The virtual community is primarily a forum for members to freely exchange information, but it also provides commercial benefits to the members and the sponsors. It is important for the sponsor and other participating vendors to understand the characteristics of virtual communities to effectively exploit the potential of these communities. Some of the characteristics are described below:

Collective Knowledge: A virtual community in australia represents the collective knowledge and information available to the members in the particular subject of charter of the community. Virtual community educates its members as well as allows exchange of views and ideas among members. Over time, the virtual community will emerge as the most authoritative and influential source of knowledge about the products and services related to the area of the community. For example, SeniorNet ( is a virtual community of senior citizens would like to enhance their lives and share their knowledge and wisdom. This community may prowho bably be the best source for information about “Retirement options”, “Old Age Health Issues” and “Veterans”. Citibank Channel, a virtual community sponsored by Citibank ( may be one of the best sources to know about various financial products and services.

Economics of Increasing Returns: Virtual communities have economics of increasing returns, with a pattern of low revenues during the initial period, gradually increasing revenues as membership builds up and a sharp acceleration of revenues beyond a threshold level called the “critical mass” (Hagel et al., 1997). Though the initial investments are likely to be made in an environment of uncertainty and risk, as the membership builds and the credibility of the community gets established, the commercial benefits to be reaped are very attractive. Virtual communities display increasing returns due to marginal cost effect, learning curve effect and network externalities effect.

  1. Marginal Cost Effect: An initial investment is needed to start the virtual community. Usually, this investment is for Web site development and allocation of site management resources. With each additional membership, the cost of adding and servicing the new member decreases. The cost of setting up additional communities also gets reduced as assets and other resources are shared. This effectively increases the returns from each additional member. The reduction in costs and the increase in revenues become significant beyond a threshold membership level.
  2. Learning Curve Effect: The learning curve benefits start accruing when more members are added and the sponsor gain experience in maintaining the virtual community. The learning also reduces the cost of building additional communities, whereas the benefits increase.
  3. Network externalities effect: In a network, or any group activity, the more units are aggregated and connected, the more valuable each additional unit becomes. Thus if there are n members in a community, a new member increases the interactions in the community by n, as each member can now interact with the new member. Thus the potential for creation of knowledge content increases proportional to the current size of the community. Further, each new member brings value to the community by

(a) having access to a larger knowledge base to generate content, and

(b) providing content to benefit a larger base of members, thus generating more content from their feedback.

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