WEB BUSINESS AND DEVELOPMENT OPPORTUNITIES

Learning from Community Networked Services

Juhana Peltonen†, David G. Messerschmitt‡† and Mikko O. J. Laine†

† BIT Research Centre, Helsinki University of Technology, Espoo, Finland

‡ Department of Electrical Engineering and Computer Sciences, University of California, Berkeley, U.S.A.

Keywords:

Web 2.0, Virtual community, Networked service system, IS development, Business development.

Abstract:

In this position paper we analyze a category of internet service ﬁrms providing what we call “community

networked services” (CNS), a concept often discussed under the broad umbrella of “Web 2.0”. In a CNS,

members of a virtual community co-create value amongst themselves with the explicit facilitation of a service

provider, often manifested by a continuously accumulating and usually open information repository capturing

user-generated content. We discuss these characteristics and their operational and managerial implications to

CNS ﬁrms, which include a smaller reliance on human workforces, a community-oriented innovation model,

a stronger disconnect between revenue and recipients of value, and greater network externalities among users.

Drawing on these observations, we argue that there is an opportunity for academic research that both under-

stands and improves upon the processes used for the integration of business development, IS development, and

user support in CNS ﬁrms. Not only can such research help improve the performance of CNS ﬁrms, but given

the high risk tolerance and experimental nature of these consumer applications, it can also capture innovations

and best practices applicable to incumbent service ﬁrms in e-commerce and enterprise software applications.

1 INTRODUCTION

In the context of emerging internet services both the

service and software industries are headed in a dis-

tinctly new direction, and in the process their fates are

becoming more intricately interlinked. That is the ba-

sic thesis of this position paper, building on research

reported elsewhere (Messerschmitt et al., 2008)

. A

key distinguishing characteristic of CNS’s is a focus

on loosely-coupled virtual communities whose mem-

bers co-create value internally as facilitated by a ser-

vice provider (SP)

. Examining these services identi-

ﬁes new opportunities and challenges in the manage-

ment and operations of SP’s, particularly in the in-

tegration of the business development, software and

IS development, and the customer support functions

This work was funded by the Finnish Funding Agency

for Technology and Innovation and several industry part-

ners.

CNS SP’s are organizations (e.g. ﬁrms, non-proﬁt

foundations) that strongly base their business models on one

or more CNS’s.

of a software/service ﬁrm. There is an opportunity

for both theory-building and applied research that

spreads emerging innovations and best practices and

contributes to greater effectiveness and efﬁciencies in

such ﬁrms, and also to carry the most meritorious of

these insights to incumbent service ﬁrms.

2 WHAT IS CNS?

In (Messerschmitt et al., 2008) a class of emerging

“virtual community service systems” called commu-

nity networked services (CNS) are deﬁned and stud-

ied. CNS’s involve a technical platform with func-

tionality that explicitly facilitates interaction among

members of the user community. CNS’s are a

special category of service systems

where value

This is deﬁned in (Spohrer et al., 2008) as: “A service

system is a dynamic value co-creation conﬁguration of re-

sources, including people, organizations, shared informa-

tion (language, laws, measures, methods), and technology,

546

Peltonen J., G. Messerschmitt D. and O. J. Laine M.

WEB BUSINESS AND DEVELOPMENT OPPORTUNITIES - Learning from Community Networked Services.

DOI: 10.5220/0002037505460551

In Proceedings of the Fifth International Conference on Web Information Systems and Technologies (WEBIST 2009), page

ISBN: 978-989-8111-81-4

is co-created

among community members (com-

pared to co-creation of value between users and

the SP). CNS’s serve business-to-consumer (B2C)

and consumer-to-consumer (C2C) markets, and have

some distinguishing characteristics. The most funda-

mental include:

• Community Orientation. CNS’s emphasize a

membership forming one or more user communities

on a virtual communication medium. In contrast to

formal organizations, these virtual communities are

typically transparent, pursue loose and open-ended

goals, and are loosely governed.

• Value Creation. In a CNS users deriveconsiderable

value through interactions with other users within

some particular service context. Unlike in typical e-

services, the role of the SP is merely to facilitate these

community activities while encouraging (rather than

precluding) direct user-created value.

• Information Visibility. An information repository

is continuously accumulated as a result of user activ-

ity and widely accessible to all users. It yields in-

creasing value (for both users and the SP) over time

through large quantities of public information (as op-

posed to more limited quantities of business and trade

secrets stored in corporate IS’s).

When operational and technological practicalities are

considered, other noteworthy characteristics include:

• Innovation Model. More so than incumbent ser-

vices, many SP’s appear to actively involve users in

the ongoing evolution and enhancement of services.

Exploiting the openness of the Web technologies, in-

novative capability can also be created by encourag-

ing third-parties extensions and compositions.

• Smaller Reliance on Human Workforces. The

technical platform supports direct service functional-

ity and necessary support functions (e.g. billing and

user service), and customer-facing human workforces

can, to a large extent, be “crowdsourced” to the com-

munity (for instance in governance functions).

• Operational Models. Operations require data cen-

ters managed by the SP, though third parties can also

host infrastructure pieces. The data centers realize

service-speciﬁc functions and the burden of main-

taining user-facing service-speciﬁc software follow-

ing the software as a service (SaaS) model

CNS represents a convergence of two trends:

all connected internally and externally to other service sys-

tems by value propositions.”

Value co-creation (Vargo and Lusch, 2004) is con-

trasted with transactions in which there is a clear distinction

between the “sources” and “recipients” of value.

In SaaS, the installation of service-speciﬁc software in

the users’ access devices is avoided by executing software

in the data center or by software dynamically downloaded

and executed in the user’s environment.

• Service Provider Evolution. The service indus-

tries are moving toward increased online presence and

using information systems to displace human work-

forces in both service and user support functions.

• Software Industry Evolution. Software vendors

increasingly emphasize social applications that sup-

port interaction and collaboration among users, and

also “cloud computing” and SaaS as channels for soft-

ware distribution.

In the context of CNS, the application software ven-

dor and online services industries appear indistin-

guishable. CNS ﬁrms are both software vendors

(which seek a proﬁt through leveraging a major com-

petency in software) and service ﬁrms (which seek a

proﬁt providing capabilities to consumers). A major

enabler for this industry convergenceis the ubiquitous

Internet and a software platform based on the Web

open standards.

Some informative examples of CNS SP’s include:

• LinkedIn (

www.linkedin.com

) is a free-for-use

professional advertising-supported networking ser-

vice. By making use of user-provided content, sub-

scribers can maintain professional contacts, keep in

touch with job opportunities, and seek expert opin-

ion. Subscription-based premium accounts provide

extended functionality.

• eBay (

www.ebay.com

) facilitates auctions and sup-

porting community activity for individuals, small

businesses, and enterprises. Users can rate sellers and

buyers, discuss and chat about topics of interest, form

interest groups, and attend online and ofﬂine events

and workshops. It charges an auction fee plus a per-

centage of the selling price.

• Facebook (

www.facebook.com

) is a free-for-use

social networking service that proﬁts by selling adver-

tising, opinion polls of the membership, and virtual

goods. Users can create networks of “friends”, main-

tain personal proﬁles, create groups and events, share

photos, and use add-on applications. Third-parties

can deploy extensions utilizing an open API, and host

the extensions on their own servers.

• Wikipedia (

en.wikipedia.org

) encourages users

to collaborate on editing articles, and enables them to

view article histories and discuss articles with other

users. The result of these collective volunteer efforts

is a huge and widely available knowledge repository.

CNS is a hotbed of innovation, leveraging the

willingness of consumers (especially young ones) to

take risks and to center their lives in new online-

oriented ways. The “pure” CNS ﬁrms that we ob-

served are entrepreneurial startups, while some in-

cumbent e-commerce ﬁrms (like Amazon and eBay)

have adopted CNS ideas to enhance their existing

services. Similarly there is an opportunity to adapt

WEB BUSINESS AND DEVELOPMENT OPPORTUNITIES - Learning from Community Networked Services

547

the best ideas from CNS in various incumbent or-

ganizational and enterprise applications, making the

CNS concepts, techniques, opportunities, and chal-

lenges a topic of larger interest. Business-to-business

(B2B) and enterprise applications are appropriately

more conservative and risk adverse, but many suc-

cesses in CNS can be extended to these domains as

they are qualiﬁed as valuable and mature.

3 OTHER PERSPECTIVES

There is a wealth of pre-existing research that is rele-

vant to the study of CNS ﬁrms.

While the “Web 2.0” (O’Reilly, 2007) concept has

merit in capturing recent large-scale social and tech-

nological developments, its lack of rigorous deﬁni-

tions and overly broad scope limits its applicability

to academic research

The e-commerce literature has a long tradition in

studying online businesses. Its starting point is of-

ten that e-commerce systems are extensions of ﬁrms’

internal information systems into the online medium

with an emphasis on transactions and business pro-

cesses (cf. Alter, 2002; Wareham et al., 2005). A

shortcoming of this approach for CNS is that the

social complexities underlying community activities

that are central to CNS are difﬁcult to characterize in

terms of processes or ﬁnancial transactions, and re-

quire different analysis techniques

. E-services are

an extension of e-commerce from goods to services,

while the focus remains (in our view) within the scope

of B2B and B2C.

Research on virtual communities partially ad-

dresses these shortcomings by studying their nature

and constructs associated with value (cf. Lin and

Lee, 2006). However this literature rarely considers

broader operational and business issues faced by the

SP when their business is predominantly focused on

virtual communities. The knowledge management lit-

For instance, features for managing professional net-

works are increasingly utilized within organizations and re-

ﬂected in enterprise software functionality.

For instance, the discussion here is generally not ap-

plicable to Web 2.0 ﬁrms and applications such as Google

Search, AdSense, and BitTorrent due to our stronger as-

sumptions about the user community. For instance, Google

Search (not a CNS but Web 2.0) identiﬁes central web pages

with a Web crawler and data mining approach, whereas

Wikipedia (both Web 2.0 and strongly a CNS) requires ex-

plicit social interaction among user-authors in its approach

to harnessing collective intelligence.

Indeed, the only identiﬁable business process in some

CNS ﬁrms is display advertising and related revenue collec-

tion.

erature identiﬁes organizational knowledge as a po-

tential source of competitive advantage (see the re-

view by Metaxiotis et al., 2005), and this perspective

is relevant to CNS ﬁrms. Nonetheless, CNS users re-

side on the vast internet scale rather than within orga-

nizational boundaries and operate on open informa-

tion that has few policies governing its distribution.

Research that accommodatesthese differenceshas be-

gun to emerge (cf. Koh and Kim, 2004).

Literature with a technological orientation (e.g.

software as a service and web information systems) is

highly relevant to CNS, as these technologiesform the

foundation of community interaction and information

access and capture. However in most CNS’s, fairly

generic Web technologies are used

Nearly all aspects of CNS have either been studied

separately to some extent or fall within the domain of

existing disciplines and research tracks. However it is

the combination of community orientation, value cre-

ation models, and information visibility that together

have operational and business implications worthy of

further inquiry. The reminder of this paper supports

this premise.

4 STAKEHOLDERS AND VALUE

The business environment of a CNS is a particularly

complex one involvingnumerous stakeholders and in-

tricate relationships between value (from whom and

to whom?) and revenues (from whom, and why?).

This section outlines some of these complexities, and

the following section relates them to speciﬁc manage-

ment challenges. Some important stakeholders in a

CNS include:

• Service Provider. The SP is the designer and major

investor, and deﬁnes the functionality of the service

in the process of software and information systems

development and operates a technology platform that

supports the service

. The SP underwrites most of

the development and operational costs, and expects a

return on investment.

• Users. The users are direct beneﬁciaries of the

CNS, making use of the functionality and capabili-

ties of the SP and engaging in cooperative activities

with other users. The users typically also provision

There are exceptions like Second Life, There, and

World of Warcraft that use other technologies with richer

user interfaces than afforded by the Web, although they pay

a price in target market size by requiring users to install spe-

cial software and to obtain sufﬁciently powerful hardware.

This may also include outsourcing infrastructure to

third parties provisioning and operating “cloud” infrastruc-

ture and performing systems integration.

WEBIST 2009 - 5th International Conference on Web Information Systems and Technologies

548

and administer access devices

that are also a critical

part of the technological infrastructure for the service.

• Virtual Communities. Assume their own stake-

holder identity in the sense that some actions and out-

comes can be ascribed to the community rather then

individual users

• Third Parties. Include advertisers and outside de-

velopers who develop and support service extensions.

As mentionedearlier, a strong distinguishing char-

acteristic of a CNS is a greater disconnect between

how value is co-created by the various stakeholders

and the sources of revenue. Even though users are

major recipients of value, they typically use the ser-

vice for free

. The value they derive is exploited by

the CNS ﬁrm to retain these users and attract new ones

and to encourage them to actively use the service. To

increase this value, the CNS ﬁrm may explicitly en-

courage extensions or compositions with complemen-

tary services, and may share revenues with developers

and/or providers

The business model of a CNS ﬁrm seeks to con-

vert the various sources of value into revenue. This

is complicated (in comparison to e-commerce, for ex-

ample) in several important respects. While users are

a primary target in the design of the service, they are

often not the major source of revenue. That accrues

to third parties such as advertisers. The effectiveness

of display advertising is enhanced as more informa-

tion is available about the user’s context and inter-

ests. Many CNS’s can provide a considerable amount

of such information to aid the targeting of ads orig-

inating from user proﬁles, user behavior, and user-

generated content

A primary focus of the service design is attracting

These may include personal computers, smart phones,

game consoles, etc.

An example is a poll or a discussion that arrives at a

consensus position representing the conclusion of the com-

munity as a whole rather than individual members.

Arguably community orientation has some role in this:

pieces of user-provided content are rarely something users

would pay for, even if they high quality and ample. CNS’s

also often serve non-professional activities, as content cre-

ation is not mandated by an organization.

An extension adds capabilities to the CNS, and can

be hosted by the CNS ﬁrm or by a third-party provider

(Messerschmitt et al., 2008). A composition occurs when

the extension is itself a fully functioning stand-alone ser-

vice, and often requires extensions to achieve integration

of the two applications. An example extension is a user-

developed application in Facebook and an example compo-

sition is the integration of the interactive globe of Google

Earth that links to other sources of content like Wikipedia

(articles) and Picasa (images).

This raises considerable privacy concerns which should

be addressed in the governance policies.

and retaining users, because their activities are usu-

ally at least an indirect source of revenue, and with-

out the users the service would be pointless. The

importance of community to users introduces strong

network externalities (a success-breeds-success phe-

nomenon) and switching costs that discourage users

from moving to competing services

. The lack of

formal organizational boarders and information open-

ness act to magnify these effects.

The emphasis (or lack thereof) on extensions and

compositions is a challenging business and design is-

sue involving tradeoffs between the risks of security

holes and poor quality and a possible loosening of

the relationship with users on the one hand, against

the considerable beneﬁts of bringing to bear consid-

erable energy and innovation through complements,

economies of scale, and stronger network externali-

ties on the other.

5 BUSINESS AND IS

There are numerous challenges in managing a CNS

ﬁrm. Among the most notable is the difﬁculty in

deﬁning successful business models in a complex and

changing environment. There are at least three related

issues:

• Business Development. focuses on what users ac-

tually want, as opposed to what the entrepreneurs may

have originally conceived.

• IS Development. focuses on realizing the function-

ality envisioned for the service, maintaining the func-

tionality as problems arise, and evolving and expand-

ing functionality as additional user needs arise.

• User Support. focuses on assisting the users as they

encounter challenges or problems, as well as remov-

ing those challenges or problems as they are identi-

ﬁed.

Our position is that these three classes of business

challenges are more intricately linked, when com-

pared to incumbent online services bearing limited

CNS characteristics. In addition, the very nature of

a CNS opens opportunities to do these things better.

Business and IS development are more intricately

coupled in a CNS for the following reasons:

• Connecting Value with Revenue. As described in

Section 4, this connection, which is difﬁcult enough

in incumbent services, is considerably complicated

Network externalities (Katz and Shapiro, 1985) refer to

the increase in value that users perceive as the community

grows larger. Switching costs manifest ’lock-in’ (Amit and

Zott, 2001), and they include the perceived disadvantages

(in money, time, and inconvenience and similar factors) in

leaving.

WEB BUSINESS AND DEVELOPMENT OPPORTUNITIES - Learning from Community Networked Services

549

whenever there is community activity and/or third-

party developers. Thus the design of the service,

which occurs mostly in the course of software require-

ments setting, must take into account a complex set of

priorities (what can we do that will have the biggest

payoff?) and tradeoffs (how should we...?). Espe-

cially in the facilitation of community activity, it is

difﬁcult to anticipate what will be most popular with

users; frequently, minor features may turn out to be

a big win. For example, selling virtual furniture in

Habbo

was not an initial feature but has turned out

to be popular among users, and also a new source of

direct revenue.

• Capturing User-initiated Innovation. Many if not

most incumbent services are, to a large extent, au-

tomations of existing ofﬂine service functions. Ex-

amples include online retail and ﬁnancial banking and

brokerage. Our observation is that CNS’s are more

likely to set off in entirely new directions, although

this is not universal. Examples include DeviantArt

(an art community) and Twitter (a micro-bloggingser-

vice). A CNS that is most effective in capturing user’s

ideas is likely to be the most successful. The process

of capturing such ideas should actually be an impor-

tant element of service design

• Multi-ﬁrm Strategies. Multiple ﬁrms can collab-

orate in CNS development (independently or through

acquisitions) by contributing compositions with their

own information repositories and building extensions.

Business tradeoffs in make vs. license decisions in-

herent in extensions and compositions are directly re-

ﬂected in design choices. Beyond this, standardized

vs. proprietary decisions are deeply intertwined with

business and technical considerations.

• Governance. Governance mechanisms, privacy

policies, terms and conditions, etc. inﬂuence user ac-

ceptance, and hence beneﬁt from user involvement.

Generally these choices must be reﬂected in coordi-

nated design issues, such as what data is captured and

how it is protected.

• Market Dynamics. Like many incumbent online

services, network externalities create an initial obsta-

cle to establishing a critical mass but reward success-

ful services that reach a large market share. These

effects are intensiﬁed by the community and infor-

mation openness aspects, and this places more of a

premium on strategies for ﬁrst-mover positioning. On

the other hand, the presence of the community tends

Habbo Hotel (

http://www.habbo.com

) is a virtual

world targeted at a teenage audience.

An example of a service that is particularly effective at

this is World of Warcraft. Close monitoring and interaction

with the community helps to tune the game to a balanced

world with innovative user-driven features.

to reward successful services with less churning of the

user base by creating a substantial community-driven

switching cost.

These considerations increase the importance of

business and information systems development in the

success or failure of a CNS ﬁrm. However, we be-

lieve they especially place a premium on an integrated

strategy for three aspects of the business: business

and IS development and user support. This conclu-

sion ﬂows mainly from two factors:

• Software-mediated User Relationship. In the

CNS’s that we observed, the contact between users

and CNS ﬁrm is almost entirely software-mediated,

with (for better or worse) little direct human contact.

This software not only supports the domain-speciﬁc

activities of the users but can also (if so designed)

support the capturing of user-initiated innovation and

enable the bulk of the user support function

. Thus,

appropriatesoftware design can give a big boost to the

business separately from and in addition to domain-

speciﬁc functionality, increasing both effectiveness

and the productivity of human workers (particularly

in the support functions).

• SaaS User Support. The SaaS software distribu-

tion model enables the user support function to be

implemented in a particularly effective and efﬁcient

manner. First, the single latest release of the software

is presented to all users simultaneously, greatly reduc-

ing the support burden relative to distribution strate-

gies that leave multiple versions in the user’s hands

simultaneously. Second, there is an opportunity (if

the software development process is sufﬁciently ag-

ile) to ﬁx shortcomings and defects quickly and roll

these ﬁxes out to all users quickly. To the extent this

is successful, user support shifts from assisting users

in living with problems to one of continuous improve-

ment and a focus on eliminating problems shortly af-

ter they are identiﬁed.

These factors yield an opportunity to “get it right”

in terms of a close coupling of the business develop-

ment and user support functions in information sys-

tems development. The complex of considerations

described in Section 4 are among those that need to

be taken into account in terms of business develop-

ment. Beyond the factors in incumbent online ser-

vices, the community aspects of the application are

similar to collaboration technologies, albeit in a more

speciﬁc and customized service context. Consider-

ations like the choice of standardized vs proprietary

solutions and the delegation to extensions and com-

positions also mix technical and business issues.

For instance, both members of the user community and

SP employees can post solutions to problems on the ser-

vice’s blogs and discussion boards.

WEBIST 2009 - 5th International Conference on Web Information Systems and Technologies

550

The potential for integrating software development

with customer support, as well as agile characteristics

in the context of a complex functionality and large

user community are also a challenge to the IS devel-

opment processes.

Regardless of the extent to whichthe opportunities

identiﬁed here are realized in present CNS ﬁrms, the

challenges and opportunities loom large.

6 RESEARCH OPPORTUNITIES

As concluded in Section 3, research on the vari-

ous facets of CNS suffer from fragmentation and

loosely deﬁned terminology, and thus fails to holis-

tically address this subset of the “Web 2.0” phe-

nomenon. Therefore, topics related to CNS are a

ripe and promising opportunity for academic research

from which existing and emerging CNS ﬁrms could

beneﬁt through improved processes and methodolo-

gies. Speciﬁcally, the following are some promising

lines of research:

• Empirical Research into CNS Firms. The goal is

to capture and categorize innovations and best prac-

tices from existing CNS ﬁrms in areas such as busi-

ness development, software development, and cus-

tomer service, and how they are integrated. The goal

of this research is to better understand these phenom-

ena, to identify opportunities to improve the perfor-

mance of these ﬁrms, and to capture best practices

which can be adopted by emerging CNS ﬁrms and

non-CNS ﬁrms.

• IS Development. CNS offers an opportunity to ad-

vance the state of the art methodologies in agile pro-

cesses for software development and coupling this to

SaaS software distribution models. The user commu-

nities for these applications are, relatively speaking,

risk tolerant and amenable to experimentation. There

is also an opportunity to observe and improve pro-

cesses for requirements setting and design decisions

that are tied to business issues in an environment of

strong coupling between business and design

• Incumbent Services. A major issue for research

is the extent to which ideas and methodologies from

CNS can be transferred to a broad range of incumbent

services. This requires expanding our understanding

of how value is created and exploited in CNS.

For instance, close collaboration in feature develop-

ment with the most active content contributors can facil-

itate expansion of the shared information repository, and

this serves business purposes by contributing value to other

stakeholders.

7 CONCLUSIONS

Not only are CNS ﬁrms at the forefront of innova-

tion in online services, they are an exciting develop-

ment because of the new territory that they explore

in functionality and business and information systems

methodology. An important opportunity presents it-

self to the information systems, software engineering,

and management ﬁelds to understand these recent de-

velopments and promulgate them to the broader uni-

verse of online services and web information systems.

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