How We Buy Online - Commerce 3.0 - Part 1
How behavior change creates new community moats
Sitting at home, our choices of activities outside of the screen are limited to say the least. As a result, the Covid pandemic has greatly accelerated tech adoption in general, especially e-commerce, by what feels like years.
It wasn’t too long ago that we were complaining about GAFA sucking all of the air out of web, but everyday now we are seeing the emergence of new social, commerce, and b2b platforms all around us.
It’s really beginning to feel like we are at the beginnings of a new tech paradigm, marked by the emergence of new technology (which I wrote about before), compressing startup costs and broadening access for new companies to outcompete incumbents on totally new dimensions.
In commerce specifically, where Northzone has been investing since the 90’s (in companies like Na-Kd, Avito, Letgo, Klarna, iZettle, etc.) we are definitely witnessing these effects in the proliferation of new brands, platforms, models, and enablement tools this past year.
While some of our hypotheses about the transition into the next iteration of the web are starting to prove out, we are constantly observing the consumer to understand tech’s impact on humans. This series of posts about the next wave of e-commerce will attempt to build a more intuitive view through human behavior change, around the way we buy, in order to better delve into the implications and the seismic change e-commerce will undergo in the coming years.
Behavior #1: We used to only “buy” from brands, now we also “advocate”, “design”, “support”, and “create” for brands
…creating opportunities to build community moats
As brands proliferate, they’re able to speak to their audience in a more authentic and unique way than ever. As the customer-brand relationship becomes more multi-faceted, we have even changed the lingo from customer to community. That means the traditional way of breaking down customer behavior — along a linear path to purchase, using a funnel approach— is no longer relevant.
For example, a funnel-based model won’t allow the brand to fully capture the impact of an intense reddit thread written by a thoughtful customer who’s only ever purchased once but influences hundreds of other purchases. Nor will it help brands engage that customer differently than a loyal repeat purchaser who has no social media accounts.
As a thoughtful innovator in this space, Orbit.love has developed a 360-degree framework for looking at communities to help companies not to only map out these relationships but also rigorously study the activities and relationships to better understand how to double down on company-led efforts to grow its community - similarly to how we currently think about managing funnel conversion today.
There are several great posts about how to build and foster a community using softer tactics like communications. However, as Dunbar’s number suggests, these efforts for rallying large groups of people will fall short for building and sustaining trust across large populations without reinforcement from systems. This is where web 2.0 companies can learn from web 3.0 models, who begin with scaling communities by default. Below are steps to build systems for concretely creating, monitoring, and leveraging communities:
Recruit and build trust with community members, highest impact first.
The recruiting process is incredibly important as a process of social engineering because the valuable early community members should have high motivation as well as high ability to contribute to the community. It’s pretty straightforward from a systems perspective as it’s mostly a data-gathering and education exercise. It should be an opt-in process that should include some sort of buy-in into the community’s values. Important considerations are which part of the customer journey this should be introduced and important qualifiers for becoming a part of the community (made purchase? bought token? follower threshold?). Companies like Dovetale helps brands capture community data from their own channels.
Build an understanding of their community, using data.
Understanding these complex relationships between community members requires very comprehensive user data across many channels and dimensions, and most CRMs don’t have this perspective as discussed above. Companies like Pico and are helping publishers build this data from scratch - linking customer data with transaction data in a comprehensive way. Circle is similarly helping creators build and capture data around proprietary channels of engagement with their community.
Build a community currency, using social and/or monetary incentives.
Alex Zhu from Musical.ly once described communities as economies, and getting someone to join is like getting someone to come live in your country. The first few have to be seen becoming extremely “rich”, and then the rest have to be able to earn their way to the top, decentralizing wealth in the long run. If we look at the best communities, there was always a reputation or monetary reward (or both). Instagram / Tik Tok has likes and followers, Bitcoin / Ethereum has tokens, and open source projects have stars. Companies like Roll and OScoin help communities design their own currency, and Fairmint helps brands turn their equity into the community currency. This currency gives brands the ability to significantly influence the community.
Determine key actions leading to key goals, using community data.
Once you have mapped out the relationships of actions within the community to outcomes, it will be easier to interpret which ones, in which order, are creating the most value for the brand. With a tool like Orbit.love, brands can produce more insights like “if a customer follows us on instagram and purchases once, they’re 5X more likely to retain over three years” or “a review written by someone who has engaged with us on Twitter will get 6X engagement as someone who has only bought from us once.” Also, given that communities are full of diverse individuals with different capabilities, they have tremendous power to help the brand along different dimensions from marketing, product development, to customer support. There is an opportunity to segment community members based on their strengths and define key actions for them - this is essentially what influencer marketing companies helped brands do with the highest influence segment of community members.
Align key goals and key strengths for community, using community currency.
The community currency can be used as a powerful way to incentivize specific value creation within the community. In crypto protocols, all of the core actions are tied to the appreciation or mining of the crypto token; creators are rewarded with likes for good content on Insta / Tik Tok, and Wikipedia contributors accrue reputation with edits. The relative value of the key actions performed by different community segments determined above can be appropriately rewarded for using the community currency, but the best incentive models are usually the most simple.
Align community with other compatible communities through partnerships
Cross promotion across like-minded communities can be a huge multiplier for distribution for brands. For example, in the earlier days of cult instagram genres like ASMR and slime, hundreds of influencer accounts always shouted out each other, in a collaborative way, regardless of comparative follower count. The more prominent accounts took a risk and featured new, upcoming accounts, who eventually grew quickly and lended some of their clout back. We also saw similar “clout sharing” between rising tiktokers who dated, befriended, and even lived in creator houses with each other where they would create content together. Eventually, the rising tides lifted all the boats and they all grew very quickly. Companies like Ampjar help microbrands partner up with other microbrands who have communities with similar contexts in order to cross-market in their owned channels.
I am very excited to see much more innovation in this space, propelling the web models we know today forward into its next iterations, out-competing tech giants and building new moats along the way. It will be interesting to see over time, how to make that trust scalable and sustainable across communities, eventually building it into a consumer habit, thus a defensible distribution moat. I’d like to imagine a world with hundreds of bottoms-up, organic, and naturally evolved communities with trust relationships with brands, similar to bottoms-up brand umbrellas. If you know of anyone building something innovative in this space, please send it to me at wendy@northzone.com!