Abstract
The usage of social software and virtual community platforms opens up opportunities to bridge the gap between customers and companies and to integrate customers into the value-added process. Ideas generated by members of a virtual community can be utilized to improve and to innovate a company’s value adding activities. However, the implementation and operation of virtual communities may have a considerable impact on financial performance measures of a company. Hence, to measure the profitability of a virtual community appropriately, means of efficiency calculations have to be employed. The objective of this chapter is, therefore, to develop a measurement framework to evaluate the financial performance of a virtual community. The focus is on calculating the total cost of ownership. After introducing a general measurement framework, a particular measurement system is derived from the framework and is subsequently applied to a real life example of the Berlin Stock Exchange.
TopBackground
Since the year 2000 new web-based collaboration technologies emerged and revolutionized the internet (O’Reilly, 2005; Sester, Eder & Scheichel, 2006; McAfee, 2005). In 2005 the term web 2.0 was used as an umbrella term by O’Reilly (2005) to refer to these applications and trends for collaborative involvement of the users. Web 2.0 applications are often associated with “social software”. Whereas traditional software focuses on productivity and process support, web 2.0 applications focus on the linking of individuals and groups. Social software allows internet users not only to consume information as a passive visitor on websites but also to collaboratively create and edit content. Social software is based on different services for establishing networks and supporting the distribution of information within the network. Following O’Reilly (2005), internet forums, wikis, web logs, instant messaging, RSS, pod casts and social bookmarking are typical constituents of social software.
Key Terms in this Chapter
Social Software: Social software enables internet users to collaboratively create and edit content without knowledge about internet description languages. Social software is based on different services for establishing networks and supporting the distribution of information within the network. Following O’Reilly (2005 AU15: The citation "O’Reilly 2005" matches the reference "O'Reilly 2005", but an accent or apostrophe is different. ), internet forums, wikis, web logs, instant messaging, RSS, pod casts and social bookmarking are typical constituents of social software
Virtual Community: Web-based groups of people using social software as infrastructure to interact or to collect knowledge. Virtual communities emerge due to positive network effects. If a critical number of community members is realized and sustained over a certain period of time, these members form webs of personal relationships in cyberspace
Total Cost of Ownership (TCO): Financial performance measure that aggregates direct and indirect costs commonly chargeable to an information system throughout its life-cycle. In-payments are generally not considered for a TCO calculation.
Financial Performance: Measure indicating how well an organization may leverage its financial resources and other assets to generate value (in monetary terms). The financial performance is often derived from cash-flow measures (considering both original and derivative payments) and is usually reported in the context of decision making with a long-term planning horizon. Frequently used profitability measures are the Net Present Value (NPV), the Return on Investment (ROI) or the Total Cost of Ownership (TCO)
Web 2.0: Umbrella term referring to an array of interactive and collaborative elements of the internet, in particular the WWW. The term “Web 2.0” does not address specific technologies or innovations but rather changing patterns of web usage and changing perceptions of web tools
Visualization of Financial Implications (VOFI): Capital budgeting method employing spread-sheet based calculations. All in- and out-payments (original payments) imputable to an investment project are reported for individual periods. For each period within the planning horizon conditions of loaning and funding as well as tax payments are considered (derivative payments). On the basis of VOFI, dynamic profitability measures for reporting the financial performance can be calculated (e. g. the ROI or the TCO)
Return on Investment: Ratio relating the total profit of an investment to the capital stock provided for an investment. The ROI is often calculated as a static measure, therefore neglecting dynamic aspects inherent in long-term frame decision problems. Calculating the ROI on the basis of VOFI, the ROI represents a dynamic measure and considers various conditions of loaning and funding as well as taxation. For evaluating the profitability of an investment, the ROI has to be compared to the average capital cost within the planning horizon
Virtual Community Platform: Technical infrastructure for operating and governing virtual communities. It comprises facilities to integrate social software tools and to centralize the storage and provision of user created content.