 2, 1989, 121139.Rousseau, D. M. Psychological contracts in organizations. Sage Publications, ThousandOaks (CA), 1995.Rousseau, D. M., Sitkin, S. B., Burt, R. S., and Camerer, C. Introduction to special topicforum. Acad Manag Rev, 23, 3, 1998, 393404.Rousseau JJ. The social contract; 1762. (last accessed on 07.09.09).Schneider, G. Electronic commerce, 7th ed.. Thomson Course Technology, Boston(MA), 2007.Second Life, 2008. Economy statistics. (last accessed on 07.09.09).Smith, M. A. Communications in cyberspace. Routledge, New York (NY), 1999.Thomas L. Personal interview. Senior online editor. TX: Dell Inc., Round Rock; 2008[April 23].Vivendi Annual nancial report and audited consolidated nancial statements forthe year ended; 2007 [December 31]. (last accessed on 07.09.09).Wood, C. A., and Kauffman, R. J. The effects of shilling on nal bid prices in onlineauctions. Electron Commer Res Appl, 4, 1, 2005, 2134.T.J. Spaulding / Electronic Commerce Research and Applications 9 (2010) 3849 49How can virtual communities create value for business?IntroductionTrust and social contracts in virtual communitiesSocial contracts and trust in virtual communitiesSocial contractsTrustTypes of virtual communitiesHow can businesses leverage virtual communities?Primary activitiesProduct developmentMarketingSalesProduct supportSupport activitiesConclusionsPrinciples for practiceParticipation requires an attitude of contributionThe primary activity should not be advertisingSponsoring a community requires resourcesBe willing to experimentMatch business and community needsImplications for future researchConcluding commentsAcknowledgmentsReferences


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