economic leverage of the virtual community

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The Economic Leverage of the Virtual Community

Author(s): Sridhar Balasubramanian and Vijay MahajanSource: International Journal of Electronic Commerce, Vol. 5, No. 3, Marketing in the E-Channel (Spring, 2001), pp. 103-138Published by: M.E. Sharpe, Inc.Stable URL: http://www.jstor.org/stable/27750984 .

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The Economic

Leverage

of

the

Virtual

Community

Sridhar

Balasubramanian

and

Vijay Mahajan

ABSTRACT: The virtualcommunityrepresents ne of themost interestingevelopments

of

the

information

ge.

There

has

been much

popular

discussion

of the conomic

poten

tial

f virtual

communities,

but little

empirical

evidence of

successful

economic

leverage.

Beginning

with

some

background

on

virtual

communities,

this rticle

reviews

theoretical

perspectives

applicable

to

their

management

and

economic

leverage,

presents

n

appro

priate

conceptual

framework

o

support

such

leverage,

and

concludes

with

some mana

gerial guidelines

for

uccessful

implementation.

he

article's

primary

thesis

s

that conomic

activities

ssociated

with

the

virtual

community

must

not

merely

concide

with

its

ocial

interactions,

ut

be

embedded

within

them.

KEYWORDS AND PHRASES: Economics of communities, individuals incommunities,

social

exchange,

virtual

communities.

Assumptions

and

practices

that

have

long

anchored economic

activity

are

being

challenged

in

the

emerging

information-intensive

environment.

A

parallel

transformation

has

occurred

in

the

fabric of

society,

with

the

establish

ment

of

infrastructure that

supports

virtual

social

interaction

of

various

kinds

(e.g.,

via on-line

forums

and

chat

rooms).

All of

these

developments

have been the

subject

of

much

popular

comment

and formal

research. Devel

opments

related

to

economic

activity

have been

studied,

for

example,

in

the

context

of

market

structure, competition,

consumer

behavior

in

interac

tive

settings,

and the

design

of

e-business

organizations,

processes,

and

strategy.

Similarly,

virtual social

interaction has

been studied

from

so

ciological, psychological,

political,

and

anthropological

perspectives.

In

fact,

it has been

argued

that

the

role

of

the


environ

ment

in

stimulating

social interaction and

community

is

more

important

than

its

economic

implications

[52].1

While

inquiry

proceeds

energetically

(but,

by

and

large,

independently)

in

the economic

and

sociological

research

arenas,

there

is

a

growing

realization

that

the

divide between

the

economic and social

domains of

action

are

fre

quently blurred inan information-intensive environment [23].However, from

both research

and

the

managerial

standpoints,

relatively

little

is

known

about

how economic

and

social

objectives

and

activities

can

be

integrated,

and

by

extension,

about how the economic

leverage

of

the virtual

community

can

be

achieved.

(Economic

leverage

is

defined

here

as

the

utilization

and

integra

tion

of the social

interaction within

the

virtual

community

to

support

profit

oriented

markets

with formal

exchanges

of

goods,

services,

and

money.)

Against

this

backdrop,

the

primary

purpose

of this

paper

is

to

explore

whether, when,

and how the virtual

community

can

be

leveraged

for

eco

nomic

purposes.

Toward this end, thepaper seeks answers to the following set of questions:

Research

funding

from

theCenter

for

ustomer

Insight

(CCD

at

theMcCombs

School

of

Business is

acknowledged.

International

Journal

of

Electronic

Commerce

/

Spring

2001,

Vol.

5,

No.

3,

pp.

103-138.

Copyright

?

2001

M.E.

Sharpe,

Inc.

All

rights

reserved.

1086-4415/2001

$9.50

+

0.00.







204

SRIDHAR BALASUBRAMANIANAND

VI]AYMAHAJAN

1.

In

the

context

of

economic

leverage,

how should the

virtual

commu

nity

be

conceptualized

and

defined?

For

example,

what

are

the

appropriate

assumptions

regarding

the

behavior and

objectives

of

community

constituents?

2.What

existing

theoretical

perspectives

can

aid

in

managing

virtual

communities

in

the

social

context,

and

leveraging

them

in

the

eco

nomic

context?

A

challenge

encountered here

is

that

the relevant

perspectives

are

scattered

across

domains

of

inquiry,

including

economics,

marketing,

sociology,

and

anthropology

3.

Finally,

from

a

managerial

viewpoint,

what

conceptual

framework

can be applied to guide the organization and successful economic

leverage

of virtual

communities?

The economic

potential

of

virtual

communities has

been discussed with

much

hope

(and

some

hype)

in

the

popular

literature.

Rosenoer,

Armstrong,

and

Gates

use

the

metaphor

of

a

historic virtual

migration

to

describe the

virtual

community, stating

that,

like all

great

movements

of

people,

it

is

ripe

with

commercial

opportunity

[58,

p.

107].

According

to

Dyson,

running

online communities will

become

a

big

market

in

the

long

run

[17,

p.

46].

Hagel

and

Armstrong

believe that vendors with fore

sightwho organize virtual communities will be richly rewarded with both

peerless

customer

loyalty

and

impressive

economic

returns

[23,

p.

2].

In

contrast to

these enthusiastic

prognostications,

empirical

evidence

regarding

the

economic

potential

of

the

virtual

community

has

been,

at

best,

mixed.

To

date,

even

communities with

high

levels of

membership

and

vibrant

social

arenas

have had

to

struggle

to

establish financial

viability

(e.g.,

iVillage.com,

iTurf.com).

To

place

the

economic

leverage

of

the virtual

community

in

perspective,

it

must

be

acknowledged

that

the

integration

of

social

and

economic

pursuits

has

long

occurred

in

settings

bereft

of

advanced

technology.

Mumford de

scribes the

agora

of ancient Greece as a demarcated

space

outside the

city

that

was

publicly

held,

was

open

to

travelers,

and

acted

simultaneously

as

mar

ket,

as

place

of

assembly,

and

as

festival

place

[44,

p.

176].

Similarly, Lipnack

and

Stamps

reason

that

early

in

human

existence,

networks of

toolmakers,

fire

starters,

cave

painters,

mammoth

hunters,

and

sign

speakers

must

have

organized

into social

support

systems

to

cope

with

personal

and collective

survival

[35].

More

contemporaneously,

the

integration

of

social and economic

pursuits

occurs

in

commonplace

settings ranging

from the

expansive

envi

ronment

of

themodern mall

to

the

more

intimate

ambiance

of

neighborhood

stores

[15].

To

facilitate the

economic

leverage

of

the

virtual

community,

a

deep

under

standing

of

the economic

and social motivations of the

participants

is

required.

Members

of

virtual communities

are

often

not

geographically

proximate

and

are

rarely

associated

by

ties

based

on

personal

relationships.

Hence,

perspec

tives

on

physical

communities

provide only

limited

insights,

and

a

separate

ex

amination of

the virtual

community

in

the

setting

of the

virtual

economy

is in

order.







INTERNATIONAL

JOURNAL

F

ELECTRONIC COMMERCE

105

Background

on

Virtual Communities

The origins of the virtual community can be traced to the Electronic Informa

tion

Exchange System

(EIES)

implemented

in

1976.

The

EIES

focused

on com

puterized

conferencing

that

would

allow

humans

to

exercise

a

collective

intelligence

capability

[32].

Originally designed

to

coordinate

dispersed

re

search

communities,

EIES

foreshadowed

related

developments

like

the

Par

ticipate

conferencing

system.

Similar

to

searchable

information

caches

on

the

Internet,

Participate

involved

creating

discussions around

questions

that could

later be accessed

and

searched.

These

early developments

were

confined

to

the

scientific

community.

In

the

late 1970s the

networking

of

personal

computers

via

modems

led

to

wider

participation

in these virtual discussions. The Bulletin Board

Systems

(BBSs)

were

early

manifestations

of

virtual communities.

As noted

by

Kitchin,

BBSs

were

important

because

they

were

the

forerunner

to

general

file

sharing

and

public

access

services,

and

represented

the

beginnings

of

wider

public

par

ticipation

[32].

Usenet

and

Fidonet

were

particularly

influential

communica

tion

networks based

on

BBS-related

technologies.

In

turn,

these

developments

led

to

larger

networks of connected

users,

but

the

intensity

of

user

involvement

was

largely

confined

to

the volume of

com

munication.

In

parallel,

though,

computer

communities

that

emphasized

the

depth

and

quality

of

user

involvement

were

being developed.

Foremost

among

these

were

attempts

to create

game-playing experiences through

interactive,

textual

interfaces.

The

resulting

Multi-User

Dungeons/Domains

(MUDs)

al

lowed

players

to

participate

in

a

virtual

world

by

creating

an

identity, explor

ing

the virtual

environment,

conversing

with

others,

and

encountering

and

solving

virtual

challenges.

While

MUDs

were a

rudimentary

form of virtual

reality,

most

other

efforts

to

create

virtual

worlds

proceeded independently

of

the

Internet. For

example,

data

gloves

and virtual

body

suits that translated

thewearer's

movements

into actions

in

a

virtual

world aimed

to create

a

rich

environment

for the

single

user,

rather

than

a

virtual,

multiuser

world.

The

rich

perceptual experience

of

personal

virtual

reality

is

only

now

being

com

bined with

the

large-scale

networking

facilitated

by

the Internet. Web

sites,

MUDs,

and

interactive

groups

based

on

Virtual

Reality

Modeling Languages

(VRML),

Java3D,

and X3D

offer the

promise

of

realistic

Internet

experiences.

These

rapid developments

pose

a

special problem

for

the

discussion

in

this

paper.

It

is

difficult

to

predict

what the

virtual

community

will look like

even

a

few

years

hence. All

predictions

stand

a

fair

chance

of

being

off the

mark,

and

are,

in

any

case,

of

limited immediate value

to

researchers

and

managers.

Yet,

to

be

of

enduring

intellectual

value,

the

analysis

must

be based

on

argu

ments

that

are

not

dependent

on

specific

technological developments.

This

paper is, therefore,not about the future of virtual communities, but about the

fundamental

human

motivations

that

anchor

virtual

communities,

and

about

how these motivations

can

be

leveraged

in the

economic

context.

Existing

Perspectives

on

Virtual

Communities

Well before

the

advent

of

the

virtual

community, sociologists

were

sensitive

to

the

impact

of

the

industrial

society

on

interpersonal

relations. Wirth's

early







206 SRIDHAR

BALASUBRAMANIAN

AND

VI]AYMAHAJAN

observation

that

interpersonal

relations

in

urban,

industrialized

settings

are

imperfect, superficial, transitory,

and

segmental

set

the

tone

for

community

studies

in urban

settings

[75,

p.

12].

However,

urban

studies later re-estab

lished the

importance

of

local social

ties

[69].

While these

arguments

are

po

tentially

conflicting,

Beggs,

Haines,

and

Hurlbert

note

that

in

each

case,

community

entails

not

only

social

solidarity,

but

spatial

proximity

[4].

Ac

cording

to

Wellman,

attention then

expanded

beyond

local

spatial

confines

and

shifted

to

interpersonal

ties within

aspatial

communities,

leading

to

a

search

for

ties

wherever

located

and

however

solitary

[73,

p.

1202].

While

the notion

of

space

was

de-emphasized,

the

other

considerations related

to

the notion of

community

persevered,

as

reflected

in

Campbell's

characteriza

tion of community

as

harbored inpersonal networks thatmay be far flung,

rather

than in urban

villages

of

neighborhoods

[12,

p.

140].

However,

it is

doubtful

whether

even

such

an

aspatial

reinterpretation

sufficiently

captures

the

nature

of

the

modern virtual

community.

In

discussing

virtual

communities,

Dyson

defines

a

community

as

the

unit

in

which

people

live,work,

and

play

[17,

p.

31].

She

argues

that

as

the

world

becomes

increasingly complex,

people

seek

community

for

fellowship

and

security.

The Internet

is

an

enabling

technology

that

supports

the human

in

teraction

required

for

community

formation.

Dyson

does

not

explicitly

differ

entiate

the

virtual

community

in

terms

of

capabilities

or

purpose

from the

traditional community. Interestingly, she interprets community as a shared

asset

created

by

the

investments

of

its

members.

Virtual

communities have often

been

described

as

manifestations of

ad

justment

and

adaptation

to

the

perceived

difficulties

of

the

real world

[57].

Such

views

often

ascribe

Utopian

characteristics

to

virtual

communities. For

example,

Benedikt views

virtual

communities

as

representing

a

world

of

en

lightened

interaction, form,

and

information

[5].

Other

enthusiastic

reflections

about

virtual interaction

and

community

include

visions

of

a

global

civil soci

ety

with

a

distributed

consciousness

and

a

place

where

people

can

rebuild

the

aspects

of

community

that

were

lostwhen the

malt

shop

became

the

mall

[55],

or of a common culture whose specialized meanings allow the

sharing

of

imag

ined

realities

[54],

or

as

an

extended

family

[72],

or as

a

worthy replacement

for

the false notion that

a

community

comprises

geographically

defined units

with atomized

individuals who

share little

common

historical

consciousness

or

beliefs

[38],

or

attempts

to

retribalize in

a new

space

that

results

in

net

works of social

relations

that

are

not

tied

to

the

notion

of

place

[70],

or

of

flexible,

lively,

and

practical adaptations

to

the real

circumstances

that

con

front

people

seeking

community

[68].

Such

exhortations

have been

criticized.

More

pessimistic

(or

realistic,

ac

cording

to

one's

viewpoint)

evaluations have

offered

contrasting

views.

For

example,

Sardar

argues

that communities are

shaped by

a sense

of

belonging

to

a

place,

common

struggles,

tradition,

and

history,

and

not

merely

by

col

lecting

people

with

common

interests

[59].

Sardar also

reasons

that

since

vir

tual communities

are

self-selecting,

they

are

likely

to

be

contingent

and

transient.

Gray

notes

that the idea

of

virtual communities

embodies

the

fan

tasy

that

we can

enjoy

the

benefits

without the

burdens of

maintaining

hu

man

connections

intact

[22].

Other

criticisms

are

reflected

in

arguments

that







INTERNATIONAL

JOURNAL

F

ELECTRONIC

COMMERCE 107

techno-sociality

is

(wrongly)

seen

as

the

basis for

developing

new

and

com

pensatory

forms

of

community

[57],

that

meaningful personal

ties

cannot

be

developed

without

personal

interaction

[41],

that the

social

and

technological

benefits

of

cyberspace

are

touted

with the

ultimate

objective

of

exploiting

con

sumers

[76],

that

stable,

reliable communities in

cyberspace

are

difficult

to

form

when

their

members

can

maintain

changing,

multiple

identities

[66],

that virtual communities

based

on

interests rather

than

(physical)

location

will be

narrow

and

homogenous,

with

limited influence

[10,

24],

that virtual

communities,

while

poor

substitutes

for the real

thing,

tend

to

weaken real

communities

by

propagating

a

couch-potato

culture

[40],

that virtual

commu

nities

may

be

life-denying

simulacrums

of real

passion

and

commitment

[55],

and finally, that the noisiness of crowded virtual domains impedes meaning

ful

conversation

[2].

Lockard offers

a

reminder that the

community-fostering

aspirations

asso

ciated

with

other

technological

advances have

failed

to

materialize

in

any

meaningful

way:

In

hyper-consumption

societies

characterized

by

individual alienation

and

loneliness,

there

is

an enormous

appeal

to

buying

some

fine

new

equipment

and

joining

the online world

in

search of

community

Once

television

narrow-casting

was

supposed

to

accomplish

the

same

func

tion:

stay

at

home,

watch

community meetings,

vote-on-screen,

form

a brave new

community

This sort of communications rhetoric died in

the '70s.

Today

the

consumption-devoted

Home

Shopping

Channel

doesn't

even

make the

pretence

of

community-building.

[36,

p.

226]

In

a

cogent

rebuttal

of

the

Utopian

interpretations,

Robins

argues

against

viewing

virtual communities

as

technological

fixes that

restore

communitarian

order

in

a

world

gone wrong

[57].

Robins maintains

that

differences,

asym

metries,

and

conflict

are

constitutive features of

the

real

world,

and

not

com

munity,

and that

these fundamental

features

hold

even

in

virtual

association

and

collectivity. Similarly,

Mouffe

proposes

that

a

healthy

democratic

pro

cess calls fora vibrant clash of

political positions

and an open conflict of inter

ests

[43,

p.

6].

To

sum

up,

there

is

a

clear

divergence

of

opinions

on

the

role

and

implica

tions

of the virtual

community.

Several

scholars

and

writers

have advanced

unabashedly

positive

views of

the

virtual

community,

particularly

in

the

con

text

of social

interaction,

but criticisms

of

these

views

have also been

advanced.

The

critical

arguments

of

Robins

and

Mouffe

are

of

particular

interest.

While

developed

in

sociological

and

political

contexts,

their

arguments

are

consis

tent

with the notion

of

the

rational,

self-serving

agent

in

neoclassical economic

theory.

Rational

agents

maximize

their

own

benefits.

If

members

of

virtual

communities behave as rational

agents

in their economic

decisions,

then their

fundamental

goodness,

however

defined

in

the social

context,

cannot

be

relied

upon

as

a

source

of economic

gain.

Consequently,

some

troublesome

questions

arise.

In

an

economic

context,

why

is

a

virtual

community

different

from

any

on-line

grouping

of

rational consumers? Is

marketing

to

a

virtual

community

any

different

from

marketing

to

a

group

held

together

by purely

economic

objectives?

Are

new

theoretical

perspectives

required

to

anchor the







108

SRIDH?R

B?LASUBRAMANIAN AND

VIJAYMAHAJAN

economic

leverage

of

the virtual

community?

In

order

to

address these

ques

tions,

it is first

necessary

to

adopt

a

working

definition

of the virtual

commu

nity

that

will

guide

the

analysis.

A

Working

Definition

Many analyses

of virtual

communities

mingle

thoughts

about what

a

virtual

community

is

with

opinions

about

what it

accomplishes

and

value

judgments

about its social

implications.

For

the

purposes

of

this

paper

we

define

a

vir

tual

community

(in

a

relatively

neutral

way)

as

any

entity

that

exhibits

all

of

the

following

characteristics:

1.

It is

constituted

by

an

aggregation

of

people.

2.

Its constituents

are

rational

utility-maximizers.

3.

Its constituents

interact

with

one

other

without

physical

collocation,

but

not

every

constituent

necessarily

interacts

with

every

other

constituent.

4.

Its constituents

are

engaged

in

a

(broadly

defined)

social-exchange

process

that includes mutual

production

and

consumption

(e.g.,

mutual dissemination

and

perusal

of

thoughts

and

opinions).

While

each of its constituents is engaged in some level of consumption, not

all of

them

are

necessarily engaged

in

production.

Such social

ex

change

(as

opposed

to

monetary

or

material

exchange)

is

a

necessary,

but

not

always

the

only,

component

of

interaction

between the

constituents

of

the

entity.

5.

The

social interaction between

constituents

revolves around

a

well

understood

focus

that

comprises

a

shared

objective

(e.g.,

environ

mental

protection),

a

shared

property/identity (e.g.,

a

national

culture

or

a

lifestyle

choice),

or

a

shared

interest

(e.g.,

a

hobby).

The

foregoing

characteristics have

important

implications

forour

analysis.

The first characteristic

restricts attention

to

groupings

of

people

(and,

by

ex

tension,

consumers).

The second

ensures

that

all actions of

the

constituents conform

to

the

simple

but

powerful

(neoclassical)

principles

of

individual

rationality

and

incentive

compatibility.

This does

not

imply

a

disregard

for

social

influences, and,

in

fact,

utility

maximization

can

actively

incorporate

such

influences.

While the

rationality assumption

is

potentially

more

controversial than the

remaining

characteristics,

it

is

useful,

and

even

necessary,

in

the

context

of

the

economic

leverage

of

the

virtual

community

in

a

competitive marketplace.

Without

ra

tional

choice,

any

number

of

inefficient market structures

and

practices

can

be

supported,

thereby diluting

the

usefulness

of

the

analysis.

The

third

characteristic

posits

a

broad

interpretation

of

virtual

in

apply

ing

it

to

describe

any

interaction that

does

not

require

physical

collocation.

This

definition renders

the

nature

of

the

underpinning

technology

irrelevant

to

the

analysis.

The

fourth characteristic

emphasizes

the

essentially

social

nature

of

the







INTERNATIONAL

JOURNAL

OF ELECTRONIC COMMERCE

109

community.

A

community

does

not

exist without

its

social

core.

Independent

of

commercial

activity,

the

community

embodies

exchange

of

a

social

nature.

The

integration

of

commercial

processes

with

existing

social

processes

is

de

scribed

below.

Finally,

the

fifth

characteristic describes

the

motivations for

community

formation. Shared

objectives,

identities,

and

interests

may vary

across

com

munities.

Drawing

from

the social elements

of

Homans and the

focus

theory

of

Feld,

the

focus

of

the

community

is defined here

as a

social,

psychological,

legal,

or

physical

entity

around which the social

elements

of

activity,

interac

tions,

and sentiments

are

organized

[19,

27].

Social

exchanges

within virtual

communities

are

supported

(a)

by

an

infra

structure that includes

a

delineated virtual space (e.g.,

a

discussion group

with

a

specific

URL)

and

devices

that

facilitate

communication

and

storage

(e.g.,

servers

and

memory

banks),

and

(b)

by

coordination

efforts

(e.g.,

techni

cal

trouble-shooting,

supervision

of

discussions for

content

and

scope).

In

line

with

Hagel

and

Armstrong,

the

provider

of

such infrastructure and

efforts

is

termed

the

organizer

of the

virtual

community

[23].

The

organizer

is

often

an

individual

or

a

group

of

individuals,

but

can

be

a

firm.

To

clarify

the

practical implications

of

the

adopted

definition

of

the virtual

community,

Figure

1

provides

a

typology

of

the

economic

opportunities

that

arise

when

consumers

are

grouped

together

in

different

ways.

The

groups

are

differentiated in terms of (a)whether or not social interaction forms the core

of

the

group's activity,

and

(b)

whether

or

not

the constituents' activities

and

interactions

are

organized

around

a

well-defined

focus.

When

social interac

tion

is

low

and

the

focus

of interaction

is

not

well

defined,

a

mass

market

results.

Here,

the social

component

of

commerce

is,

at

most,

constrained

to

image-related

issues

associated

with

product

choice.

In

contrast,

when

social

interaction

is

present,

but the interactions

are

not

organized

around

a

well

defined

focus,

a

contact-based

opportunity

group

results. This is the domain

of

personal-selling

networks.

Here,

network

members

recruit

friends

and

ac

quaintances

to

expand

the network

and

sell

a

wide

variety

of

products.

Am

way

Corp.

is awell-known operator of

personal-selling

networks. When social in

teraction

is

low,

but

the focus

of the

group

is

well

defined,

a

need-based

opportunity

group

results.

Consider,

for

example,

a

local credit union. Few

members

of

the

union

may

socially

interact

with

one

other,

but

at

the

same

time,

the credit

union

efficiently

addresses

their

common

financial

needs.

These financial

needs constitute

thewell-defined

focus

of the

credit union's

activities.

In line

with

the

earlier

definition,

the

quadrant

in

Figure

1

that combines

a

high

degree

of

social

interaction

with

a

well-defined focus for

these

interac

tions

represents

the domain of the

community-based

opportunity

group.

Such

a

group

may

be non-virtual or

virtual,

as a function ofwhether or not

physical

collocation

of

the

community

constituents

is

involved

in

maintaining

the

so

cial interactions.

Consistent

with

the

definition,

when

the

interactions

are

maintained

without

physical

collocation,

the

outcome

is

a

virtual

commu

nity-based

opportunity

group

(e.g.,

a

virtual

ethnic

community).

Figure

2

provides

a

pictorial

description

of

a

virtual

community-based

opportunity

group

embedded

in

a

competitive

marketplace.

As

noted

in

Fig







110

SRIDHAR

BALASUBRAMANIAN

AND

VIJAY

AHA

JAN

Degree of

social interaction between

constituents

High

S

Mass

market

Example:

Markets for

most

branded

consumer

products

Marketing

activities

are

focused solely

on

creating

and

delivering

products

and

services

to

the

marketplace.

Consumers

prefer

the seller who

offers

the

greatest

product-

or

service-related

utility._

Contact-based

opportunity

group

Example:

Consumers accessed

via

a

personal-selling

network

Variance

in

interests dilutes

a

focused

marketing

message,

but

interpersonal

contacts

can

be

leveraged

to

create

person-to-person

selling

networks.

Need-based

Opportunity

Group

Example: Members of the local credit

union

or

the

American Automobile

Association

Pooled

demand

creates

economies

of

scale

in

communication and

distribution,

and

translates

into

bargaining

power

when

dealing

with

sellers.

_

Community-based

Opportunity

Group

Example: A virtual ethnic community

Pooled demand

creates

economies

of

scale

and

translates into

bargaining

power.

Economic

exchange

leverages

social

interaction

between

group

members

to create

a

sustainable

competitive advantage.

Figure

1.

A

Typology

of

Economic

Opportunities

ure 2, some sellers of

products

and services may be associated with the com

munity through

the

organizer.

However,

in

competitive

markets,

community

constituents also

have

access

to

independent

outside

sellers.

Further

on

it

will

be

argued

that the

economic

leverage

of

a

community

based

opportunity

group

should

ideally

integrate

the

social

and

economic

motivations

of

community

constituents.

This iswhat

differentiates

the

com

munity-based opportunity

group

from the other

three

opportunity

groups

in

Figure

1.

The

discussion

of

such economic

leverage

will be

preceded

by

a

review

of

scholarly thought

related

to

the

interface between social

interac

tions

and economic

activity.

The

objective

of

this

review is

to

facilitate

research

on the

management

and economic

leverage

of virtual communities.

Social

Versus Economic

Perspectives

There exists

a

long

history

ofmutual

influence,

accommodation,

and

antago

nism between

sociological

and economic

perspectives

of

society

[77]. Overall,

these research

traditions have

not

been

convergent.

Consequently,

the

inter

face

between the

disciplines

now

reflects

a

diverse

patchwork

of

contribu

tions. To

facilitate

the

study

of

the

management

and

economic

leverage

of

the

virtual

community,

this section serves as a

roadmap

of research on the sociol

ogy-economics

interface. Since

a

detailed

exposition

would

be

an

overly

am

bitious

task,

the

focus

will

be

on

key perspectives

of the

greatest

relevance.

Admittedly,

this

approach

can,

at

best,

provide

only

a

partial

view of

the

con

tributions

of

scholars

in

each tradition. The

discussion

in

this

section

is

partly

drawn

fromM?nch

[45].

Views

of

the

interface

between social and economic

activity

are

differenti







INTERNATIONAL

JOURNAL

F

ELECTRONIC COMMERCE

111

Associated

sellers

Organizer

Constituents

engaged in

virtual

social

interaction

Independent

sellers

not

associated

with the

community

Figure

2.

A

Virtual

Community-Based

Opportunity Group

ated

along

many

dimensions,

including

whether economic

activity

is

observed

through

a

social lens

or

vice

versa,

whether

actors

are

assumed

to

be

utility

maximizers,

and

whether

the

epistemological

goal

relates

to

understanding

or prediction. As suggested by Zafirovski, a useful starting point is todemar

cate

the views

that

constitute

opposing

viewpoints along

many

of

the

dimen

sions

[77].

Expanding

on

thework of

Zafirovski,

Table

1

provides

a

detailed

comparison

of

two

perspectives

that

occupy

extreme

positions

along

many

dimensions

of

comparison.

The

first

perspective

represents

neoclassical

eco

nomic

theory,

which

views

economic

activity

as a

primary

driver of social

structure and

functions.

In

contrast,

the

economic-sociological

perspective

considers economic

activity

to

be embedded

within,

guided

by,

and

insepa

rable

from

its social

context.

The

perspectives

detailed

in

Table

1

have

important

implications

for

busi

ness researchers and managers.

Adopting

either

perspective

in

preference

to

the other

can

influence

the

way

research

questions

and

managerial

problems

are

framed,

the

way

markets

are

interpreted

and

understood,

the research

methodologies

adopted,

and the

way

consumer

decisions

are

explained

and

influenced. Far from

being

of

purely

theoretical

import,

the

adoption

of

a

spe

cific

perspective

can

deeply

influence

the

design

of

marketing

and

business

strategy.

The

intervening

space

between

these

perspectives

is

populated by

a

variety

of

views

thatwill

be

presented

below in

chronological

sequence.

Table

2

collects

the

key implications

of

the

discussed

perspectives

for the

manage

ment

and

economic

leverage

of

virtual

communities,

and for

further

research

on

virtual communities.

Utilitarianism

in

the Liberal

Anglo-Saxon

Tradition

The

early

utilitarian

views

of

man

and

society

are

attributed

to

several think

ers

spanning

the

period

from the

sixteenth

to

the

nineteenth

centuries,

includ

ing

Thomas

Hobbes,

John

Locke,

David

Hume,

Adam

Smith,

Jeremy

Bentham,







Dimension

of

omparison

Neoclassical

perspective

Economic-sociological

perspective

Applicableodyfnowledge

Viewfociety

iewfconomy

iewfhector

eyotivations

Micro-macroransition

Viewfnstitutions

Epistemological

goal

Values,astes,ndreferences

Causalocus

Social

elationships

ndonstraints

Viewfgents

Viewfnformation

Pure-economicpproaches,ftenathered

under rubric of

neoclassical

economics

Decomposable

marketplace;

all

ndividuals

are entrepreneurs

Autonomousntityhat

xplains

ocialelationships

andnstitutions

Rational

egoist

Self-interested

utility

maximization

Aggregation from level

of

ndividual

utility maximizers

(i.e.,romndividualhoiceoggregatearketehavior)

Inventionsfationalgoistshatrelexible

and responsive

to

changing

conditions

Predictionndxplanation

Stablendxogenous

Utilitarianactorsfocialife

Rarelyatteroconomicecisions;aneaptured

rontrolledyncorporatingtility-relatedconomic

variables (e.g., by

modeling

social

network effects)

Untrustworthy:

controlled

by

ontracting

and supervision

Largely

explicit

nd

urchasable

Socialndnstitutionalconomics

Encompassing entity

that

subsumes

conomic activity

Setfctivitiesmbeddedithinhe ocialeality

Social actor,

responsive

to

theocial environment

Alsoesponsiveo social

restige,

ower,orality,

and

justice

Social structuration

(i.e.,

a

disaggregating

perspective

that proceeds in

reverse

direction,

from level of

societyoonstituentnits)

Pre-existing,

enduring

phenomenahatlayn

important role in

guiding

social

and economic activity

Understanding

Socially

constructed,

responsive

to changes in the

socialnvironment

Social

conditions

of

conomic life

Autonomousactorshatreatlynfluenceconomic

behavior;

therefore, economic

behavior is best

understood when

viewed

through

ens of social

relationshipsndonstraints

Sensitive to social

opprobrium,

conscious of social

reputation

Often tacit and

embedded

in

ocial

elationships an

institutions;

cannot

beeadily purchased an

assimilated







Rolefistory

Controlsnehavior

Economicalue

Guiding

principle

fornalysis

ant tohe

future,

exceptor incorporating

discoverednformationntoecisions

xplicitules,ontracts,ndell-defined

unishmentechanismsodifiednaw

ded in attributes

that

contribute

to the individual's

consumption

utility

Economicndocialystemsoveowardquilibrium

Historicalxperienceonditionsuturections

Socialormsndressures,ulturalractices,nd

implicitulesfonductithinroups

Consumptionndxchangereocialrocesses,

thereforeconomicaluendricesreocially

derivedntities

Understandingxistingocialndconomicactsnd

conditionsakesrecedenceverredictingnd

ontrolling

movement

of

society

and economy in

specific

directions

Table.omparisonfeoclassicalndconomic-Sociologicalerspectivesnconomyndociety.

Adaptedndxpandedromafirovski77].







Perspective

Areas

of

insight

Utilitarianismnnglo-Saxonradition

Theoriesfonflictndroups

Institutionalnfluencesnocialife

Social action,

meaning,

andationality

Pragmatismn

early

mericanradition

Structuref

ocial

ction

Reconcilingurelygoisticonsiderationsfirtualommunityembersithheeedorocialpproval.estrictingursuit

ts by virtual community members

by

inducing

moral sentiments related to the welfare of others.

> nderstandingheolefociationnuidingctionsfndividualsnocialroupsndommunities.ncreasingesiliencef

virtualommunitiesyppropriatelyesigningheirtructures,oderatingrocessesithinhem,ndositioninghemith

respectotherutsideroupsndommunities.

?nderstandingowollectiveeactionsfheirtualommunityannfluenceheehaviorfonstituents.nderstandingow

ollectiveonsciousnessrisesasednheirtualommunity'sharedolidarity,dentity,eliefs,ndorms.nderstanding

howrganicolidarityithinirtualommunitiesiffersromheoreechanicalolidarityftherroupshatreormed

withhebjectivefurvival,afety,rconomico-production.

?nfluencingowommunityonstituentsariouslydopteans-endational,alue-rational,ffectual,ndraditionalctions.

Encouraging community constituents to adopt the

viewpoint

of

substantial

rationality rather than formal rationality in

contextfheirconomicecisions.

? Understanding how virtual community constituents

reconcile

the

Irepresenting spontaneous individuality) wit

(representingnternalizedttitudesndocialommitment)nheirocialnteractions.nderstandingowspectsfI

andmeaneifferentiallynvokednontextfconomicecisionsfheirtualommunityonstituents.

Explainingowalances aintainedetweenhenternalnstinctsfommunityonstituentsndxternalonditionsnd

normsfheirtualommunity.nderstandingowheirtualommunityanenalyzednermsfnderlyingocial,

ersonalityndulturalubsystems.nderstandingowhepatternariableshatescribelternativectionsor

communityonstituentsanenfluencede.g.,eplacing

elf-orientation

fommunityonstituentithollectivity

orientation).nderstandingowheirtualommunityperateshroughrocessfdaptation,oalttainment,

integration,ndatentatternaintenancei.e.,he-G-l-Laradigm)







Phenomenology

and

ethonomethodology

Socialonflictndomination

Socialxchangendower

Rational-choiceheories

lization in

creating

and

aintaining order in the virtual community. Understanding

al community's

objectives,

norms, and activities varies across constituents.

'Managingonflictithinheirtualommunity.aintainingheoredentityndaluesfheirtualommunityvennace

ofonflict.

y as an arena of

self-interested

social

nd economic exchange. Understanding the role of social

social exchange, and trust in

establishing

a basis for economic exchange.

cial influences can be

integrated

into

he

ational economic (purchase) decisions of community

constituents.rovidingational,tility-basedexplanationsorhowommunityonstituentshooseheirevelndindf

participation

within

he

irtualommunity.

Perspectives and Corresponding

Areas

ofnsight for the Management and Economic Leverage of

Virtual

Communities.







116 SRIDHAR BALASUBRAMAN1AN

AND

VI]AY

MAHAJAN

John

Stuart

Mill,

and Herbert

Spencer.

As

noted

by

M?nch,

the

assumptions

underlying

utilitarianism

are

similar

to

those invoked

in

modern neoclassical

economic

theory,

namely,

that the

individual is

an

independent

being

capable

of

rationally

calculating

behavior

to

maximize the derived

benefits,

that

soci

ety

is

an

association

of

freely

contracting

individuals,

and that

social

order

is

preserved

when

freely

associating

individuals

contract

with

one

other

to

de

volve

some

individual

power

to

the institutions

of

the

state

[45].

Scholars

in

the utilitarian

tradition,

in

discussing

the

composition

of

utility,

offer

several

insightful

arguments

regarding

the

melding

of

social

and

eco

nomic

relationships.

Hume

argues

that

individuals have both

egoistic

and

social

desires,

reflected

in the

need for social

approval

and

a

sentiment

for the

welfare of others [29]. Smith discusses the moral sentiments of individuals

thatmoderate the unrestricted

pursuit

of selfish interests

at

the

cost

of

other

individuals

[64].

Bentham

emphasizes

the

generality

of the

principle

of util

ity,

arguing

that

since

it

operates

on

the

simple

objective

of

promoting

per

sonal

happiness

and

reducing

personal

pain,

it

can

account

for

a

variety

of

human behaviors

ranging

from the

egoistic

to

the altruistic

[6].

Spencer

pro

vides

an

evolutionary

perspective

of

utilitarianism,

arguing

that

society

will

ultimately

evolve

to

a

state

wherein

decision-making

is

highly

decentralized,

egoism

and

altruism

coexist,

and

commerce

and

exchange proceed

on

the

basis

of

contracts

between

freely

associating

individuals

who

acknowledge

the

rights

of others tomaintain their own freedoms [65]. For thepurposes of thispaper,

early

utilitarianism

offers

a

reminder that rational

self-interest

was

not

his

torically

viewed

as

incompatible

with

an

interest

in

thewelfare of others.

Theories

of

Conflict

and

Groups

As

opposed

to

the inward

orientation of

utilitarianism,

Georg

Simmel

argued

thatwhile

individual

actions

may

be

freely

chosen,

interactions between

indi

viduals

greatly

influence

the

actions

they

choose

[61].

Interaction

leads

to

sociation,

which involves

a

sharing

in

common

of

some resource

(e.g.,

time,

space, or

experiences).

Forms of sociation define the opportunities for, and

limitations

of,

individual

actions.

Understanding

the

structure

and

processes

of

aggregate

social

phenomena,

including

groups

and

communities,

is

critical

to

explaining

the

actions of

the

constituent

individuals. Individual freedom

can

be

interpreted

in

terms

of liberation

from the

control exercised

by

the

group,

and the freedom

to

choose

specific

group

or

community

associations.

Individual

freedom

is

important,

therefore,

but

meaningful only

within

the

social

context.

Simmers

analysis

of

group

structure

and

processes

(including

group

size

and

longevity, authority relationships,

conflict,

and

individuality)

offers

in

teresting

insights.

He

suggested

that resilient

groups

provide

for

biological

reproduction,

locality,

membership

that

transcends

and

unites

generations,

succession

in

authority

positions, symbols

of

identity,

mobilization

of

resources,

honor associated

with

membership,

organs

of

representation,

group

gather

ings,

interplay

between

leadership

and

grass

roots, conservation,

variation

of

structure,

identification of

a

common

adversary,

and

opportunities

to

act

out

conflicts

[45].

While

Simmel

proposed

these

characteristics

in

an

epoch

when







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117

networked

communication

was

rudimentary,

many

of them

can

be

applied

to

maintaining

the resilience of

modern

virtual

communities.

Institutional

Influences

on

Social

Life

Emile

D?rkheim advances

a

more

constrained view

of individual actions

[16].

He

focuses

on

the

recurrent

actions

in

behavior,

arguing

that

these

are

influ

enced

by

existing

social

facts

(e.g.,

the

law,

language,

institutions

and

their

associated

practices).

Social

facts

are

external

to

the

individual,

of

a

constrain

ing

character,

and

possess

a

certain

universality. Consequently,

social

order

is

best

understood

not

by

debating

the

rationality

of

individual

actions,

but

by

studying how the community collectively and uniformly reactswith approval

or

disapproval

of

certain

actions.

In

turn,

such stable

reactions derive from

a

collective

consciousness that

is

based

on

shared

solidarity,

identity,

beliefs,

and

norms.

D?rkheim

distinguishes

between

mechanical

and

organic

solidarity

within

groups

and

communities. Mechanical

solidarity

occurs

when

people

are

not

highly

differentiated,

possess

similar

skills and

objectives,

and

associate

in

activities

that

promote

survival,

safety,

or

economic

production

(e.g.,

a

primi

tive

clan

society).

In

contrast,

organic

solidarity

results

when

people

already

differentiated

by

division

of labor

but

with

other

complementary

interests

associate within communities that have a diffused collective consciousness

and

a

relatively

weak

sense

of

membership.

A

virtual

community

focused

on

environmental

preservation,

for

example,

would

reflect

organic solidarity.

Social

Action,

Meaning,

and

Rationality

As

an

important

contributor

to

both economics

and

sociology,

Max Weber

addressed

some

issues

that

were

embedded

deep

within each

discipline,

and

others

that

were

at

the interface between

the

two.

While

D?rkheim

empha

sized subordination

to

the

collective,

Weber

adopts

a more

individualistic

approach,

emphasizing the orientation of each individual's actions to thepast

actions and

expected

reactions

of other

individuals

[71].

According

to

Weber,

most

action

is

social

action.

Therefore,

action

is imbued with

meaning

and

should be

interpreted

in

the social

context.

Weber differentiates between

four

kinds

of

actions:

means-end

rational action tailored

to

achieve certain

objec

tives

(e.g.,

seeking

higher

education

as

a

means

to

a

better

financial

future),

value

rational

action

guided by

a

belief

in

the value of the

action

without

regard

for

its

consequences

(e.g.,

acting

in

accordance with

a

religious

work

ethic),

affectual

action

based

on

transitory

emotional

feelings,

and

traditional

action

guided

by precedence

and

norms.

Weber also makes an

important

distinction between formal

rationality

(which

reflects causal

knowledge

about

a

specific

cause

and

effect,

and works

toward

the realization

of

a

specific

end)

and substantial

rationality

(which

acknowledges

that

most

actions have

positive

and

negative

consequences

when

measured

at

the social

level,

and accommodates

multiple

values

and

objec

tives).

Weber

sees

modern

capitalism

as

a

formally

rational

system

that

effi

ciently

allocates

scarce

resources

but leads

to

irrational

consequences

at

the







118

SR1DHAR

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AND

VIJAY

AHAJAN

social level

(e.g.,

the exclusive

pursuit

of

profit,

the dilution

of

ethical

stan

dards).

An

interesting implication

that

arises here

is

that

the virtual

commu

nity,

when

leveraged

in

the economic

context,

may

better

integrate

formal

and

substantial

rationality,

as

compared

with

the

profit-maximizing

firm that

represents

the

standard

vehicle

of

capitalism.

Pragmatism

in

the

Early

American

Tradition

In

the

pragmatic

tradition,

behavior

is

a

practical

instrument

wielded

by

the

individual

to

shape

a

relationship

with

the immediate

microsociological

envi

ronment.

Consequently, pragmatists

subjected proximate

social

units

(e.g.,

the

family, theneighborhood) todetailed empirical study (e.g., [75]), rather than

the

grand

social

structures

of the

classical

European

tradition

(although

Simmel's

analysis

of

groups

is

a

notable

exception

within

the

European

tradi

tion).

The

pragmatic

individual

is

shaped

in

interaction with the

social envi

ronment.

Society,

in

turn,

evolves

on

the

basis of interaction with

its

members.

Herbert

Mead,

a

leading

thinker

in

the

pragmatist

tradition,

contends that

the

meaning

of action

emerges

and

is

realized

only

in

the

process

of

interac

tion

[42].

Interaction

with

society

leads

to

a

self

that

comprises

two

compo

nents:

the

I,

representing

spontaneous

individuality,

and the

me,

representing

internalized attitudes

and social

commitment. These

components

aremutually supportive rather than compensatory. Humans need society to

develop

their

individuality,

since

individuality

is realized

only

in

the

responses

and

feedback

obtained

during

socialization. At

the

same

time,

certain

stable

attitudes

and

social

commitment

are

necessary

for

successful

socialization.2

Interestingly,

consumer

behavior

in

some

markets

can

also be

studied

in terms

of the

tension between

the influence of the I

in

exercising

unconstrained choice

(e.g., choosing

a

minivan

on

a

purely

utilitarian basis

of convenience

and

com

fort)

and the

influence of the

me

in

introducing

social

consciousness

into

the

choice

(e.g.,

image

issues

involved

in

choosing

between

a

sport

utility

vehicle

and

a

minivan).

For the simultaneous

development

of the individual and social selves, as

sociation

with

specific

forms of

social

organization

should

involve

voluntary

participation.

For

example, obligatory

membership

in

a

political party

can

strengthen

the

me

at

the

expense

of

the

I.

In

contrast,

the

setting

of

the

virtual

community

can

provide

an

excellent

opportunity

for

their

simultaneous

de

velopment.

Association

with

most

virtual communities

is

voluntary,

and the

strength

and

kind of

participation

are

freely

chosen.

At

the

same

time,

virtual

communities also

have

codes

of

conduct,

with

substantial

deviation

from

norms

being

quickly

noticed

and

condemned

(e.g.,

via

flaming ).

More

generally,

the

economic

leverage

of the

virtual

community provides

an

interesting

op

portunity

to

achieve

an

interplay

between

aspects

of

the I

and

the

me

in

the

context of

consumer

choice.

The Structure of

Social

Action

Talcott

Parsons,

the

pioneering

theorist

in

this

tradition,

was

primarily

con

cerned with

explaining

social

order

[47].

Social

order

exists

when

actors

can







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119

correctly anticipate

and

rely

on

one

another's

actions

and

expectations.

Par

sons

posits

voluntaristic order

as

a

compromise

between notions

of

order

based

on

positivistic

actions

(i.e.,

those that result when individuals

pursue

their

ends

by applying

means

under certain

uncontrollable

conditions)

and

on

ide

alistic

actions

(i.e.,

those

that result when

individuals derive actions

from

sym

bolic

ideas).

Voluntaristic

order

results

when

individuals exercise

autonomous

powers

of

agency

in

balancing

their internal

instincts

with

external

norms,

conditions,

and

ideas when

deciding

on

actions.

In

later

work,

Parsons

adopted

a

systems

approach

to

the

theory

of action

[461.

He

proposed

that actions

are

shaped through

the

interaction of

three

distinct

systems,

as

shown

in

Table

3.

A further contribution by Parsons and Shils is the idea of pattern variables

that

describe

the alternatives chosen for

any

(social)

action

[48].

Each action

represents

a

compromise

along

five dimensions:

(a)

self-orientation

(where

the

actor

is

guided

by

his

or

her

own

goals

and

needs)

versus

collectivity

orientation,

(b)

diffuseness

(where

there

are no

clear selection

criteria

for

ac

tions,

e.g.,

a

broad health

policy

direction that is announced without

specifics)

versus

specificity,

(c)

affectivity

(where

emotions

are

involved)

versus

affec

tive

neutrality,

(d)

particularism

(where

relationships

with

an

entity,

e.g.,

a

mother-daughter relationship,

are

emphasized)

versus

universalism

(where

the interests

of

a

larger

group

are

emphasized,

e.g.,

those

of the

school that

the

daughter attends), and (e) ascription (where actions toward and evaluations

of

an

entity

are

based

on

birth

or

group

characteristics)

versus

achievement

(where

the

performance

of

the

entity

iswhat

matters).

Parsons,

Bales,

and

Shils

also

suggest

a

four-function

A-G-I-L

paradigm

to

explain

the

process

that

discussion

and task

groups go

through

to

achieve

a

certain

objective

[50].

The functions

are

(a)

adaptation

(i.e.,

seeking

harmony

with the

environment and

gathering

resources),

(b)

goal

attainment

(i.e.,

achiev

ing

objectives

by deciding

on

rules

and

procedures

that

help

reconcile

indi

vidual

and

collective

interests) (c)

integration

(i.e.,

providing within-group

cohesion

and

solidarity),

and

(d)

latent

pattern

maintenance

(i.e.,

discovering

and maintaining stable ideas thatmaintain the

identity

of the group, distin

guish

it

from

its

environment,

and

guide

group

decisions and

activity).

Parsons

and

Smelser

propose

an

ambitious

theory

of

the

social

system

[49].

Their

social

system

comprises

four

subsystems: political,

economic,

commu

nity,

and social-cultural.

These

subsystems

interrelate

with

one

another

through

the exercise of

political

power,

money,

influence,

and value

commitments,

re

spectively.

Political

power

and

money

operate

via

inducement

and

sanctions,

whereas

influence

and value commitments

are

exercised via

persuasion

and

the extension

or

withdrawal

of

commitments. While Parsons and

Smelser

detail

all the

linkages

between

the

subsystems,

their

insights

on

the economic-com

munity

subsystem

linkages

are of

particular

interest for the

present

discus

sion.

Parsons and

Smelser

argue

that

community

influences

the

economic

subsystem

because

(a)

when economic

actors

are

attached

to

a

community,

their economic

interaction

will be

regulated by

its

norms,

(b)

community

ex

erts

a

moral

influence

on

economic

activity

(e.g.,

a

trader

who

cheats

may

be

ostracized

by

his local

community),

and

(c)

community

norms

may

actively

influence

the

patterns

of collection

and

allocation

of

resources.

In

contrast,

the







120 SR1DHAR

BALASUBRAMAN1AN

ND

VI}AYMAHAJAN

Constitution

Boundaries

Major

problem/objective

Social

system

Interdependent

interactions

(e.g.,

within

a

neighborhood

group)

Social

norms

and

roles;

rules

of

membership

Maintaining

social order

(e.g.,

correct

expectations

of

what each

person

wants

and

is

willing

to

give)

Personality

system

Interdependent

need

dispositions

(e.g.,

a

customer's

unique

preferences)

The

existing

and

preferred

image

of

oneself

Maintaining

a

sense

of

identity

nd

uniqueness

Cultural

system Interdependent

symbols (e.g.,

language, movies)

Consistency

of

meaning

and cultural pattern

maintained

by

symbol.

Maintaining

consistency

ofmeaning of symbols

Table

3.

Parsons's

Systems

Approach

to

the

Theory

of

Action.

economic

subsystem

influences

community

because

(a)

it

provides

the

re

sources

for

the

community

to

subsist,

and

(b)

it

engenders attempts

at

indi

vidual

utility-maximization

that

may

influence the

nature

of

relationships,

leading

to

patterns

of

voluntary

associations within the

community.

Parsons's ideas and related developments provide interesting theoretical

bases for the

study

of

the virtual

community.

For

example,

voluntaristic order

may

help explain

how members balance their

subservience

to

community

norms

and ideas

with their

own

independence.

The

systems

theory approach

suggests

that

the

virtual

community

can

be

analyzed

as a

super-system

that

comprises

interacting

social,

personality,

and

cultural

subsystems.

The

pat

tern

variables

can

be

used

to

debate how actions and

activities

within

a

vir

tual

community

should be

placed

along

each

dimension?in

fact,

Parsons

himself

suggests

that

actions

pertaining

to

a

community

(as

opposed

to

a

so

ciety)

should be

characterized

by

collectivity

orientation,

diffuseness,

affec

tivity, articularism, and ascription. The A-G-I-L paradigm can serve toexplain,

control,

and interrelate

various

processes

within the virtual

community.

Fi

nally,

the

systems theory

approach

to

society

can

anchor

an

environmental

perspective

of the virtual

community

that

emphasizes

its

linkages

with

other

subsystems

embedded

in

society

(also

see

[37]).

Phenomenological

and

Ethnomethodological Approaches

The

phenomenological

approach,

originated

by

the

philosopher

Edmund

Husserl,

was

adapted

to

sociology

by

Alfred Schutz

and

popularized

by

Berger

and Luckman

[7,

60].

Phenomenological

approaches

are less concerned with

goal-related

and

profit

motives,

and instead

focus

on

reconstructing

the

actor's

social

construction

of

reality.

This

social

construction

is,

in

turn,

deeply

influ

enced

by

the

rigidly

structured

spatial

and

temporal

patterns

of

everyday

life

that

exert

a

constant

pressure

on

the behavior

of

the individual.

Since

every

day

life

is

familiar,

a

phenomenological

reduction

occurs

whenever

new

prob

lems

are

encountered?the

unknown

is

interpreted

in

terms

of the

known,

the







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unfamiliar

in

terms

of the

familiar

(e.g.,

the

role

of

a

new

teacher

is

assumed

to

be similar

to

the role played by the previous teacher). Thereby, existing

patterns

of

meaning

and

understanding

derived

from the

everyday

life

expe

rience

are

constantly

extended

to

subsume

new

problems

and information.

To

maintain order

in

everyday

life,

three

processes

are

necessary:

(a)

insti

tutionalization

(which

occurs

when

freely

chosen actions

begin

to

acquire

a

binding

character within

the individual's social

environment,

e.g.,

the

Satur

day

meeting

of

the

investing

club that

occurs

week

after

week),

(b)

legitima

tion

(which

represents

the rational

explanation

for

a

binding

action,

e.g.,

that

the research activities

of

an

academic

department

would suffer

if

all

faculty

did

not

attend the

weekly

seminar),

and

(c)

socialization

(which

provides

the

basis for the subjective social reality perceived by the individual, e.g.,mem

bership

in

a

conservative

political

group

would

influence

the

evaluation of

tax

legislation).

Like

phenomenology,

sociological perspectives

rooted

in

ethnomethodology

emphasize

the social construction

of

reality

[20].

However,

while the

former

posits

a

stable,

highly

structured

view

of social

life,

the latter

assumes

a

vari

able,

contingent

nature to

social life.

Objective reality

is

nonexistent,

and

what

really

matters

is

the

commonsense

reality

created

by

people

accounting

for

reality

Therefore,

while

phenomenological

approaches

reduce unfamiliar

phenomena

to

the

familiar,

ethnomethodological

approaches

reduce

familiar

social

reality

to the unfamiliar practice of individuals making that reality [45].

In

the

context

of virtual

communities,

the

voluntary

nature

of

association,

the relative

anonymity,

and the

flexible

roles that individual

constituents

can

adopt

all

undercut

the

application

of

phenomenological approaches

to

their

study.

However,

phenomenological

components

of

legitimation

and social

ization

may

serve

to

bring

order

to

the

virtual

community.

In

parallel,

ethnomethodological

approaches

can

be

applied

to

study

the

constituents'

interpretations

and evaluations of

various

contributions

to

the virtual

com

munity.

For

example,

adopting

the

perspective

of

an

individual

constituent,

such

approaches

can

be

applied

to

explore

how constituents

perceive

the

way

others receive their

contributions,

and how

they

themselves

perceive

and evalu

ate

the contributions of others.

Social

Conflict

and

Domination

In his seminal

studies,

Lewis Coser

views

conflict

not

as a

disruptive

element

to

be controlled and

suppressed,

but

as an

inevitable feature

of

social life that

has

an

important

integrative

function for

groups

[14].

Coser

argues

that

con

flict

is less

disruptive

when

(a)

opportunities

are

available for

free

expression

and discussion

of

discontent,

(b)

multiple

alternatives

are

available

to

actors

to

achieve

goals,

so

that the

means

to

the end

are

less

contested,

(c)

frustra

tions

with

previous experiences

are

not

cumulatively

built

up,

(d)

conflict

is

less connected

to

hostility

of

a

general,

universal

nature

(e.g.,

a

racist atti

tude),

(f)

conflict

is less tied

to

deep-rooted

ideology,

and

(e)

relationships

within

groups

are

less

personal.

Conflict

can

lead

to

integration

and

unity

within

groups

when

a

consensus

on

the

core

values and

objectives

remains

intact

through

the

settlement

of conflicts.

Similarly,

integration

is

achieved

when







122

SR1DHAR

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ALAS

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AN

AND

VI]AY

MAHAJAN

(a)

conflict

with

external

entities

serves

to

emphasize

group

boundaries

and

purpose,

and

(b)

continued

conflict

with

external entities

lowers

the

mobility

of

group

members

and

perpetuates existing

group

membership

and

structure.

Coser's

view

of social conflict

provides

several

useful

insights

into

the

management

of conflict

within virtual communities. For

example, creating

virtual

arenas

to

play

out

conflicts,

imparting identity

to

the virtual

commu

nity

by explicitly

staking

out

values and

goals

framed

in

opposition

to

those

of

other

communities,

and

insulating

core

community

ideology

from

conflict

are

all

useful

practical

interventions

that derive

from

Coser's

analysis.

Social

Exchange

and

Power

The

work

of

George

Homans

and Peter

Blau

on

exchange

and

power

is

seen

as

a

turning

point

toward

the

re-establishment

of

economic

thought

in

sociol

ogy.

Homans

sees

all

interactions

as

exchanges

of

rewards

[28].

Rewards

are

flexibly

defined,

and

include,

for

example,

money,

love, advice,

social

approval

and

appreciation,

a

smile,

a

promise

of

future

help,

or

information.

Social

approval

is valuable

because

it

indirectly

enables economic

gain (e.g.,

a

lender

would

be less

likely

to

question

the

creditworthiness

of

a

person

with

high

social

approval)

and facilitates the

exercise of

future influence. The

valuation

of

rewards varies

by

persons,

reflecting

their

own

preferences.

Punishment

is

incurred when rewards arewithheld.

Homans

advances five

propositions

toward

converting

this

perspective

of

exchange

into

a

theory

of action:

(a)

the

success

proposition

(a

frequently

re

warded

action is

performed

more

often),

(b)

the

stimulus

proposition

(if

a

reaction

to

a

past

stimulus

leads

to

a

reward,

a

similar

stimulus

is

likely

to

provoke

the

same

reaction),

(c)

the value

proposition

(a

person

is

likely

to

perform

actions

that lead

to

more

valuable

results,

adjusted

for

the

costs

of

performing

the

action),

(d)

the

deprivation-satiation proposition

(additional

units

of

a

reward

are

less

valuable than

previous

units),

(e)

the

aggression

approval proposition

(a

lack of

expected

rewards from

an

individual leads

to

aggressive

behavior, and the results of such behavior become more valuable,

e.g.,

pleasure

is

derived

from

the

infliction

of hurt

on

the

individual).

Interest

ingly,

there is

a

tight

correspondence

between Homan's view of

an

individual

involved in social

exchange

and

the

view of

the

agent

in

neoclassical

eco

nomic

theory.

Blau

sees

social association

as

inseparable

from

exchange,

in

that

individu

als

are

attracted

to,

and

associated

in

common

action

with,

those from

whom

they

receive

rewards

[8].

Blau

distinguishes

between

extrinsic rewards

(simi

lar

to

the

ones

mentioned

above)

and

intrinsic

rewards that

arise

from

the

feeling

of

being

rewarded

just by being

in

a

relationship.

Economic and social

exchanges

are

distinct.

While

the

former involve

a

precise

specification

of the

terms

of

exchange

(e.g.,

in

the

quality

and

quantity

of

goods exchanges,

and

clear

schedules

for

future

reciprocation),

the latter

do not.

At the

extreme,

this

distinction

is

exemplified

by

the

differences

between

economic

exchange

and

gift giving,

in

that

a

gift

is

given

only

with

vague

expectations

of future

reciprocation.

Blau

argues

that the

special

nature

of social

exchange

is

anchored

by

three







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elements

of the

exchange

relationship:

trust

and

commitment,

norms

of

fair

ness

in

exchange,

and

power.

Trust

is

important

because

obligations

in

social

exchange

are

poorly specified.

Trust arises

because

even

if the

parties

to

a

social

exchange

seek

profit, they

realize that

the achievement of

profit

de

pends

on

a

mutual belief

that the

parties

are

reciprocating

appropriately.

(How

ever,

M?nch

argues

that

exchange,

in

itself,

engenders

trust

only

when

members

are

already

committed

to

a

community

with

common

norms

[45].)

While

Blau

adopts

the

perspective

of

the

benefit-seeking

individual involved

in

social

exchange,

he notes

that

association

with

communities

can

curb abso

lute

profit

seeking.

In

particular,

social

and

personal

commitment

to

an

asso

ciation

or

a

community

can

foreclose

the

pursuit,

and

even

the

consideration,

ofmore profitable outside alternatives. Norms of fairness in exchange are es

tablished

when

there is

a

discourse about the

terms

of

exchange.

When

norms

are

present,

exchange

is

facilitated,

the

likelihood of

conflict is

lowered,

and

a

universal evaluation of the

terms

of

exchange

is

possible.

Finally,

power

de

rives from

the inherent

imbalances

in

the

reciprocity

of

exchange (e.g.,

A

exer

cises

power

over

B

when

B

is unable

to

fully reciprocate

A's

contributions).

Blau

distinguishes

between direct and

indirect

exchange

(where

there is

no

direct communication

between

parties,

e.g.,

in

the classic

prisoner

's

dilemma)

[8].

Rational

but

isolated choices

in

indirect

exchange

can

lead

to

unsatisfac

tory

outcomes

(as

in

the solution of the

prisoner's

dilemma

game).

In

these

situations, awider community can establish common norms of approval and

disapproval

for

specific

behavior.

The

dilemma

can

be

satisfactorily

resolved

when

at

least

one

party

to

the

indirect

exchange

is

guided

by

these

norms.

While

community

values

can

serve as

a

basis

for such

norms,

the

community

itself is

likely

to

exhibit

solidarity

when

it is

based

on a

common

identity

or

purpose

that is

independent

of

situational calculations of

profit

(e.g.,

an

eth

nic

group,

Greenpeace).

The theories ofHomans

and Blau

provide important

insights

into the

study

of

the

virtual

community

as an

arena

of

exchange.

From

Homans,

we

learn

that

calculating

self-interest

can

be

a

basis for

exchange,

even

when

no mon

etary ormaterial transaction is involved. The theories of Blau can be

applied

to

explore

the link

between association and social

exchange,

the

existence

and

antecedents

of

trust

between

constituents,

the

perceived

norms

of

contribu

tion

and indirect

exchange,

and

the role of social

ties

and

exchange

in

estab

lishing

a

basis for

economic

exchange.

Action

as

Rational

Choice

James

Coleman

is

a

leading

proponent

of

rational-choice

explanations

of

so

cial

phenomena.

Here,

the individual is

assumed

to

evaluate the

expected

utility

from

pursuing

each available

option,

adjusted

for the costs and

prob

ability

of

success

of

pursuing

each

option,

before

choosing

a

specific

action.

Rational

choice

is

grounded

in

the calculus

of

pleasure

versus

pain

for each

action,

with

diminishing marginal

utility

frequently employed

as a

facilitat

ing assumption.

Coleman

holds

that

most

interactions

occur

because

actors

are

interested

in

exchanging

resources,

either

through

a

monetary

transaction

or

otherwise







224

SRIDHAR

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AHAJAN

[13].

Power

may

be

exercised

when

a

serious imbalance

in

the

proposed

level

of

exchange

is

unavoidable

(e.g.,

when

ownership

of

a

required

resource

is

concentrated

with

one

individual),

and

as a

result

one

party

obtains

more

than what

it

gives

up

in

exchange.

Therefore,

power

ultimately

stems

from

the

control

of valuable

resources.

Similarly,

authority

emerges

from

the

ratio

nal decision

to

give

up

rights

over

one's

decisions

to

a

superior

eitherwith the

expectation

of

being

better

off

for

such subordination

(conjoint

authority)

or

in

return

for

remuneration

(disjoint authority).

How does

individual

rational choice influence the

aggregate

social

sys

tems

of action?

Systems

of

action

(e.g.,

an

economy)

can

only

occur

when

large

numbers

of individuals make

rational decisions

to

participate

in

them.

However, since large systems of action cannot be supported solely on the ba

sis

of

elementary

actions

(e.g.,

an

individual

cannot

independently

establish

the

trustworthiness

of

every

entity

he

transacts

with),

facilitating

systems

of

authority,

trust,

and

norms

are

necessary.

Such

systems

are

often

established

through

themechanisms

of

agency

and intermediation. In

agency,

authority

is

delegated

to

a

party

whose actions

are

controlled either

by

providing

incen

tives

or

by

oversight.

In

contrast,

intermediation often builds

trust

by

leverag

ing

the

superior knowledge

of

intermediaries

to

arrive

at

a

correct assessment

of

the

costs and

benefits of

actions

(e.g., using

a

real-estate

broker).

Network

analysis

is

a

popular methodology

that

usually

employs

rational

choice assumptions. Early network analysis focused on exchanges between

connected

members

[18].

Later work has

examined

how

the

position

of

the

individual

within the

larger

network influences

actions

[11].

Network

analy

sis

has been

applied

to

study

several

issues,

including

solidarity

[25],

coop

eration

[1],

the social embeddedness

of economic

action

[21],

relationship

evolution

[30],

and innovation

adoption

[31].

Rational-choice theories

are

particularly

relevant when

considering

the

eco

nomic

leverage

of virtual

communities.

In

the

literature

of

economics

and

marketing,

rational

choice is

frequently

the assumed basis

for

consumer

choice

between

competing

sellers. At the

same

time,

behavioral and information

processing

considerations,

including

the

framing

of

options (e.g.,

the attrac

tion,

compromise,

and

extremeness-aversion

effects),

and

search

costs

have

been shown

to

influence

consumer

choice

[62,

63,

67].

However,

once

such

considerations

are

accommodated within the

notion of

utility,

it

can

be

rea

sonably

assumed

that

consumers

choose the

option

that

they

believe offers

them the

greatest

utility.3

Summary

The

interface

between

sociology

and

economics

contains

a

patchwork

of

in

tellectual

contributions.4

Several

scholars

have made

substantial

contributions

to

both literatures.

However,

the

preceding

discussion has

mostly

reflected

sociologists'

interpretations

of

economic

activity

rather than the

incorpora

tion

of

social interactions

by

economists. Hirschman

explains why

economists

in recent times

have

often

overlooked the

possibility

that

economic

activity

can

contribute

to

(and

therefore also

be

influenced

by)

trust,

friendliness,

and

sociability:







INTERNATIONAL

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125

First,

economists,

in their

attempt

to

emulate,

in

rigor

and

quantita

tive

precision,

the natural

sciences,

had little

use

for the

necessarily

imprecise

speculations

about the effects of economic transactions on

social

cohesion..

. .

Second,

those trained in

the

tradition of

classical

economics

had

only

scorn

for the

concern

of

sociologists

over

the

more

disruptive

and destructive

aspects

of

capitalism.

.

. .

[Third,]

econo

mists who

wish the

market

well

have

been

unable,

or

rather have tied

their

own

hands

and

denied

themselves the

opportunity,

to

exploit

the

argument

about the

integrative

effects

of

markets.

This

is

so

be

cause

the

argument

cannot

be

made

for

the ideal market with

perfect

competition.

[26,

p.

1473]

Hirschman believes

that economists have often

sacrificed

social

legitimacy

to

achieve

economic

legitimacy.

However,

he

sees

a

silver

lining

in

that

econo

mists

are

increasingly

acknowledging

the

role

of limited

information-process

ing

capabilities,

satisficing

rather

than

maximizing

behavior,

and

relationship

based

exchange.

Scholars

like Becker and

Granovetter have demonstrated

that

methodological

rigor

need

not

be

sacrificed when

the fact

that

most

economic

activity

is

socially

embedded is

creatively

accommodated

in

economic

expla

nations of social

phenomena

or

in

social

explanations

of

economic

phenom

ena

[3,

21].

Toward

Economic

Leverage

The

preceding

review of

the literature

on

the

sociology-economics

interface

provides

insights

into,

and

a

foundation

for

future

academic research

on,

the

management

and

economic

leverage

of

virtual

communities

(see

Table

2).

To

further

facilitate

managerial

initiatives

and

research,

a

conceptual

framework

that

integrates

economic

and

social

activity

is

now

proposed.

Consider

a

virtual

community

of

/

1,...,

N

constituents,

run

by

organizer

(O),

and

with

multiple

associated

sellers. The

constituents

are

engaged

in

so

cial

exchange

and constitute a

potential

market for the sellers. The

product

market

is

competitive,

that

is,

similar

products

(or

close

substitutes)

can

be

purchased

from

independent

outside sellers. Both

the associated sellers

and

the

organizer

of the virtual

community

seek

to

maximize

profits,

whereas

the

constituents

maximize

utility.

Sellers

can

approach

the

constituents

via the

organizer

(see

Figure

2).

The

community's

constituents

are

engaged

in

social

exchange

and

interac

tion of

a

virtual

nature.

Each constituent's

contributions

are

potentially

acces

sible

to

all other constituents. Each constituent derives

utility

from

one

or

more

of

three

sources:

(a)

focus-related

utility

if,

which

derives

from

the

constituent's

belief thatthe contributions of all the

constituents,

himself

included,

strengthen

or

advance

the focus

of

the

community

(e.g.,

a

constituent of

an

environment-con

scious

community

may

provide

information

that

strengthens

the

case

for

spe

cific

nature

conservation

project),

(b)

consumption

utility

Um,

which

derives

from

the constituent's

direct

consumption

of the

contributions

of other

commu

nity

constituents

(e.g.,

sharpening

chess

skills

using

the

contributions

of

mem

bers of

a

virtual

chess

club),

and

(c)

approval

utility

If,

which derives

from

the







126

SR1DHAR

BALASUBRAMANIANAND

VIJAY AHAJAN

satisfaction

that

ensues

when

other

constituents

consume

and

approve

of the

constituent's

own

contributions.

Contributions

require

effort

denoted

by

r),

with

additional

units

of contribution

being

progressively

more

costly.

The

correspond

ing

(convex)

cost

function

is

denoted

by

c(r).

Then,

the total

social interaction

utility

experienced

by

constituent i

during

any

given

period

of

time

is

given

by:

q=uro/)H.n+uro*)?.N,k,i+m)-w.

Focus-related,

consumption,

and

approval

utilities

may

be relevant

to

dif

ferent

extents

across

different

communities,

and

across

constituents

within

the

same

community. Furthermore, all the constituents need not contribute,

for

many

noncontributing

members

can

subsist

on

focus-related

or

consump

tion

utility.

However,

in

providing

approval

utility,

such

silent constituents

can

encourage

increased

contributions

by

others.

(More

detailed

functional

forms of

the

utility equation

may

be

specified

when the

concept

is

analytically

applied

or

empirically

investigated.)

To

clarify

the

utility

triad discussed

above,

an

analogy

with

public

and

private goods

is

useful.5

A

contribution

to

a

virtual

community

can

be

inter

preted

as a

good

that

is either

fully public

or

part

public

and

part

private.

The

public

aspects

of

the contribution

derive from its

properties

of

(a)

nonrival

consumption (i.e., consumption by one individual does not reduce thepossi

bility

for

other

individuals

to

consume

the

same

good),

(b)

nonexcludability

(i.e.,

the

inability

to

exclude

non-payers

from

consumption),

and

(c)

align

ment

with

the shared

goals

of

community

members

(i.e.,

the

purpose

of

the

community

as a

whole

is

advanced).

These

public

aspects

are

closely

allied

with,

and

enhance,

the

focus-related

utility

of

many

community

constituents.

At the

same

time,

some

contributions have

private

aspects

in that

their

con

tents

are

useful

only

to

specific

community

constituents. For

example,

a

com

munity

member

may

specifically

respond

to

a

request

for

information

from

another

constituent.

The

latter,

in

turn,

derives

consumption

utility

from

the

provided information. Finally, approval utility can accrue to a contributor from

both

the

public

and

private

aspects

of

his

contributions,

although

approval

is

likely

to

be

on a

much

larger

scale

with

respect

to

the

public

aspects.

Before

linking

social and

economic

activity,

one

issue

thatmerits discus

sion

is

the

appropriate

analytical paradigm

for

the

study

of

the

virtual

com

munity.

Social network

analysis,

a

popular

analytical

tool in

the

social

sciences,

at

least

superficially

appears

to

be

an

appropriate

paradigm.

However,

it is

questionable

whether

a

virtual

community

should be

modeled

as

a

social

net

work.

First,

person-to-person

relationships

are

rarely

meaningful

in

virtual

communities

of

any

significant

size.

Second,

a

constituent

within

a

virtual

community

usually

cannot be

placed

at

any

specific position

within

a

net

work

of

relationships,

because the

relationship

of

one

constituent with

an

other is

usually

not

conditioned

on

the

relationship

of

the

latter

with

any

third

constituent

(an

exception

may

exist

when

there

are

well-demarcated

group

ings

due

to

deep ideological

schisms).

Third,

actions

and

contributions

in

a

virtual

community

are

usually

not

of

a

directed nature

(i.e.,

attuned

to

spe

cific

constituents).

Even when

they

are

superficially

directed

(e.g.,

constituent







INTERNATIONAL

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COMMERCE 127

A

posts

information

in

response

to

a

request

from

constituent

B),

there is

usu

ally

no

enduring

tie

between

the

parties.

The alternative

paradigm

for

analysis

proposed

here

is

that of virtual

infor

mation

capital,

which is

defined

as

the

body

of

information formed

by

the

cu

mulative

contributions

of,

and

consumed

by,

the

constituents of

the

virtual

community.

Contributions add

to

virtual

information

capital

and

are

drawn

upon

by

interested constituents.

Since

information

does

not

depreciate

with

usage,

a

specific

contribution

to

a

virtual

community

operating

in

a

computer

mediated

environment

can

be

drawn

upon

repeatedly.

The

management

of

a

community's

virtual

information

capital

would

involve

influencing,

moder

ating,

capturing, coding,

and

providing

distributed

access

to

the

contribu

tions of its constituents.

Overcoming

the

Social-Economic Disconnect

Consider the

objectives

of the

parties

involved

with

a

virtual

community.

Constituents choose

to

participate

and

(possibly)

contribute in

a

manner

that

maximizes

their

total social-interaction

utility.

The

organizer

(and

associated

sellers)

aim

to

maximize

monetary

profits

derived

from

selling

products

and

services

to

the

community

constituents.

A

hypothetical example

can

highlight

why

these

objectives

may

be difficult to

reconcile.

Example

1.

John

is

an

active

member

of

the

virtual

community

organized

by

a

nationally

known

on-line

bookseller

(seller

A).

John

often

posts

and

reads

on-line

reviews,

offers

helpful

comments,

and

follows

the

community's

reactions

to

new

books.

Today,

he wishes

to

purchase

a

new

book

on

astronomy

thathas received

excellent

reviews

from

the

commu

nity.

He

uses

a

search

engine

to

simultaneously

obtain

prices

for

the

book

from

competing

sellers.

Another

seller

(B)

offers

price

that

is

15

percent

lower than

every

other

competing

price.

Seller B

organizes

no

virtual

community

but has

a

reasonable

reputation

for

service.

John

places

his

orderwith sellerB, obtains and reads thebook,and then

eagerly

returns to

share his

comments

with

the

virtual

community organized by

seller

A.

This

example

illustrates

a

key

challenge

pertaining

to

the

economic

lever

age

of

virtual communities. When

a

tight

linkage

between

the social

and

eco

nomic

processes

within the

virtual

community

is

absent,

competition

is

invoked

with the

outside

seller who

competes

on

a

price

basis.

In

the

presence

of

such

a

social-economic

disconnect,

the

virtual

community

represents

nothing

more

than

a

convenient

aggregation

of

potential

customers

(similar

to

the need

based

opportunity

group

of

Figure

1).

The

virtual

community,

while

socially

valuable,

does not

provide

economic differentiation.

The

challenge,

therefore,

is

to

ensure

that economic and

social

activities

are

integrated

rather

than

merely

coincident. For

an

example

of how

this

might

be

accomplished,

consider this

situation:

Example

2.

Kay

is

an

active

member

of

a

virtual

community

based

on

ethnicity

that is

active

in the

United States.

She

frequently

contributes

to







128

SRIDHAR

B

ALAS

UB

RAMAN

I N

AND

VIJAY AHAJAN

the

political

and

literary

sections

of

this

community. Kay's

elderly

parents

are

due

to

travel

from

her

native

country

to

visit

her,

and

thiswill

he

their

first

visit abroad.

Kay

is

concerned

about their travel and

wishes

to

link

them

up

with

other,

more

experienced

travelers

who

share

the

same

travel

plan.

A travel

agent

associated with the

community

offers

this

service,

and

links

up

Kay's

parents

with

some

community

members

who

are

returning

to

theUnited

States

after

visiting

their

native

country.

Kay

purchases

the

tickets

for

her

parents

from

the

agent,

and

willingly

pays

a

premium

over

the

prices

available

from

outside

sellers.

In this

case,

the

social

aspects

of the

community

have been

leveraged

to

facilitate the economic transaction. Kay derives consumption utility in that

her

concerns

about

her

parents'

travel

are

now

addressed.

The

community

members

accompanying

her

parents

derive both

focus-related

utility

(in

that

the

unity

and

purpose

of the

virtual

ethnic

community

to

which

they belong

are

reinforced

by

their

actions)

and

approval

utility

(in

that

Kay

is

personally

thankful

and

publicly acknowledges

their

assistance

in

a

posting

to

the

vir

tual

community's

travel

section).

All

the

parties

to

the

joint

social-economic

exchange?Kay,

the

accompanying

community

members,

the

travel

agent,

and

the

organizer

(who

receives

a

commission

from

the

travel

agent)?have

gained

from

the transaction.

The economic exchange process in the preceding example is embedded

within the

underlying

social

exchange

processes.

The

term

economic

->

so

cial

grafting

(read:

economic

on

social

grafting)

describes this

strategy.

Eco

nomic -asocial

grafting

can

be

formally

defined

as

the

integration

of

economic

exchange

with

the social

exchange

processes

already

occurring

in

the virtual

community,

so

that economic

exchange provides

a

combination

of

focus-re

lated,

consumption,

and

approval-related

utility

to

some

or

all

of

the

commu

nity

constituents.

Since

consumers

continue

to

choose the

option

that

offers

them the

greatest

utility,

the

outcomes

of

economic

-?

social

grafting

are con

sistent

with

rational choice.

Such

grafting

merely

ensures

that

the

utility-pro

viding aspects of social interactions are

leveraged

within the economic context.

For the

economic

leverage

of

the

virtual

community,

economic differentia

tion

must

feed

on

social

exchange.

However,

since

appropriate

virtual

com

munities that

are

naturally

associated with

every

product

or

service

may

not

always

be

readily

available,

is

it

possible

for

a

seller

to

move

toward

eco

nomic?asocial

grafting

by

first

achieving

social?>economic

grafting?

The

Sat

urn

Corp.

subsidiary

of

General

Motors

provides

an

example

of

how

this

can

be

achieved. In the

competitive

market

for

cars,

Saturn

has

consistently

sought

to

build

a

community

among

Saturn

owners

and

dealers.

Saturn dealers

have

contributed

to

building

Little

League

baseball

fields

and

over

150

playgroundsfor children in

needy

areas.

Saturn customers

are

encouraged

to

form

local

Saturn CarClubs

in

coordination

with the

dealers. The

CarClubs

arrange

excursions

and

social

service

activities

(including

homebuilding

for

Habi

tat

for

Humanity

and

blood

donations

to

the Red

Cross).

Once

a

sense

of

community

is

established

around

Saturn

ownership,

eco

nomic-asocial

grafting

follows

because

buying

a new

Saturn

is

seen

as

a

means

to

continue

identifying

with the

community

and

sharing

in

its

benefits.

It is







INTERNATIONAL

JOURNAL

OF

ELECTRONIC COMMERCE 129

important,

however,

for

Saturn

to

manage

its

entire

range

of

activities in

a

way

that

is

consistent with

the

norms

of

its

community.

For

example,

Saturn

builds

on

the

feeling

of

community

in

its

competitive

positioning

( A

differ

ent

kind

of

company ),

the

way

its

manufacturing plants

relate

to

their

sur

rounding

communities,

the

nature

of

its

relationship

with

employees,

and the

way

it

sells

cars

at

dealerships

( no

hassle,

no

haggle pricing).

While

Saturn's

community

operates

mainly

in

a

nonvirtual

setting,

its

approach provides

useful

insights

into

how

virtual communities

can

be built

even

around

offer

ings

that,

at

first

sight,

seem

poor

choices

to

serve as

a

focus

for

community

formation.

Economic-?social

grafting

may

occur

beyond

the confines

of the

immedi

ate virtual community. For example, the on-line bookseller A (in Example 1

above)

could

announce

that

a

small

percentage

of

the

monetary

value

of

ev

ery

sale

to

a

consumer

would be

plowed

back

into the

school district where

the

consumer

resides

to

help provide special-learning

programs

for

disad

vantaged

students.

In

this

case,

economic

activity

would

be

grafted

into

the

social

milieu

of

the

local

community

to

which

the

consumer

belongs

rather

than

a

virtual

community

organized

by

the

seller.

When

no

natural

way

exists

to

achieve economic-? social

grafting

within

an

immediate virtual

commu

nity,

such

monetary

transfers could achieve

a

lesser

level

of

grafting.

Managerial

Guidelines for

Economic

Leverage

In

virtual

markets,

consumers

can

efficiently

explore

the

dispersion

of

seller

prices.

In such

markets,

business

models that

consider

the

virtual

community

as

merely

a

convenient

aggregation

of

individuals

who

can

be

subjected

to

broadcast

information

about

sellers

(e.g.,

via

advertisements

on

community

Web

sites)

are

likely,

at

most,

to

be

only

moderately

successful.

Individual

community

constituents retain the incentive to

separate

transaction from

so

cial

interaction

and

seek

out

the

most

attractive

prices.

Consequently,

creative

economic

-?

social

grafting

is central

to

the

economic

leverage

of

the

virtual

community

Economic

leverage

can

provide

meaningful

and sustainable com

petitive advantage

when the

economic

activity

associated

with

the

virtual

com

munity

is

embedded within

its

social

interactions,

is

sensitive

to

the

goals

and

focus

of the

community,

and

closely

integrates

the transaction

context

with

the

community

context.

When

economic

activity

is

closely

linked

with

the

bedrock of

social

interac

tions,

substantial

adjustments

may

be

required

in

the

marketing

strategies

employed.

Table

4

provides

a

description

of

how

key

dimensions

of market

ing

strategy

need

to

be

reconsidered when

marketing

to

a

community-based

opportunity

group

whose

constituents

are

involved

in

a

process

of

social

in

teraction,

as

opposed

to a need-based

opportunity

group

where there is little

social

interaction

(also

see

Figure

1).

When

marketing

to

a

need-based

opportunity

group,

a

manager

can

draw

upon

several

traditional,

well-established

marketing

concepts,

including

those

related

to

segmentation,

product design,

and

positioning.

The social interac

tion

between

the

constituents

is,

at

most,

of

limited

consequence

here. The

situation

is

considerably

different when economic

activity

is

embedded in the







Dimensionfomparison

Need-basedpportunityroup

Overallbjectiveoncreasearketfficiencyyoweringransactionnd

communicationosts,ndchievingconomiesfcale.

Objectivesfembersellersndntermediariesaximizerofit,

consumers maximize

product/service

consumption utility.

Basisortilityndhoiceomparisonfricesndualityfferedyll

accessibleellers.

Rolefntermediary/rganizerntermediaryssumesesponsibilityorfficient

interfacingfellersithonsumers.

Producttrategyroductsreesignedoitonsumereeds.

Pricing Pricing is based on

perceived

consumer value for product.

Managing

competition

Competition is

managed

by

striving to provide

superioralue.

o

irtual)

Community-based

opportunity group

To build an economically

viable

community

that emphasizes social

interactionetweentsonstituentss asisorointocialnd

economicxchange.

Associatedellersndommunityrganizersaximizerofits,

onsumersaximizeheumftilityromroduct/service

onsumptionndromocialnteractioni.e.,ocus-related,

consumption,

and

approval

tility).

Abilityfommunityonstituentsorawnesourcesfther

constituents in

realizing

full

otential of product.

Alignmentfconomicxchangeithocusfommunitye.g.,

environmental advocacy,

ethnicity).

Integration of social and

economicxchange.

Organizerfommunitysesponsibleorreservingocusf

community,acilitatingocialnteractionetweenommunity

constituents, ensuring that

sellers

are

ligned with focus of community,

andncouragingconomic??socialrafting.

Productsrelliedithocusfommunityndayequire

constituent contributions for

full

ealization

of their potential. Products

are positioned in wayshat

encourage

community formation based

on product

ownership

(e.g.,

aturn Corp.).

Pricing is partly based on

perceived

consumer value for product, but

also reflects additional

value

onsumers

derive from alignment of

product with focus of

community,

and

rom contributions of ot

community

constituents

to product.

Competitions anagedothyrovidingaluendydentifying

economic activity with focus

of

community,

so that cons

fewerncentivesowitchoutsideellers.







utations

Sellers

organize

independent branding efforts;

intermediaryssumesomeesponsibility

fornsuringellerrustworthiness.

ding consumer behavior

Focused

onnderstanding preferences and

choice processes

employed

byonsumers.

Indditionorandingffortsndntermediarynputs,nteraction

withinheommunityanrovideignalsfellererformancee.g.,

through

word-of-mouth

effects).

Indditionoheraditionalmphasisnnderstandingreferences

and choice processes,

focused

on

nderstanding how social

interactionaneeveragedoreatenterestnroductsnd

services.

ed-based Opportunity

Group

Versus

aVirtual) Community-Based Opportunity Group.







132 SRIDHAR BALASUBRAMANIANAND

VIJAY AHAJAN

Describes

Does

not

us

describe

completely

us at all

Our

virtual

community

imparts

distinct

sense

of

identity

o

its onstituents.

5

4

3

In

ur

virtual

community,

we

make

a

conscious

effort

to

recognize

conflict and

provide

mechanisms

to

manage

conflict.

5

4

Our virtual

community

has

a

well-defined

social

focus around

which

its

ctivities

are

organized.

5

4 3 2

Our virtual

community

has

a

well-understood

set

of

norms

that

guide

the behavior and contributions

of

constituents.

5

4

We

publicly

recognize,

but

do

not

compensate,

thought

leaders and

opinion-makers within our virtual community. 5 4 3 2

We

make

it

easy

for

contributors

to

obtain

a

cumulative record

of

(a)

their

wn

contributions

over

time,

nd

(b)

of

the

other

community

constituents'

reactions

to,

and

appreciation

of,

their ontributions.

5

4

2

We

have

researched

the

specific

motivations

of

our

virtual

community

constituents thatdrive their

membership

and

participation

in

the

community.

5 4

3

2

Our

virtual

community

is

well

differentiated

in

terms

f

values

and

objectives

from

communities

organized by

competing

sellers.

5

4

2

We

provide

our

community

members

with

a

compelling

reason,

other

than convenience

or

purely

economic

considerations,

to

buy

from

us

rather

than

from

competitor

who

offers

a

lower

price.

5

4

3

2

Economic

activity

within

our

community

is

closely

linked

to

social

activity.

5

4

3

2

When

our

community

constituents

buy

from

us,

we

make

them

feel

that

they

re

contributing

to,

nd

advancing

the

interests

f,

the virtual

community.

5

4

3 2

Sellers associated

with

our

community

have

a

natural

affinity

ith

the

community's

focus

(e.g.,

a

seller

of

environmentally

friendly

etergent

has

a

natural

affinity

with

a

virtual

community

focused

on

the

environment).

5 4

3 2

We

encourage

real-world,

local

community

formation

mong

our virtual community constituents (e.g., a neighborhood book club). 5 4 3 2

When virtual

community

constituents

purchase

from

us,

we

contribute

part

of

the

proceeds

to

some

aspect

of their

local

community

(e.g.,

the

local

school

district).

5

4

3

2

We

provide

constituentswith

a

compelling

reason

to

frequently

return

and

participate

in

the

virtual

community

even

when

they

have

no

immediate

purchase

plans.

5

4

3

2

Our

organization

and

operations

are

all consistent with the

spirit

nd

goals

of

our

virtual

community

(e.g.,

we

do

not

tolerate

anonymous

efforts

by

sellers

to

influence

community

opinions,

even in

return

for

compensation).

5

4

3 2

Table 5.

A

Self-Assessment

Score

Sheet

for

the

Management

and

Economic

Leverage

of

a

Virtual

Community.

Higher

scores are

better.







INTERNATIONAL

JOURNAL

F ELECTRONIC COMMERCE

133

social

interactions of

a

community-based

opportunity

group.

As

described

in

Table

4,

a

number

of

dimensions

of

marketing strategy

need

to

be evaluated

differently,

including

the notion

of

the

product,

the

bases

for

consumer

choice

between

competing

offerings,

and the

role of the

intermediary

or

community

organizer.

For

example,

the

product

may

no

longer

be

delivered

by

the

seller,

but is

coproduced

by

the

community

constituents.

In

addition,

offered

prod

ucts

and services

must

be chosen

and

positioned

to

achieve

an

alignment

with

the

community

focus,

or,

alternatively,

the

proceeds

from

the

sales

can

be

par

tially

diverted

to

pursue

the

community's

goals.

Many

of

the

differences de

scribed

in

Table

4

are

evident

in

the

contrasting

examples

discussed

in the

text

above.

The

economic

leverage

of the virtual

community

fails

in

Example

1 (where the community is treated more like a need-based opportunity

group),

but succeeds

in

Example

2

(where

there is active economic

-?

social

grafting).

Table

5

contains

a

set

of

evaluative

statements

that

can

be

used

to

assess

(a)

whether

conditions

for

healthy operation

of

the

virtual

community

have been

created,

and

(b)

whether economic

?>

social

grafting

has been

facilitated. The

first

seven

statements

in

the

table draw from

selected

perspectives

in

the

lit

erature

discussed earlier

in

this

paper,

such

as

issues

related

to

community

identity

and

differentiation,

conflict

recognition

and

management,

and the

role

of

norms.

The last nine

statements

pertain

to

the

concept

of

economic

?> social grafting. For example, issues related to the alignment of the sellers

with

the focus

of the

community,

the

consistency

of

economic

activity

with

the

spirit

and

goals

of the

community,

and

the

alignment

of focus-related

util

ity,

onsumption

utility,

and

approval utility

of

the

constituents

with the

eco

nomic

activity

of the

community

are

covered here.

Table

5

can

be

employed

as

a

self-assessment

tool

by

organizers

of virtual

communities.

Conclusion

There has been much enthusiasm about the economic potential ofvirtual com

munities.

Achieving

this

potential,

however,

is

a

challenge.

Adopting

the

view

that

a

virtual

community

is

a

social

entity

at

its

core,

this

paper

examines its

management

and

economic

leverage.

Successful

economic

leverage

must

achieve

a

harmonious

interplay

between

the social

and

economic

motivations

of

community

constituents. This

inter

play

has

important

research

and

managerial

implications.

First,

for

the

re

searcher,

it

implies

that

a

meaningful study

of

leverage

should

accommodate

both

social

and economic

influences

on

constituent

decisions. To facilitate such

research,

this

paper

offers

a

review of

a

range

of

intellectual

perspectives

that

pertain

to the

sociology-economics

interface.

Second,

for the

community

or

ganizer

and

associated

sellers,

this

interplay implies

that

marketing

strategy

must

be

designed

so

that economic

activity

is

embedded

within,

rather than

merely

coincident

with,

social

interactions. To

facilitate

this

task,

the

concept

of economic

-?

social

grafting

is

introduced,

and the

role

of

marketing

strat

egy

in

facilitating

such

grafting

is discussed.

The economic

leverage

of

a

virtual

community

can

be

entirely

consistent







134 SRIDHAR BALASUBRAMAN1AN ND

VI)AY

MAHAJAN

with

profit-maximization,

and

even

with

the

strong

argument

that

the

only

social

responsibility

of business is

to

create

shareholder value

and

to

do

so

legally

and

with

integrity

[53,

p.

5],

Successful

leverage

does

not

allow social

motivations

to

overwhelm,

or even

dilute,

profit objectives.

Rather,

it

creatively

aligns

economic

activities

so

that

the

community

constituents reward

the firm

for

satisfying

both

their

product-related

utilitarian

needs

and

community-re

lated

social needs.

The

economic

leverage

of

the virtual

community

presents

an

excellent

op

portunity

to

revisit the

integration

of the

economic and social

aspects

of

con

sumer

decisions.

While this

paper

takes

some

early

steps

toward such

integration,

much remains

to

be

formalized

in

conceptual

and

theoretical

terms,

and tobe investigated in empirical terms. The authors hope that this paper

will

catalyze

further research and

encourage

creative

managerial

initiatives

related

to

the

economic

leverage

of

virtual

communities.

NOTES

1. For

a

general

analysis

of

the

strategic

implications

of

the

information

intensive environment

for markets and

marketing,

see

Peterson, Balasubramanian,

and

Bronnenberg

[51],

and Wind and

Mahajan

[74].

For

a

detailed

history

of

the

development

of

virtual

reality,

irtual

communities,

and

the

Internet,

ee

Rheingold

[55,56] and Kitchin [32],For an analysis of the research-related implications of the


environment,

see

Mahajan

and

Venkatesh

[39].

For

a

specific

methodology

to

research

market-oriented

virtual

communities,

see

Kozinets

[33].

2.

Herbert Blumer

expands

on

these

ideas inhis

theory

of

symbolic

interactionism

[9].

3.

However,

M?nch

criticizes

efforts

to

explain

all

social

phenomena

in terms

of

rational choice

[45].

For

example,

rational-choice

explanations

for

habits, frames,

or

traditions

propose

that

they

exist

because

it

is

more

costly

for

rational individual

to

change

them

than

to

continue

with

them.

M?nch

argues

that such

reasoning

overturns

the

meaning

of

habits,

frames,

and

traditions

as

the

unnoticed,

unques

tioned,

and

nondisposable

determinants

of

action that

set

the

conditions for

rational

action.

Accordingly,

he

asserts

that rational

theory

cannot

itself

explain

the

nonrational conditions under which rational action takes

place (p.

79).

4.

Even

in the

marketing

literature,

as

Lehmann

notes,

the

social

aspects

and

socially

constructed

notions

ofmarkets

and

marketing

have

been

insufficiently

emphasized

[34].

Lehmann

argues

that

consumption

and

patterns

of

product

use

over

time,

trends,

social

behavior,

and

the

role

of

relationships

all

require

further

exploration.

5.

We

thank

an

anonymous

reviewer

for

bringing

this

analogy

to

our

notice.

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AN

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V1JAY

AHAJAN

77.

Zafirovski,

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SRIDHAR

BALASUBRAMANIAN

([email protected])

is

as

sistant

professor

of

marketing

and track

chair for customer

relationship

management

in

the

Center

for

Customer

Insight

(CCD

at

the

University

of Texas

at

Austin. His

research interests

include the

implications

of

the

information

revolution formarket

ing,

channel-portfolio

management,

customer-relationship

management,

and

the

de

sign

and

pricing

of

consumer

options.

He

has

tackled

problems

in

these

areas

using

game-theoretic,

empirical,

and

conceptual approaches.

His

teaching

interests focus

on

the

interface between

technology

and

marketing.

Dr.

Balasubramanian

is

the

re

cipient

of

the 1998

John

.C.

Little

Award

from

INFORMS for

the

most

distinguished

marketing

paper

published

in

Marketing

Science and

Management

Science. The Acad

emy

of

Marketing

Science

recognized

his

dissertation

as

one

of

the

top

four

marketing

Ph.D. theses for

1996-1997.

VIJAYMAHAJAN

([email protected])

holds the

John

P. Harbin

Centennial

Chair

in

Business

in

the

Graduate

School of

Business,

University

of

Texas at

Austin.

He

received

his

B.

Tech.

in

chemical

engineering

at

the

Indian Institute

of

Technology

at

Kanpur

and

his

M.S.

in

chemical

engineering

and Ph.D.

in

management

from

the

University

of

Texas

at

Austin.

Professor

Mahajan

has

researched

and

written

exten

sively

on

product

diffusion,

marketing

strategy,

nd

marketing

researchmethodolo

gies.

His research interests nclude

marketing

issues

in

the

digital

economy.

He

received

theAmerican Marketing Association (AMA) Charles Coolidge ParlinAward in 1997,

and

the

AMA

Gilbert Churchill

Award

in 1999

for lifetime

chievement

in

marketing

research.

In

recognition

of his

achievements,

the

AMA,

in

1999,

instituted the

Vijay

Mahajan

Award

for

Career

Contributions

to

Marketing

Strategy,

to

be

presented

annually

to

an

educator for

sustained

contributions

to

the

literature

on

marketing

strategy.

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