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Title: Net Gain
Authors: John Hagel III and Arthur G. Armstrong
Publisher: Harvard Business School Press
Copyright: 1997
ISBN: 0-87584-759-5
Pages: 243
Price: $24.95
Rating: 94%
When it comes to gathering and using information, industry has long held the advantage over consumers because of businesses’ centralized data stores and well-defined communication channels. The Internet has helped close the gap by giving consumers the ability to establish forums (such as chat rooms and newsgroups) to exchange information, opinions, and news about companies and their products.

Net Gain’s authors, who are both with management consulting firm McKinsey & Company, argue these nascent groups can and will be transformed into “virtual communities” with five defining characteristics:

  • Distinctive focus
  • Capacity to integrate content and communication
  • Appreciation of member-generated content
  • Access to competing publishers and vendors
  • Commercial orientation

In addition to these defining elements, the authors argue virtual communities will help establish what they term “reverse markets”, where consumers use their access to vendors to solicit bids for desired products and services. This practice is common among businesses but has been rare (though less so as time goes by) in the consumer market.

Hagel and Armstrong spend a lot of time on the economics of virtual communities, arriving at the unsurprising conclusion that companies which begin developing virtual communities before their competitors will have a significant advantage. One consideration is that consumers will become accustomed to (and have developed relationships with other members of) a particular Web site. Other community organizers can try to win over members of other groups, but virtual communities that are able to earn member loyalty should weather the storm. Another factor is that, at least for the short term, Web developers, system administrators, and sysops (chat room moderators) aren’t getting any cheaper. Add in that established communities will have had more time to work out hardware, software, and procedural bugs and the early entrant’s advantage is obvious.

Part II of Net Gain offers overviews on how to launch a virtual community and aid its growth. I particularly like the authors’ metaphor of a gardener seeding, feeding, and weeding the ground under his care; it implies the ability to choose which elements go into a community as well as the responsibility to ensure the “garden” develops in a healthy manner. The four chapters in this section should be required reading for anyone who wants to develop a virtual community.

Consumer advocates (and individuals concerned about personal privacy) may worry about the commercial nature of virtual communities and the possibility of the community organizer gathering, analyzing, and selling data about community members and their transactions. Net Gain does advocate collecting and analyzing user profiles, but the authors admonish organizers to gather data with member interests in mind and use a combination of member fees, advertising revenue, and transaction commissions to generate income. Information harvesting will, however, be offset by the relatively increased power of the individual vis-a-vis the community organizer. Should the information requirements in one place be too stringent, consumers will be free to move to other communities with practices to their liking.

Though not a “how to” book per se, Net Gain offers developers a solid framework to use when building virtual communities. By growing a community and respecting its members as a careful gardener would watch gently over his flowers, businesses will be able to capitalize on the increased power of the consumer in the online world.

Curtis D. Frye (  is the editor and chief reviewer of Technology and Society Book Reviews.  He worked for four years as a defense industry analyst at The MITRE Corporation in McLean, VA, and is the author of Privacy-Enhanced Business, from Quorum Books.