A Sense of Belonging

Product-led communities foster authentic connection and the pursuit of shared goals, which can be valuable to companies, as well as society.

Part 2 of 3: A breakdown of existing models; how companies are building product-led communities.
You may also want to read Part 1: What is a product-led community and why is this happening?

By Shripriya Mahesh, Sara Eshelman, and Stephen Wemple

In our last piece, we talked about how a number of radical societal and economic shifts in the past two plus decades have led us to redefine where we seek community, as well as what we expect from the brands with which we interact. A number of companies are deftly leveraging this disruption by offering authentic human connection via a new kind of social construct: product-led communities.

While still early in their development, product-led communities are already showing promise as effective methods to improve user experience, deepen engagement and foster brand affinity. In this piece we’re going to break down some of the models we see, and discuss some of the pros and cons of each approach.

Community archetypes
In our research, we identified three archetypes for communities: 1) community is the core value proposition, 2) constituents create the core value proposition, community enhances it; and 3) companies create the core value proposition, community enhances it.

1. Community as the core value proposition
   These companies create connections among individuals, usually around a shared goal. Connections may be one-on-one or group; based on real or partial identities, or anonymized; foster longer-term relationships, or make one-time connections. Companies in this segment are most similar to Social 1.0/2.0 companies Facebook, Linkedin, or WhatsApp.
   They go far beyond just collecting people; they organize them, curate small groups, match people based on interests or needs, and facilitate unique interactions that wouldn’t happen otherwise. In this model, the users are the product. If all the people vanished, there would be no product: try to imagine Facebook without profiles; Meetup without people to gather; Bumble without potential dates; or Lunchclub without lunch companions.
   As a result, community as core value proposition companies can be very hard to get started; require large-scale adoption and engagement; and are often unpredictable. In other words, they need to capture lightning in a bottle. Once they get going, they can scale exponentially and rapidly; demonstrate strong network effects; and be very hard to unseat.
2. Constituents create core value proposition, community enhances it. These are tools or platforms that enable the creation of a product by a group of users. Unlike the first example, users come to engage with a product or service, rather than a community of individuals (though this may happen as a byproduct). The product is often, but not exclusively, content (typically user-generated) or commerce (marketplace). These two subsegments behave differently because of their business models: UGC platforms often resort to ad-based models; marketplaces usually take a cut of transaction value — this model leads to more alignment between platform revenue/growth and user experience quality.
   Similar to our first example, community creates product companies require critical mass to get going. However, they do not necessarily require the same deep, frequent engagement from every user because the content that users create can live on regardless of whether the user is still active.
   The key difference between this category and the first is that if users of a platform such as Facebook or Linkedin become inactive, their value erodes over time. By contrast, if a Quora user answers only one question well, that answer can continue to deliver value for others indefinitely.
3. Product creates core value proposition, community enhances it
   These are product-led communities — companies that offer users products and services that they value. They do not require community to exist or make money; but community done well meaningfully enhances the user experience. One of the original examples of this is Starbucks, which, of course, sells coffee, but built its business around being the “third place” where people gather and connect.
   Unlike the above two archetypes, the value proposition should be clear regardless of whether there is a community in place at the start. Community can become a source of defensibility and drive stickiness; it may also improve unit economics by making customer acquisition more efficient and/or offsetting cost of goods sold.

We believe the great social networks and user generated content platforms (archetype 1 and 2a) of our time have missed the mark in delivering enduring and authentic community to users as they’ve grown. This is primarily because they chose ad-based business models, which incentivize broad communities and connections, frequency of use, and data capture. Products are designed to lure as much of a user’s contacts, time, attention and clicks as possible — which, of course, rarely aligns with the best interests of users.

As well-intentioned as they may be, community-oriented platforms that generate the majority of their revenue from ads will inevitably face tradeoffs between revenue growth and the quality of the customer experience, which eats away at the sanctity of the community. To capture the multipliers true communities can create, companies must weave community into every fiber of their business — including their business model.

The next generation of online communities will not face tradeoffs between creating authentic community and monetizing it.

In contrast, fee for service, subscription, and marketplace (archetypes 2b and 3) business models only succeed when the user is satisfied with the product or service delivered. To create long-term value, companies must continue to create substantive, differentiated value for the end customer; community is an underutilized, effective and defensible way to do so — not superficial community, but authentic, intentional community.

Because of their business model, product led communities are better suited to build meaningful communities that deliver value to both shareholders and society.

In our next piece in this series, we’ll share some case studies of companies that are successfully leveraging product-led communities.

Meanwhile, if you’re building a company that’s going after this opportunity, we hope you’ll reach out. In addition to investing in these kinds of businesses, we’re also planning related events throughout the year. If you’d like to join us, please email us.

Read Part 3 of 3: What do product-led communities look like? A sampling of case studies.