LinkedIn Founder Reid Hoffman, speaking last week at Library House’s Essential Mediatech conference in London, laid out his strategy for building and monetising digital communities. Few entrepreneurs have as much experience in online communities as Mr. Hoffman. Apart from attracting millions of users to LinkedIn without spending any money on advertising, Hoffman is a prolific angel investor who has backed many of Web 2.0’s biggest community successes, including Flickr, Digg, Facebook, Six Apart and Last.fm.

Mr. Hoffman’s thesis is that the strategy for building digital communities is reversed from that of building a traditional business. Rather than attempt to earn money from the outset and gradually add more customers, digital communities should first seek a large audience and then worry about their revenue model. His reasoning is that if a service fails to attract users, then no amount of revenue model revision will make it a success. Once a service has users, however, there is usually a way to make money off of it.

Focusing on audience rather than revenue model at the outset works well for digital communities which feature user-generated content, like social networks, blogs or photo-sharing sites. As more users join the service, they create more content; more content in turn attracts more users. Digital media services which trade in professionally-produced content, on the other hand, would find it difficult to follow Mr. Hoffman’s advice.

An Internet TV service, for instance, must have compelling programming lined up in order to attract an audience – content for which it can be very expensive to acquire rights. Furthermore, since this TV content is licensed rather than uploaded by users, the amount of content on the site does not automatically grow as the user base does. These are the challenging dynamics facing Internet TV start-ups such as Veoh, Hulu, Joost, and Babelgum.

For this reason, the companies most likely to succeed as the television networks of the Internet may be digital communities whose primary aim is not video at all. Social networks like Bebo and MySpace already have attracted tens of millions of users through viral growth. That audience reach puts them far ahead of the previously mentioned Internet TV services - and social networks have attracted these audiences through viral growth, without needing to spend lavishly on content acquisition.

Furthermore, now that they are in the game, social networks are showing themselves savvy purchasers of video content. Rather than acquire an extensive – and expensive – library of television content, Bebo has commissioned made-for-online shows like KateModern, a popular but low-budget interactive soap opera. KateModern and its predecessor, Lonelygirl15, suggest a new model for video production, similar to Reid Hoffman’s method for building digital communities: make content cheaply, attract an audience and then figure out the revenue model.

Social networks like Bebo pose multiple threats to Internet TV start-ups. Because their core business is building a community of users, not serving up video, the overall appeal of social networks is not limited by their video library (or lack thereof). What video they have acquired has been cheaper than normal television and yet widely appealing. Finally, as social networks add traditional TV programming to complement their Internet-only hits, their existing audience and accompanying ad revenue could provide them with the leverage and the cash to out-gun Internet TV start-ups over programme rights.