Starting Your Own Online Community for Convenience and Profit

The tools provided by the AOL APIs and especially by Userplane make it relatively easy for a single person or a small developer team to start an online community equipped with an already-scaled infrastructure. Yesterday's Wall Street Journal featured an interesting article that will be of interest to anyone who is thinking about this.

"Turning an Online Community Into a Business", by David Enrich, tells the stories of several online communities that started out as somebody's hobby or part-time project, which then grew into full-scale businesses. The sites discussed in the article are:

• Quentin's Friends: an electronic marketplace for people who are looking for just about anything in New York
• A Small World: a private networking site for professionals who work internationally (for example, diplomats)
• MothersClick: a place where moms can connect, find play groups, and share information

A Growing Trend...

Sites like these are part of a growing trend, according to the author:

Quentin's Friends is part of a growing group of small online communities that started as hobbies but are evolving into viable small businesses. While these niche sites don't attract as much attention as social-networking standouts like MySpace and Craig's List, they are demonstrating that even small players have the potential to become profitable if they establish a community that others will want to be a part of.

Charlene Li, an analyst at Forrester Research Inc. in Foster City, Calif., says niche sites can succeed because there's a pent-up demand for sites that cater to specific interests and demographic groups. They are "filling the gap left by giant sites like MySpace," which are so big that it can be hard for users to find information and like-minded people, she says.

Profit Models

Quentin's Friends was started in June 2000 by Quentin English, who was frustrated at the time by the inefficiency of trying to assist friends who were seeking apartments and roommates in New York City. So he set up an online forum to allow about 25 of his friends to share information about what they were seeking or what they knew was available. Soon, friends of friends started joining, and the topic list expanded.

In 2004, after the site had grown to 5000 members, Quentin started charging membership fees. About 75% of the members left the site, considering a fee of a few dollars a month more than the site was worth. Predictions were that up to 95% of members would leave. The likely reason more people stayed with Quentin's Friends is because the site membership is by invitation only, and you are kicked out for bad behavior. So, members enjoy some security that they feel is indeed worth a few dollars a month.

If you take the current membership of about 1400 and multiply the numbers, it would seem that Quentin's Friends is grossing about $5000/month. Subtracting business costs and dividing by the 125 or so monthy hours of Quentin's time the site occupies, and ... It's probably a lower hourly rate than what Quentin earns at his full-time job at Citicorp. Nonetheless, he's planning to go global before long (which could indeed prop up that hourly rate).

A Small World was started in March 2004 by Eric Wachtmeister, a diplomat's son. He wanted a way to stay in touch with diplomats and others he had met around the world. The site is invitation only, but it does not charge a membership fee. Rather, it makes money through ads for high-end products. 160,000 affluent members have caught the interest of investors as well, several of whom have bought into the business. It is a very exclusive site, with only 10% of members having the right to invite others to be new members. With 18 current employees, operating out of New York City, I'd certainly think the business must be grossing $1.5 Million or more (if it's currently profitable--the article doesn't say). "I didn't plan for it to become such a runaway phenomenon" says Eric, who expects the number of employees to double in the next year.

MothersClick was formed in 2006 by new mom Andra Davidson, who like Quentin was frustrated with email as a means of information exchange. The site now has 10,000 members, and has been contacted by "eager advertisers, including major ad agencies." The site is going to be redesigned soon to be "more advertiser friendly." The question, of course, is can this transition happen without alienating the users?

Can Ads Work?

The use of ads as an income-generating mechanism can have a lot of different results. In Quentin's case, when he put ads on his site very few people clicked on the ads. Perhaps this was because people visiting QuentinsFriends.com were already finding what they were seeking on the site itself.

In the case of A Small World, the affluence and exclusivity of the membership has apparently brought in money from businesses that sell to affluent people. I'd guess that these advertisers are paying for their ad space on the site. And, having learned that exclusivity can increase demand with respect to membership, it wouldn't be surprising to me if ad space on A Small World is also carefully rationed, and doled out only to those who are willing to pay top dollar as the price of admission onto the site.

Can ads work for MothersClick? The networking concept seems great to me. A distributed network with members across the entire U.S. -- and beyond -- seems quite reasonable. Do young mothers go out and buy magazines in stores anymore? It's so much easier to use the Web for both information and, with a site like MothersClick.com, to find people who are sharing the same life situation and who have a similar perspective. I think the site is founded on a good concept. I wish them well!

Conclusion

MySpace has been done. But that shouldn't stop anyone from considering starting a unique online community. Today, it can be done as a part-time hobby initially. If it starts taking off, well then you start having pleasant decisions to make -- until you reach the point where you're deciding if you should leave your full-time job to devote every available hour to your growing project. Knowing that the great majority of business startups fail within a year or two...

As I've said previously: if I was going to do it, I'd want to start out with some already-scaled infrastructure so I could focus my time and energy on the specific characteristics that would make my online community, and my users' online experience, unique. Trying to scale your own custom infrastructure is a killer, even if you know what you're doing -- I say that from many years of experience, on Unix, Windows, and Linux platforms. One person (or a small team) cannot do it all.

As Amazon's Jeff Bezos said at the Web 2.0 Summit, it's highly beneficial for startups to leave the "muck" to those who already have built the required muck-handling infrastructure, and who offer it at a reasonable price to entrepreneurs. I see two such companies offering varied services in that realm: Amazon and AOL. With just these two behind me (including Userplane's already-scaled online community apps), I'd have all the scaled infrastructure I needed for whatever level of success my online community site could achieve.

-- Kevin Farnham
O'Reilly Media