How to build online communities

When Alfred Milgrom started Zazz.com.au, he came at the concept armed with an arsenal of experience in building a business online. He tells AMANDA GOME about the next essential element in his success – his community.

By Amanda Gome

Software developer Alfred Milgrom founded publishing company Melbourne House, electronic game business Beam Software, and co-founded Smarty Pants Publishing. His latest venture is online shopping site Zazz.com.au.

Milgrom (left, with Alain Sarfati) talks to SmartCompany about how to build an online community.

Any questions? Email feedback@smartcompany.com.au and Milgrom has promised to answer.

In March last year, serial entrepreneur Alfred Milgrom, then 59, started Zazz.com.au after he saw the idea in the US. On the surface, Zazz sets out to do a simple thing every day: Sell one product – mainly an electronic gadget – in large quantities.

But in founding Zazz, Milgrom set out to build a strong online community because he was convinced it was essential to his success. He Milgrom says Zazz now has 25,000 members and half subscribe to the daily or monthly email. Revenue is about $4 million and operational costs are about half a million. He and his business partner Alain Sarfati started with three staff and now employ 10, and outsource a lot of functions. It took six months to be profitable.

While August and September traffic figures were a bit flat, he says the site has since bounced back. The speed at which competitors have emerged has shocked Milgrom, but he believes the strong online community he has built gives him a sustainable, competitive edge.

Amanda Gome: Why Zazz?

Alfred Milgrom: We wanted to create a new shopping experience that is fun, exciting and surprising. It was based on a successful US site that I saw but did nothing about until my 27-year-old son prodded me and asked, why not?

Online is the only direction I wanted to go in and in all my other businesses I have tried to attract a mass audience rather than a niche one.

When we started, we primarily sold electronic gadgets and selling toys, and on Sundays we sold homewares. Now we are trying to work out what sells best for audiences on weekends. And although we get the traffic on Sundays, we don’t get the conversion to a sale.

Why did you need to create a community?

The level of trust between a retailer and a consumer is very important. Why do you buy from one retailer and not another? It’s not just price. Besides anyone can set up a website. Building a community establishes trust and creates an extra level of transparency.

Sometimes you get on sites and the product is not what you expect. Good customer service means dealing with complaints.

By developing a community and building forums you can create that level of transparency and trust. We also wanted to create a community so they would come, even when the product is not interesting to them. We also want to keep them engaged and keep them on the site. Otherwise they just come, read a headline and disappear.

Why haven’t other big retailers in Australia launched successful online sites around a community?

I don’t know. None of them have done it seriously – they have just put up a catalogue. They don’t see it as a major source of revenue. But overseas retailers do: look at GAP and other stores that not only have all the range online but also offer special products that you can only get online.

How have you created a community?

The main way was through forums. We set them up from the start. We invited and seeded comments, invited friends and waited. The planted comments were found and we stopped doing it. In retrospect the best part was people giving us a bad time – not that we thought that at the time.

But it was the best thing – it meant we did not have a tame forum. We got picked on for being sloppy about technical specifications and not describing products properly. And we got into trouble for saying shipping was free when the cost was included in the product.

One guy in particular really went on about this, but the next day we put up a comment saying free shipping except for this guy, and it was great because everyone could see that we were laughing at ourselves.

Other things like competitions worked?

We also launched competitions, including word association and maths problems. People are so bright – we put up hard competitions but sometimes people would solve them in 10 minutes. What works are things that challenge people and where the answers are not that obvious. One of the best was Friday fun with creating an avatar. We would have a theme around cars or superheroes. The members on the forum grew really quickly.

What’s wrong with forums?

The members on the forum grew really quickly. They are clunky in terms of user interaction. You have to keep having to refresh them. But we haven’t thought of a better way (can anyone out there who works in software come up with a better model… we’re looking for a way to have multiple chats going on and you don’t have to refresh all the time). Maybe if someone can modify Facebook…

There were growing pains, and we had to learn technical solutions to overcome hackers.

We also had to have one person watching the forum about midnight when the new product would come on to make sure there wasn’t inappropriate language or spam. But the community sets its own norms and decides what is acceptable. And technology support is provided by members to other members.

Forums are emotionally draining…

I never expected to be so emotionally involved. If you have a normal retail store you don’t get public judgement so keenly. You feel there are some winners, some losers and if something is moving slowly you mark it down. But this is much more brutal. Every day you are judged. It is more time consuming. I am on the web from about 7.30am and on (again) at midnight.

So why do you do it?

It is worth it. I am having fun growing it and I love seeing where it is going.

What’s happening with the competition?

The competition was quick off the mark. We started in March 2006 and we had two competitors by the end of last year and another one this year. It was such a surprise. We thought it would take much longer. One competitor is spending a lot of money on advertising. But none made forums work. Two launched with forums but they subsequently closed them. One competitor is no longer in business.

What other ways are you developing the community?

We let members host and judge competitions. We do live SMS updates using Twitter, and we are working out how to get involved in conversations outside Zazz using MySpace or Facebook. But it’s not obvious yet what’s appropriate and the best way to make it work.

We don’t want people to feel we are encroaching on their leisure. So there is lots of stuff we are talking about to keep improving and upgrading – some will lie dormant until the technology catches up. But you can’t sit still in business at any time.

What’s your favourite new internet function?

There is a flood of information, so intelligent aggregation of information works well for me. For example www.popurls.com gives you all the top stories on Delicious and Digg.

I also love the way Web 2.0 is pushing more desktop on to the web, so for example instead of your email being on one computer, you can have gmail and have it on any computer. Desktop to the internet is extending to a whole lot of services.