Viral Loop

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by ADAM L PENENBERG


  And this takes us back to the conventional wisdom that there is no way to reach the 1 billion users worldwide on social networks. If you think the marketer-consumer seesaw is over, that the end of history is here and marketers will never crack this nut, then you believe that Facebook, MySpace, and the one hundred other social networks around the world are doomed. But if history is any guide, they won’t fail. The difference between the dot-com boom and bust and the social graph is that many of the dot-coms were not victims of too much popularity; they were run out of business because they weren’t popular enough. The silly poster boys of the era (Pets.com, eToys, Webvan, Kozmo.com) could not entice enough people to use their services to come anywhere near covering their overhead. Social networks have the opposite problem: they have too many users sucking down bandwidth. But it also gives them tremendous leverage.

  [ MONETIZING THE SOCIAL GRAPH ]

  If Facebook, with its hundreds of millions of users, were to follow Craigslist’s model and monetize a fraction of its site—worth, say, on the order of $1 per month for each user—that would yield around $2.5 billion a year in revenue. Simply by placing ads on its home page it could probably generate $1 billion a year. PayPal focused completely on growth, its burn rate so severe that it teetered on the verge of bankruptcy before breaking even. Now it is on the way to $3 billion in revenue a year. Is Facebook, with its stratospheric viral growth, more like PayPal or Pets.com?

  For his part, Mark Zuckerberg believes the answer is neither. He has big dreams and even bigger aspirations. His whole vision revolves around what he calls the “social graph,” a diagram illustrating all the interconnections between people, groups, and organizations. You are friends with Charlotte who is connected to Lila, Sophie, and Charlie, and they pal around with Emily, Benjy, Lin, and Jennifer. Each is represented by a node on a graph, and the ties that bind them may be diverse and have many levels. They may be family or just friends, be connected by age, education, or interest, work in the same industry or in different jobs at the same company, share the same gene pool or an interest in politics. Where you see a complex diagram too large and unwieldy to sit on a single page, Zuckerberg sees a business opportunity. That’s because he, like Monfried, recognizes there is a phenomenon in peoples’ interaction. “The message you get, in a lot of ways, is actually less important than who you get it from,” he says. “If you get it from someone that you trust, you’ll listen to it. Whereas if you get it from someone you don’t trust, you might actually believe the opposite of what they said because you don’t trust them. I think that’s the basis of the value that people get on the site.”

  The first hint of Zuckerberg’s grand plan occurred in November 2007 with the release of the controversial Beacon, an advertising scheme “to socially distribute information on Facebook,” as the company defined it, “a core element of the Facebook Ads system for connecting businesses with users and targeting advertising to the audiences they want.” For instance, if a user viewed a video, her friends would learn about it through the news feed. If she bought movie tickets online, her friends would know about it, and this, Zuckerberg hoped, would lead to a discussion around people’s tastes in movies. Fandango for its part would gain traction and social distribution on Facebook. EBay sellers would be able to share items for sale with their network of friends, which would widen the pool of potential bidders. The more bidders, the more likelihood the price would rise and the more money eBay would be able to skim off the top.

  But things didn’t go as planned. Beacon turned into a public relations fiasco. It launched with forty-four partner sites, including eBay, Fandango, the New York Times, Blockbuster, and Sony Online, with each partner embedding a piece of Facebook javascript on their sites. This enabled Facebook to follow the user and report back. This was all well and fine except it was virtually impossible for a user to opt out. Users had no choice but to participate unless specifically opting out, and even then the information was still dispatched back to Facebook, even after a user had logged off. To many it felt like the social network was spying on them. Users, joined by the liberal activist group Moveon.org, revolted, calling Beacon “an invasion of privacy.” The bad PR drove partner sites to pull out and Zuckerberg to (eventually) apologize.

  Badly executed, “but the basic idea was sound,” says Bebo founder Michael Birch. It was an attempt to find the new ad unit for social networking, and down the road it will likely reemerge. In fact, a year later the company toyed with another approach, called Social Ads. Beacon informed users’ friends of their activities off Facebook; Social Ads could track what they do on it. If a user buys a book on Amazon or downloads a movie from Hulu.com, Facebook would figure out which of his friends would, based on their profiles and activities on the network, be most interested. Amazon would pay Facebook for the right to send an ad across all the friends’ news feeds. Vasanth Sridharan of the blog Business Insider, suggested that users should receive a commission for acting as referral marketers, on the order of 5 to 10 percent on any purchases their friends make. This would offer users a financial incentive.

  And maybe therein lies part of the answer. Treat users as partners. According to network theory, each has value to Facebook, and the more active a person is and the more active his network of friends is, the more valuable he is. The user then becomes a willing participant in this marketer-consumer game. If Facebook shared some of the bounty of advertising, users would gladly interact with the new ad unit no matter what form it came in. It would be truly innovative, and a worthy extension of the social graph.

  That is the premise of the viral loop application that you will find on Facebook, MySpace, and other social networks, or at http://www.viralloop.com. Download it and it will tell you what your viral coefficient is and your value—in dollars—to Facebook et al., based on the company’s current valuation, your level of activity, and the activity of your friends.

  Then ask for your fair share. After all, Facebook wouldn’t be Facebook without the hundreds of millions of users like you.

  Epilogue

  Viral Creatures on Viral Planet Earth

  Language, Religion, Money, and Other Viral Phenomena

  While the Internet has become humanity’s greatest viral canvas, where within all digital phenomena there is the potential to grow, virality characterizes many human traits, from the cultural to the biological. Language is viral, with toddlers learning from ten to twenty new words a day, which they pick up from conversations taking place all around them; then, when children interact with one another, they spread language. A mini-subset of that is slang, which spreads by word of mouth (and nowadays through email, texting, chat, and on social networks), with a percentage of these new words assimilated permanently into the lexicon. Money deploys elements of network effects: if I have dollars, or gold coins, or scrip of some form, I want you to accept them. So does religion, which may be the ultimate viral loop. A true believer can’t be content with saving his own soul. He wants to save yours, too.

  But the greatest viral realm of all is Earth. And the modern, post-Internet definition of viral—a replication pattern transmitted from user to user—can even be retrofitted to describe how life took off on the planet. Because all life forms, whether they are humans, wombats, or fire ants, are bred to spread. In essence, virality is imprinted into our DNA. In 10,000 BC, approximately one million people roamed the planet. By 5,000 BC there were 15 million and by 1 AD perhaps 300 million. If there had been one woman wandering the Earth in 10,000 BC, she would have been responsible for producing 300 people in the span of 10,001 years. As such, our growth rate was fairly flat and humans’ viral coefficient barely exceeded 1.

  Through the Middle Ages it took a millennium to add just ten million people to the planet—the population of a state the size of Michigan. Famine, war, poor living standards, and pestilence prevented humans from scaling. Not until 1700, when the population reached 610 million, did the growth rate pick up, inching past one billion in the early 1800s and doubling
within a century. Industrialization, trade, and advances in agriculture and shipping all increased our viral coefficient. Today the world population exceeds six billion and continues growing.

  It’s possible to apply many of the same analytical tools used to characterize viral-loop companies to human population growth:

  Online Viral Loop Companies

  Web-based: Better suited to the Internet

  Free: Users consume the product at no charge

  Organizational technology: They don’t create content, their users do

  Simple concept: Easy and intuitive to use

  Built-in virality: Users spread the product out of own self-interest

  Exponential growth: That is, the virality index is above 1.0, which creates predictable growth rates

  Network effects: The more who join, the more who have an incentive to join

  Stackability: A viral network can be laid over the top of another, helping both grow

  Point of nondisplacement: Becomes virtually impregnable

  Ultimate saturation: A point of maturity when growth slows

  Human Population Growth

  Earth-based: Only possible in the real world

  Free: It costs nothing to create a child (college tuition is a different matter)

  Organizational technology: People create people

  Simple concept: What could be simpler than sex?

  Built-in virality: People breed out of biological self-interest

  Exponential growth: That is, the virality index is above 1.0, which creates predictable growth rates

  Network effects: The greater the civilization, the higher the survival rate

  Stackability: The fate of one species affects others

  Point of nondisplacement: Becomes virtually impregnable, barring catastrophe (a meteor or nuclear war)

  Ultimate saturation: A point of maturity when growth slows

  The human population growth rate also mirrors the curves for companies like Skype, Hotmail, Ning, Facebook; peer-to-peer networks; and other viral-loop phenomena.

  Humans appear to have achieved a network effect around 1600, the result of advances in medicine, agriculture, and periods of peace and prosperity. We reached a point of nondisplacement long ago, with many nations (in Europe, Japan, etc.) hitting a point of ultimate saturation as their birth rates fell below replacement levels (immigration is another matter), although the populations of other countries, especially in the developing world, continue to grow. Stacked atop this human network are the fates of other species, which are tied to our own. We grow vegetables and cultivate fruits, raise cattle and pigs, and domesticate dogs and cats. Global warming, a product of man, which threatens the survival of polar bears and pollution, may be killing off species of birds and frogs. Whole rain forests are burned to clear land for farmers in Brazil, which affects flora, fauna, insects, and animals.

  At our essence we are viral creatures. Creating viral-loop businesses is just a small part of what we do and who we are.

  The Viral Loop Company Index

  Viral loop companies spread a few different ways. The most basic is “organic,” when users, with little or no prompting, like something enough to share it with others. A referral model depends on users bringing others on board and viral growth via “invitation” occurs when users invite friends and others to join, as with social networks. Finally there is “viral spam,” when users are hoodwinked or forced to spread something without their consent (as when a product hijacks a user’s address book.) This method is unsustainable, hence the fact that no company deploying viral spam made it onto this list.

  [ VIRAL LOOP COMPANIES ]

  HOT or NOT

  FOUNDERS: James Hong, Jim Young

  ESTABLISHED: 2000

  PRODUCT: Site that allows users to rate the attractiveness of photos submitted voluntarily by others. Also a matchmaking engine (Meet Me).

  VIRAL STRATEGY: Organic

  REVENUE: Advertising; paid subscriptions for matchmaking site http://www.hotornot.com

  HOTMAIL

  FOUNDERS: Sabeer Bhatia, Jack Smith

  ESTABLISHED: 1996

  PRODUCT: Free webmail

  VIRAL STRATEGY: Organic, marketing tag in each message

  REVENUE: Advertising

  http://www.hotmail.com

  NETSCAPE

  FOUNDERS: Jim Clark, Marc Andreessen

  ESTABLISHED: 1994 (as Mosaic Communications Corporation). Purchased by AOL in 1998.

  PRODUCT: Free Web browser

  VIRAL STRATEGY: Organic

  REVENUE: Premium services

  http://www.netscape.aol.com

  (No longer supported as of March 2008)

  TUPPERWARE

  FOUNDER: Earl Silas Tupper

  ESTABLISHED: 1946

  PRODUCT: Home products line that includes preparation, storage, and serving products for kitchen and home

  VIRAL STRATEGY: Referral

  REVENUE: Direct sales

  http://www.tupperware.com

  AMWAY

  FOUNDERS: Jay Van Andel, Richard DeVos

  ESTABLISHED: 1959

  PRODUCT: Company that sells a wide variety of products, including home care products, jewelry, electronics, and dietary supplements

  VIRAL STRATEGY: Referral

  REVENUE: direct selling, multi-level marketing

  http://www.amwayglobal.com

  [ VIRAL NETWORKS ]

  EBAY

  FOUNDER: Pierre Omidyar

  ESTABLISHED: 1995 (initially called AuctionWeb; renamed eBay in 1997)

  PRODUCT: Online auction and shopping site

  VIRAL STRATEGY: Organic

  REVENUE: Fees

  http://www.ebay.com

  FACEBOOK

  FOUNDERS: Mark Zuckerberg, Dustin Moskovitz, and Chris Hughes

  ESTABLISHED: 2003 (as FaceMash) and as The Facebook in February 2004

  PRODUCT: Social networking site

  VIRAL STRATEGY: Invitation, organic

  REVENUE: Advertising, premium services

  http://www.facebook.com

  MYSPACE

  FOUNDERS: Tom Anderson, Chris DeWolfe, Josh Berman, Brad Greenspan

  ESTABLISHED: 2003

  PRODUCT: Social networking site

  VIRAL STRATEGY: Invitation, organic

  REVENUE: Advertising

  http://www.myspace.com

  LINKEDIN

  FOUNDER: Reid Hoffman

  ESTABLISHED: 2002, launched 2003

  PRODUCT: A business-oriented social networking site

  VIRAL STRATEGY: Invitation, organic

  REVENUE: Premium services, advertising

  http://www.linkedin.com

  NING

  FOUNDERS: Marc Andreessen, Gina Bianchini

  ESTABLISHED: 2005

  PRODUCT: Users create and operate their own social networks

  VIRAL STRATEGY: Invitation, organic

  REVENUE: Ads, premium services

  http://www.ning.com

  TWITTER

  FOUNDERS: Evan Williams, Jack Dorsey, Biz Stone

  ESTABLISHED: 2006

  PRODUCT: Social networking, micro-blogging site

  VIRAL STRATEGY: Organic

  REVENUE: None

  http://www.twitter.com

  BEBO

  FOUNDERS: Michael and Xochi Birch

  ESTABLISHED: 2005 (sold to AOL in 2008)

  PRODUCT: Social networking site

  VIRAL STRATEGY: Invitation, organic

  REVENUE: Advertising

  http://www.bebo.com

  IMEEM

  FOUNDERS: Dalton Caldwell, Jan Jannink

  ESTABLISHED: October 2004

  PRODUCT: Social media service

  VIRAL STRATEGY: Invitation, organic

  REVENUE: Advertising

  http://www.imeem.com

  TAGGED

  FOUNDERS: Greg Tseng, Johann Schleier-Smith

  ESTABLISHED: 2004

  PRODUCT: Social networking site
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  VIRAL STRATEGY: Invitation, referral

  REVENUE: Advertising

  http://www.tagged.com

  [ STACKED NETWORKS ]

  PAYPAL

  FOUNDERS: Max Levchin, Peter Thiel, Luke Nosek, Ken Howery (of Confinity) and Elon Musk (X.com)

  ESTABLISHED: 1998 as Confinity; merger with X.com in 2000 (acquired by eBay in 2002)

  PRODUCT: Online transactions

  VIRAL STRATEGY: Paid inducements, organic

  REVENUE: Fees

  http://www.PayPal.com

  YOUTUBE

  FOUNDERS: Steve Chen, Chad Hurley, Jawed Karim

  ESTABLISHED: 2005 (purchased by Google in 2006)

  PRODUCT: Video share site

  VIRAL STRATEGY: Organic

  REVENUE: Advertising

  http://www.youtube

  PHOTOBUCKET

  FOUNDERS: Alex Welch, Darren Crystal

  ESTABLISHED: 2003 (acquired by Fox in 2007)

  PRODUCT: Photo share site

  VIRAL STRATEGY: Organic

  REVENUE: Premium services

  http://www.photobucket.com

  FLICKR

  FOUNDERS: Caterina Fake, Stewart Butterfield

  ESTABLISHED: 2004 (acquired by Yahoo 2005)

 

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