Book Notes — Viral Loop by Adam L. Penenberg
The Viral Loop talks about companies which have reached massive scale in few years without blowing millions due to the viral nature of their product.
Rating — 8/10
Source : This was one of the two books mentioned in this Startup School Episode by alexschultz
What you will learn :
- History of internet through the inception of companies like Mosaic, Hotmail, Hot or Not, Paypal, Ebay etc.
- Viral Coefficient — the single metric to track a viral product
- How to create Viral Business, and notes on Viral Marketing and Viral Networks
Who is it for : Growth hackers, Marketers, Product Managers
Detailed Summary :
1. Tupperware to Hot or Not — History of Viral companies
The history of Viral loops can be tracked to 1949 when failed inventor Earl Silas Tupperware launched a company to sell utensils made of a material which doesn’t break. Mr. Tupperware was looking for a distributor for a long time when he met Ms. Brownie Wise who changed the fortune of the company by setting up the first ever Viral distribution channel through famous ‘Tupperware parties’.
Fast forward to the early Internet era, Hot or Not, a website where anyone could rate pics of men/women was growing at a frantic pace because it’s users were passing it on to their friends. At the same time, Hotmail, the first webmail service was growing 3000 users a day without spending a dime on marketing.
The common thread in these companies is that they grew on back of people who passed-on the product to others and they passed it further creating a Viral loop.
The Viral Loop for any product starts with it being so good that the users pass it on to their friends. As time and over the power of recommendation has surpassed any other marketing channel, these types of viral products have become money spinners by executing simple ideas.
2. Birth of Web — Mosaic and the Browser wars
In early 1990’s, Internet was a mix of many applications like Gopher, FTP and Telnet. To search a file one used Gopher, FTP to download it and to connect to other computers, Telnet.
All this was done using arcane commands on a terminal window. Today’s web which is filled with rich text, hi-res jpegs, Youtube videos, was a day dream back then.
But on Jan 23, 1993, Marc Andreessen and Eric Bina launched their side project, the Mosaic browser. This set forward the network effect which creates the World Wide Web that we know of today. The more people who downloaded Mosaic, more website they created. By the end of 1993, 1M people had downloaded Mosaic, with 6M total users and 623 websites.
In another year, the online population jumped to 13 M with 10,000 websites (with traffic shooting up 300 percent). The following graph depicts the massive growth of web users and websites since Mosaic created simplified the Web.
Marc Andreesen was not credited for creating Mosaic at that time as it was created under the aegis of NCSA. Feeling insulted, Andreesen left NCSA and packed his bag to move to Silicon Valley. There he teamed up with a valley veteran, Jim Clark to create the Netscape browser in 1994.
Within a year of launch, Netscape squashed the growth of Mosaic to grab 75% marketshare, bringing sweet revenge to Andreesen. Soon Bill Gates who earlier thought of the Web as a passing fad, took notice and quoted it as “most important single development since IBM PC”. He didn’t want Microsoft to be left behind hence got the license of Mosaic from Spyglass (who bought it earlier from NCSA) and created the Internet Explorer.
IE was quickly able to grab 32% market share within 18 months as Microsoft started bundling away the browser for free with every PC it shipped.
Thus began the Browser wars with Mosaic, Netscape and Internet Explorer vying for each others market share.
By the year 2000, about 400 million people were on the internet, either running Netscape or Internet Explorer (both running Marc Andreesen’s code)
Check out this beautiful representation of Browser timelines http://evolutionofweb.appspot.com
3. Viral coefficient — The yardstick of virality
When it comes to analyzing if a product has the potential to become viral, the best way is to calculate the Viral Co-efficient of the product.
Viral Coefficient < 1, slow rate of growth, not leading to virality
Viral Coefficient = 1, linear rate of growth, eventually topping out
Viral Coefficient > 1, exponential/viral growth
The following graph illustrates how with a >1 Viral Coefficient, a startup grows exponential over a short period of time.
Once a viral loop takes hold, one can accurately predict the user growth because a viral loop expands according to something called the ‘Power Law Curve’
A ‘Power law curve’ was conceptualized by Italian economist Vilfredo Pareto. This law came from his study of wealth distribution in Italy where ‘20% of the population held 80% of the wealth’. Popularly known as the 80/20 rule, this law describes a wide array of natural phenomenon like ranking the sizes of planets, Newtonian physics to unnatural phenomenon like blog traffic.
When it comes to social networks, the power law curve illustrates how 20% users contribute to 80% of usage. The rest 80% is distributed over the ‘long tail’ which keep on bringing smaller number of users perpetually even without doing anything.
Hence the skyrocketing valuation of companies like Facebook, Twitter etc. which have followed the power law curve to reach millions of years in few years. Because once you have reached the masses, someone somewhere will pay to reach them
Successful viral expansion loop businesses contain the following properties :
- Web-based
- Free
- Organizational technology
- Simple concept
- Built-in virality
- Extremely fast adoption
- Exponential growth
- Virality index>1
- Predictable growth rates
- Network effects
- Stackability
- Point of non-displacement
- Ultimate Saturation
4. Viral Marketing
The underlying theme of any viral product is ‘authenticity’.
As humans, we have evolved from storytelling around communal fires with our tribe to ‘sharing’ stories on social networks. And through this evolution, the stories have mostly remained more or less about ‘authentic experiences’.
Hence saturated with decades of made up advertising, we didn’t take long to lap up the ‘candidness’ of viral campaigns.
Example 1 — Hotmail — Perpetual advertising
PS. I love you. Get your own free email at Hotmail.com
When VC Tim Draper of DFJ suggested Sabeer Bhatia and his co-founder Jack Smith to add the above line to every email which went out of their server, they thought he was joking.
But Draper wouldn’t let it go and after a couple of months of pushing through, the duo agreed to only go with ‘Get your own email at Hotmail’.
In next few hours, their user registration growth depicted the classic hockey stick curve. They started averaging 3000 users per day and in next 7 months, they were getting 20,000 new user per day, all by using a simple and authentic CTA.
Example 2 — Four Eyed Monster (Digital distribution pioneer)
Four Eyed Monster (2005) was a movie which followed a couple’s (Susan Buice and Arin Crumley) courtship. Entirely shot on a handheld digital camera, the movie was built on the premise that people would want to see an authentic love story beyond the candy floss, air-brushed Hollywood RomComs.
The movie’s entire marketing was done online through various web communities and it was the first movie to premiere on YouTube.
Though not a commercial success, it did receive appreciation in the film festival circuit and set the path for future of online movie promotion and distribution.
5. Hitches of virality
‘Demand generation is always easier than demand fulfillment’
Viral growth does not always translate into exponential growth and walking to the bank in a couple of years. When not supported with the right infrastructure, viral growth has resulted in companies biting the dust in few months of being touted as the ‘next big thing’.
Case in point, companies like Friendster which collapsed under their own weight due to technology issues.
Companies like Ebay on the other hand realized the importance of scaling with the right infrastructure and employed the right people to help them. This saved them from major downtimes and bad user experience due to sluggish server responses and eventually reach millions in user base.
6. Social Networks — Thriving and the extinct
With perhaps 1.8 billion people (which is 1/4th of the planet), on social networks, an entire ecosystem has been stacked over them.
The book mentions how dynamic the Social Network scene is and the way different players have dominated by focussing on different niches.
Few notable Social Networks that have stood the test of time :
Facebook, Twitter, Ning, LinkedIN, Myspace, Bebo
Few notable ones which have tanked : Friendster, SixDegrees, Tribe
7. New Ad Unit for the Social Internet
Since the book was published in 2009, it talks about the requirement of a new ad unit for social network monetization. One which will engage social media users who are constantly online and are saturated looking at banner ads.
The book mentions that social networks are on their way to achieving massive global audience and soon they will need to crack the monetization code with a new kind of ad unit to keep eyeballs engaged.
Since then few companies (notably Facebook) have cracked this by introducing, highly targeted ads which seamlessly integrate into the ‘News feed’. Due to this, the user is served an ad which feels like the part of the content he is consuming through his network of friends.
TL;DR Summary : Viral loops have never been as significant for developing businesses in our entire evolution as they are currently due to the social nature of internet, today.
Read this book to understand how Consumer Internet businesses can achieve exponential growth piggybacking on these non-apparent but all so important viral undercurrents.
Notable quotes :
“Anything that causes the audience to be grateful for entertainment means they are most likely to pass it on.”
“Bubbles, however, don’t recur just because people have failed to learn from their experience. They are necessary stage of technological development.”
“Exuberance, irrational or otherwise, builds industries.”
“Microsoft often took three tries before it got something right, which was true of windows and true of the new browser”
To know more about the book click here
See my complete reading list at Vivilio.
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