Viral Loop

by ADAM L PENENBERG

  [ VIRAL LOOP, VIRAL NETWORK, DOUBLE VIRAL LOOP ]

  There are three categories of viral expansion loops: viral loops, viral networks, and double viral loops, the last a hybrid of the first two. To create a simple viral loop is relatively straightforward. In 1996, Hotmail placed a link in the body of every message, offering the recipient the ability to set up his or her own webmail account; within thirty months Hotmail went from zero to 30 million members. YouTube deployed a viral mechanism by allowing people to embed video links in their blogs or MySpace pages: the more people who saw it, the more links were embedded, and soon millions of users were funneled directly to YouTube. Also in this category are the scads of widget makers creating digital bling on Facebook, MySpace, and elsewhere: the infamous “hatching egg,” glitzy slideshow creation tools distributed by Slide and RockYou, the online Scrabble game Scrabulous, horoscopes, calendars, and so forth. But it’s on viral networks like eBay, Facebook, MySpace, Twitter, and LinkedIn that scale and power really snowball, providing an ecosystem in which other businesses can thrive.

  “The viral adoption model” is the “cheapest way to grow an audience,” declares Union Square Ventures’ Wilson. And the bigger a viral network gets, the faster it germinates. Once this phantasmagorical growth kicks in, it is possible to predict its rate with astonishing accuracy, because it spreads at an even rate and eventually tips to a point of nondisplacement. Then it continues to add users even if it does nothing.

  Viral Loop is a short history of this paradigm-busting phenomenon. The book tells the story of viral referral companies like Tupperware and Hotmail, and of the Mosaic browser, which transformed the Internet from a playground for geeks into a mass-market phenomenon. It explores Ning, which deploys a double viral loop, and deconstructs viral marketing to get at the concept of “collective curation”—when the audience decides what’s good and passes it on to others. Viral Loop looks at the underlying economic forces leading to ubiquitous broadband, which has increased the pace and reach of virality, and shows what happens to a business that becomes too viral and outstrips its ability to keep pace with exponential demand. Then there’s stackability, when one viral business is overlaid on another, and social networking, which is redefining how we as humans connect with one another. Finally there is the search for the new ad unit—the heart of any moneymaking scheme in this new Web world of interconnectedness and interoperability.

  Over the last decade and a half some of the world’s most successful businesses started from scratch and then rode a viral loop. Never before in human history has there been the potential to create wealth this fast, on this scale, and starting with so little. Here’s how they did it.

  I

  VIRAL BUSINESSES

  1

  Tupperware and Ponzi Schemes—the Original Viral Models

  Party Plans, Referral Networks, and Sizzlemanship

  Half a century before anyone heard of Facebook or MySpace, and Silicon Valley was famous for prunes, Tupperware, the kitschy plastic food-storage-container company, was tapping into vast social networks of women to generate a massive viral loop. It all began in the midst of the Great Depression, when Earl Silas Tupper was inventing all sorts of trivial contrivances—from the sublime to the outright kooky. There was the nondrip ice-cream cone, the fish-powered boat, plastic eye shields for dyeing eyebrows, fake fingernails in red, blue, gold, and pearl, plastic garter hooks to hold up stockings, “Sure-Stay Hairpins,” and a “corset with muscles” to give women faux flat tummies. A tree surgeon until he declared bankruptcy in 1936, Tupper created the “Knee-Action” Agricultural Harrow and the Gypsy Gun, a pump that sprayed creosote to rid trees of gypsy moth eggs. He designed a medical device for the nonsurgical removal of the appendix “thru the anal opening” and an instrument he claimed would kick off “menstruation in women who have delayed monthlies or who are pregnant.” Somehow he found time to produce flour sifters, dish rack pans, knitting needles, a tampon case, a portable necktie rack, a self-standing toothpaste-and-shaving-cream dispenser with self-closing cap, and the “Kamoflage comb,” which was a combination nail file and comb dressed up as a fountain pen. None of these sold particularly well, and if it weren’t for a greasy, smelly, rubbery chunk of black polyethylene “slag,” the name Tupper would have faded away.

  During World War II, that slag, a by-product of smelting, was cheap and plentiful, while resin—the core ingredient of most plastics at the time—was scarce and expensive. The U.S. and British militaries used polyethylene in radar installations and to insulate cables. Tupper, who worked at a plastics factory in Leominster, Massachusetts, creating prototypes for DuPont and sealing gas masks with plastic filler, figured he could make something out of it. One day in 1942, he discovered something quite remarkable. When stripped to its essence, this malodorous chunk of petroleum waste emerged as beautifully translucent material unlike any plastic of its day: it was unbreakable, flexible not brittle, and it didn’t chip or retain odors (even vinegar or onions). It handled extreme heat and cold, and when squeezed, it sprang back to its original shape.

  Back then, American consumers were wary of synthetics. Plastic buttons cracked, tortoiseshell eyeglasses warped when laid too close to the radiator, Christmas toys broke out of the box, combs’ teeth snapped, shower curtains putrefied into sticky clumps, and mixing bowls smelled like oil refineries and split, shattered, or peeled. The public’s view was well expressed in The Plastics Inventor, a 1944 Disney cartoon starring Donald Duck, who bakes a plane from melted plastic and takes it out for a test spin. It works perfectly…until it rains and the plane turns into a gooey mess.

  Tupper christened his discovery “Poly-T: Material of the Future” and by the end of the war, his factory churned out a steady stream of plastic merchandise. He was fielding orders from American Thermos Bottle Company for 7 million nesting cups, from Camel for three hundred thousand cigarette cases, and from Canada Dry for fifty thousand bowls to offer with its soft drinks. Time magazine estimated his annual revenue at $5 million. The Museum of Modern Art in New York included two of his bowls in a special exhibit of useful objects. House Beautiful dubbed his designs “Fine Art for 39 cents.”

  Poly-T should have been ideal for food storage, except Tupper didn’t have a lid to fit his thin-lipped containers. Before the 1940s, most American families had iceboxes; then came electric refrigerators, putting the ice-making industry out of business. To retard spoilage, consumers stretched shower caps over leftovers, which left an unpleasant aftertaste, or wrapped them in tin foil. It took a while, but Tupper, modeling his airtight seal after the inverted rim of a paint can, filed a patent application for an “Open Mouth Container and Nonsnap type of closure” on June 2,1947, and Tupperware was born.

  By 1949, Tupper’s fourteen-piece “Millionaire’s Line,” composed of bowls and tumblers, was available at Bloomingdales, Gimbels, and Detroit’s J. L. Hudson, at the time the tallest department store in the world. Despite a national media campaign that included newspaper ads, magazine articles, and prominent department store displays, sales of his eponymous tubs were disappointing. Consumers didn’t know what to make of the “Wonderbowl” in pastel shades of blue, pink, and pearly white. They fumbled with creating an airtight seal to “lock in freshness,” and some, complaining the tops didn’t fit, even returned them, according to Bob Kealing, author of Tupperware Unsealed. A lot has happened since the late 1940s, when Tupper’s business was in danger of being tossed out like a Chinese take-out carton, to today, when 90 percent of American homes own at least one piece of Tupperware and the company reports billions in revenue.

  [ PATIO PARTIES ]

  Tupperware’s unlikely savior was Brownie Wise, a single mother from Dearborn, Michigan, who worked as a distributor for Stanley Home Products, a direct seller of detergents, mops, household cleaners, and floor waxes. In 1948, shortly after Tupper introduced his product to stores, Gary McDonald, a young salesman working for Wise, was browsing J. L. Hudson when he realized these plastic conta
iners would be ideal for home demonstration. He could see that customers didn’t buy them until someone demonstrated how to put the tops on, then explained that they were for food storage and that leftovers wouldn’t spoil. You could even toss a sealed bowl in the air and not a drop of salad dressing would spill. “Yank it, bang it, jump on it,” they said. What’s more, the product had no natural competitors other than zippered “grease-proof, stain-proof and mildew-proof” plastic bags, which were sold three bags for $1.98 at hardware stores, compared to the three-piece Wonder Bowl set, retailing at $1.39.

  McDonald brought a sample to Wise, who at first didn’t know what to make of it. She had never seen a bowl you could squeeze, and she had a hell of a time getting the lid on, accidentally knocking it off the table. To her surprise, it bounced instead of breaking, which would become one of her marketing mottos. After spending a couple of days trying to figure out the magical vacuum seal, she realized “you had to burp it like a baby.” Wise added Tupper’s wares to her product line.

  The thirty-four-year-old Wise had gotten her start with Stanley Home Products when a salesman knocked on her door and botched his sales patter. I could do better than that, she thought. Because her secretary job at Bendix Aviation Corporation barely covered her ailing son’s medical expenses, she moonlighted evenings and weekends. Within a year she became one of Stanley’s top earners and quit her secretarial job. The secret of her success: “patio parties,” where she peddled household wonders like the ashtray with a brain, Atomite (“the cleaner with ATOMIC like action”), and truckloads of Tupperware.

  In the years leading up to and following World War II, there was a gradual shift toward modernity. Technology had been screaming forward for more than fifty years—the invention of electricity, the automobile, the airplane, the light bulb, the telegraph and telephone—there was even talk of flying to the moon, and the United States was ready to reap the benefits. Colonizing space was a theme of comic books and radio shows like Flash Gordon. In 1938 Orson Welles’s radio broadcast of War of the Worlds, based on H. G. Wells’s sci-fi novel, set off panic as rumors of a Martian invasion swept through some communities, multiplied by the sheer force of word-of-mouth distortions. The theme of the 1939 World’s Fair was “The World of Tomorrow.” It featured a special exhibit called Futurama, which envisioned Earth twenty years ahead. In the span of two decades—from the 1930s to the 1950s—airplanes like the Lockheed Vega, which Amelia Earhart crashed into a watery grave, went from being constructed of little more than wood, glue, and baling wire to sleek steel jets; television was replacing radio as America’s favorite entertainment choice; the acoustic big band swing era gave way to electric rock ’n’ roll; medical advancements yielded a cure for polio; and psychologist B. F. Skinner postulated that people could be conditioned into creating social utopia. Earl S. Tupper’s “Poly-T: Material of the Future” fit in perfectly.

  By 1949, Wise dispensed with other products in the Stanley line and established “Poly-T parties.” Many of her dealers grossed $100 a gathering and Wise distributed $1,500 of Tupperware a week (worth almost $14,000 today). Within a decade, Wise and her army of Tupperware ladies would move tens of millions of dollars’ worth of merchandise every year via the Tupperware home party, the greatest viral network of its day. It worked like this: a new dealer relied on her social network of sympathetic friends, neighbors, and relatives to schedule a gathering. The party hostess invited women from her social circle to attend—a form of word-of-mouth virality. Meanwhile, the dealer hit up other friends to host parties, with each hostess tapping her particular social network, and the pool of buyers grew with each additional social circle. What’s more, the dealer identified hostesses with the right attributes to join in selling Tupperware.

  In Laurie Kahn-Leavitt’s PBS documentary Tupperware, Lavon Weber, who hailed from a small rural community, recalled that a neighbor living half a mile away offered to get her started in Hugoton, Kansas, “and we dated two or three parties there that day. And then my mother said she’d have a party, and some of my sister-in-laws [too]. I’d go to church and people would say, ‘I hear you’re selling something,’ and I said yes. ‘Well, I’ll have a party for you.’” Multiply this by thousands of women, and that offers a glimpse of its rabbit-like growth.

  [ REFERRAL MODEL ]

  Tupperware as a business grew in multiple ways. Both the pool of buyers and the number of parties increased exponentially, each forged via social networking, while the number of sellers also expanded virally. More parties not only begat more buyers; they begat more sellers, who begat more buyers, and so on. The more Tupperware sold, the more people would sell Tupperware products. It was like having thousands of salespeople on commission instead of a few dozen working the phones at corporate headquarters. “Three people must gain” at every party, Wise wrote: the dealer through sales of Tupperware “and the booking of future parties” the hostess, who acts as a subdealer “and upon whose hospitality and initiative, the success of the party plan depends” and the guests, who “enjoy a sociable get-together.” This viral marketing plan made perfect use of a part-time labor force of able-bodied, sociable, stay-at-home women. The seller earned a commission, the hostess basked in her role as queen bee, and attendees played party games, received gift bags, gossiped about husbands, kids, and neighbors, and had a small stake in helping one of their own sustain a business. Meanwhile, partygoers brought home a product that, at the time, had cachet. It was a win-win-win for everybody.

  The first home party in the United States can be traced to the 1920s and was introduced by WearEver Aluminum Cooking Products, which found it an efficient strategy for reaching women in sparsely populated rural areas where there were few stores. Cultural historian Alison J. Clarke, author of Tupperware: The Promise of Plastic in 1950s America, posits that direct-selling schemes blossomed during the Depression because mass unemployment allowed a displaced workforce to pursue casual labor with “minimal capital outlay, formal skills or professional qualifications.” A door-to-door salesman from Maine working for Stanley Home Products stumbled on the concept in the 1930s when he knocked on the door of a minister’s wife while she entertained potential donors to the church. She told him to return another day, but before he left she proposed a deal: in exchange for a cut of sales that she would donate to the church, she would gather her group again and the salesman could demonstrate his wares.

  It acted as a powerful referral from a trusted source and solved his biggest problem: access. The public held door-to-door salesmen in low esteem. Itinerant sellers were known to harass housewives, dump second-rate merchandise, and move on, and the sleazy traveling salesman became an archetype. In Flannery O’Connor’s short story “Good Country People,” a peripatetic Bible salesman trolling the South seduces a woman and runs off with her artificial leg. The public outrage over pressurized sales tactics, with shifty men knocking on the doors of unsuspecting women, led local governments to pass so-called Green ordinances, named for Green River, Wyoming, the first city to enact it, which banned door-to-door solicitation. These salesmen were the equivalent of the spam that deluges email in-boxes today or the telemarketers who ring up at dinnertime to pitch a product, service, or cause over the phone. (They, too, invited regulation, namely the CAN-SPAM Act of 2003 and the Federal Trade Commission’s National Do Not Call Registry.)

  By inviting customers to his home, the Stanley salesman avoided all of this. Instead of trudging to individual households, a time-consuming proposition since he couldn’t be assured the person answering the door would be welcoming, potential customers came to him with purses open. This intent to buy opened up a whole new value proposition. With home parties, “the buying spirit is contagious,” Brownie Wise wrote in a training manual. “It is a proven fact that you will sell more to a group of 15 women as a group than you will sell to them individually.”

  Soon the Stanley salesman from Maine was reporting impressive sales figures, and it didn’t take long for word to spread within the
company. Other Stanley sellers across the country approached local groups to inquire about demonstrating their products. After they hit up most of the organizations, they turned to their wives to organize parties, with the hostesses receiving either a cash commission or a gift. This selling strategy helped push Stanley Home Products sales from $3 million in 1940 to $50 million ten years later.

  Meanwhile, as Tupperware sat idly on store shelves from coast to coast, Brownie Wise in 1949 ordered $152,149.13 of Tupperware, which in today’s dollars would be $1.4 million.

  [ PONZI SCHEMERS ]

  WearEver, Stanley, and Tupperware weren’t the first to tap viral expansion loops, but they may have been the earliest to promote legitimate businesses. Get-rich-quick pyramid schemes based on the “rob Peter to pay Paul” principle had long relied on word-of-mouth virality to expand the pool of money at breakneck speed. Organizers attracted large numbers of participants with the promise of sky-high returns on their investment—sometimes offering to double a person’s money in as little as ten days. In the nineteenth century schemers bilked investors who thought they were financing silver-fox fur farms, an experimental engine that used water for fuel, technology that could extract gold from the sea, and bonds covering exotic products in even more exotic locales. Their fast-talking operators, relying on the same “splash, cash, and dash” formula, paid off as promised to the first people to contribute. These lucky early investors inevitably told their friends and family, who also invested. They too were bought off, and suddenly thousands of people were throwing money at the operators until the whole pyramid came crashing down when the operators couldn’t continue to pay back investors. By then they were usually gone but not forgotten.