Users who take part in online communities often develop deep attachments that have a series of consequences on their lives. We argue that in order to understand this long-term loyalty and its effects, it is useful to analyse it as a form of switching cost, often generated by specific features of the sites.
Online Markets are often supposed to be very fluid, i.e. very open to competition. However, the high level of profits that some online business achieve, and the extremely high valuation that the financial markets assign to some online business shows that some form of barriers to competition are at work. The paper starts by analysing the traditional barriers to entry in the offline world. It suggests that most of these barriers have little effect online, with the exception of User Preferences (a specific form of switching costs). In particular, User Investment – a form of User Preference characteristic of the web – is often so strong to represent a Barrier to Exit (BtE) for the users. Data analysis shows that such BtE are particularly active in the presence of online Communities (defined here in the wider sense of sites where users exchange something such as information, goods, services, money etc) among themselves. The paper analyses the forms of these BtE in details, showing when and how they work. Recent developments in the online business world discussed in the paper fit very well with this analysis. Since these BtE based upon User Investments, especially in an online community context, have a strong emotional element, and tend to expand both in terms of time spent and in terms of personal commitment, they obviously have a major impact on the social and personal well being of the users. The paper discusses these elements, putting them in a relationship with the business needs on one side, and on users’ mass behaviour on the other.
The traditional barriers to entry can be categorised as:
- Investment: advantages deriving from the fact that it requires a large investment for a new entry to catch up.
- Technology: advantage based on the use of proprietary technology.
- Regulations: advantages due to the effect of some market rules.
- Network Effect: this is the well-known effect by which some products are useful only when they reach a critical mass of users (e.g. the telephone system).
- Switching Costs (including Users’ Preferences): advantages due to the fact that the users prefer to stay with their existing supplier, because of advantages in staying or of disadvantages in moving.
For each category, a definition is provided in the full paper, and it is then shown how that particular barrier applies in general to the online world.
Various aspects of User Preference are discussed in the paper: inertia, inducements, personal investment. The paper then concentrates on User Personal Investment, which our analysis shows to be the biggest factor in users’s retention. This is thus shown to be a major Barrier to Exit (BtE).
Users’ Own Investment is a very special form of Users’ Preference, as it is not based on giving something extra to the user, but on the principle that the user has invested heavily in the site and would lose the investment if they switched. This effect can be observed in the offline market too, but it is very marginal. In the online world users may have invested the equivalent of several hours a day for a year or more (plus the emotional and social investments), so the switch can be traumatic. The mechanism in the online enviroment which causes such investment is examined in details, followed by a description of the social, emotional, psychological effects on the users.
Of course such mechanisms are present in the offline world, but usually outside the business sphere. The novelty is that in the online world such features are crucial in the business world too.
the online world is fundamentally discrete, unlike the offline world, which is fundamentally continuous in our perception. E.g., if a consumer buys an item offline, by and large they can take it with them wherever they want. If they establish relationship in a particular environment (e.g. work or study), those relationships can easily carry on in other environments; if they make a reputation for themselves in a field, that reputation travels with them and so on. Online, it is very different: virtual objects bought or created in a site usually exist only there; relationships acquired in a site usually remain there, unless an external contact is made (which is why many sites try to stop that to happen); reputation, power, image etc. exist only in a particular site and cannot be carried outside and so on.
The User Investment (UI) can be categorised as follows:
- Relations networks
- Public Image (prestige, leadership etc.)
- Virtual Objects Possession
- Specific Knowledge
- Evolution from below
Each of the UI categories can in turn be described in terms various subcategories as follows (which are fully described in the paper):
- Organised social structure
- Explicit rules with clear consequences
- Hierarchies/careers’ structure
- Variety of roles (creation, control, entertainment, enterpreneurship, information, deviancy etc.)
- Emergence of elites
- Precise duties and limits
- Possession of virtual objects
- Guarantee of ownership
- internal transfer
- Social use/sharing (even outside)
- New trend: external convertibility
- Specific knowhow
- Evolution from below
Observable trends support our theoretical forecast that more and more sites, and in particular all the very successful and profitable ones, must move towards some form of community, or see their market share attacked and their profit levels reduced. The most recent observations about this in the fields of online retail and email use patterns are quoted. Also, the web sites which are based on some community are bound to attempt an increase in User Investment, which is also pushed by the users’ dynamics. Finally, some impacts of this process on the users, both personally and socially, are discussed.