Viral Loop: How Social Networks Unleash Revolutionary Business Growth – Adam Penenberg

This is a review of the book Viral Loop: How Social Networks Unleash Revolutionary Business Growth written by Adam Penenberg. Penenberg is a United States investigative journalist and editor and is also an Assistant Professor of Journalism at New York University and a freelance writer. In this book, Penenberg explores viral loops and their impact on American businesses. He references “viral loop” as to use the product means you have to share it with others. Successful companies such as YouTube, eBay, Twitter and Flickr are prime examples of viral loops and Penenberg reflects on how they all utilized this to create successful online businesses.   He illustrates how any kind of business can discover viral loops to benefit their own bottom line and enable their business through technology. From Facebook to Twitter, this book shows how today’s smartest businesses grow themselves.

 

 

Viral precedence, positive feedback loop and spreadable concepts are the three categories of viral expansion. It’s possible to build a million dollar or billion dollar business from scratch simply by designing a product the right way. No advertising or marketing budget needed and venture capitalists will kill to throw money at it. Some of the most iconic web companies (eBay, Twitter, YouTube, etc.) fit this description. The trick is they created something people really want and their people spread the product for them. . These companies are powered by viral expansion loop – a company grows because each new user gets new users and it continues to spread. No one would be on Facebook if none of their friends were, or no one would post an item for sale on eBay if no one is around to bid on it, or use Paypal if no one will accept it. And that’s what happened, everyone was passing it onto others. We pass on interesting or funny things to others. My friend resurfaces cool deck in Phoenix, Arizona and he uses this idea to really grow his business.

It’s a viral expansion loop – a type of positive feedback loop which leads to growth. It’s like compounding interest on a bank account. Viral loops have emerged as perhaps the most significant business accelerant since the search engine. People don’t usually spread viruses intentionally, however, over the web, people enthusiastically disseminate ideas, blogs, opinions, photos, videos and web services. One of the sites that did get a virus that I’m aware of is http://www.besthendersontowing.com. Make no mistake, viral expansion loops are all about marketing and if you make something people really want your customers will make your business grow for you. Viral business models like Obama’s 2008 campaign raised 55 million dollars online without Obama attending a single fundraiser with small donations from middle or lower income people of mostly less than $100 a person. Spreadable concepts – a short clear positioning statement, multiplier effect and the long tail. Small is the new big. Over the last couple of decades, some of the world’s most successful businesses started from scratch and they rode a viral loop. Never before has there been the potential to create wealth this fast on this scale and starting with so little.

 

Viral businesses. Tupperware and Ponzi schemes, the original viral models. Before anyone every heard of Facebook, Tupperware was tapping into vast social networks to generate a massive viral loop. In 1947, Tupperware was born. Today, 90 percent of American homes own a piece of Tupperware and the company reports billions in revenue. Then Tupperware started having home demonstrations to show off the products and how useful they were. Tupperware grew in multiple ways in social home parties which led to others becoming dealers – a win, win situation. Stanley home products sales went from three million dollars in 1940 to 50 million dollars ten years later. Steve Wozniak built the Apple computer but it took Steve Jobbs to market it. At Microsoft, Paul Allen was instrumental in pushing for new products and technological innovation, while Bill Gates had the greater business vision. Today, the web has proved to be a potent force to allow businesses to spread further and faster than ever imagined.

 

The first online viral expansion. The web of the early 1990’s comprised less than one percent of internet traffic and navigating was difficult unless you excelled in computer skills. The internet provided instantaneous visual and audio communication. Computers went mass market and users would only need a simple intuitive tool to navigate the internet. January 23, 1993, Mosaic was the first WWW browser and the first browser to display both text and images on a single page. Within six months after its release, it had 100,000 users. The more people that discovered the browser, the more users and web sites were created. By the end of 1993, one million people had downloaded Mosaic and there were six million total uses and 623 web sites. Within a year, the online population increased 300 percent. Today’s web has over 1.5 billion users worldwide and almost 200 million websites, which owes its existence to Paul Baran, Tim Berners-Lee, Marc Andreessen. Mosaic was the first window into cyberspace. Jim Clark and Marc Andreessen co-founded Netscape Navigator and it quickly became the web browser of choice by most internet users. At the time, it was believed no one could make money off the internet but that was soon to change. In 1995, almost instantly, Clark and Andreessen had become millionaires after the release of Netscape. This was the spark that touched off the internet boom. And at the end of 1995, Microsoft released Internet Explorer. Bill Gates then offered Microsoft Internet Explorer free. AOL bought Netscape in 1998 for four billion dollars in stock, worth ten billion by the time the deal closed, and Internet Explorer had a 50 percent market share. Gates pushed Explorer as the default browser on PC’s and made his the standard. By the end of the decade, about 400 million people were on the internet and virtually all using Netscape or Internet Explorer, which made possible the web today.

 

The spreadable product as new business paradigm, a viral expansion. Warren Buffett said “get greedy when others are fearful and fearful when others are greedy.” Andreessen began working on social networking and started a couple to test the market. Double viral loop spreads two ways and provides viral loops that rely on crowds to fill it, like Paypal or YouTube. The bigger the viral network, the faster it grows. eBay went from online garage sales to megasite when sellers attracted buyers who attracted more sellers and buyers. Google has pursued a similar strategy outside of search and sets up a link to its ad program, which encourages more website owners to join and this earns cash and has a viral effect. The more connections and the more people you have, the more valuable it will be. Viral loop companies succeed in many ways by sharing web base. We are all a product of influences from infancy to adulthood resulting from interaction with families, friends and community. We all want to interact with other people and this need to communicate has been transferred through the web. Today there is your public self, your personal self and your digital self, which reaches far beyond the other two. The more online you are, the more real you are to others.

 

These web lurkers – people who know you through your postings, videos, etc., on social media – spread virally – out of your control. You are now a brand that must be managed. We do it as we are hardwired to socialize and it’s in our best interests. Social networking makes us happy and engaging with friends helps us to live longer lives. We are living in a fast paced world and have learned to multitask whether at work or at home. Smartphone sales have increased outselling land bound PC’s providing access to the internet and social media at any time and from anywhere.

 

The web stores and organizes information. Today marketers use hundreds of channels to put ads. The screen allows individuals to interact. Electronic billboards are popping up everywhere, from the backseat of a taxi cab to screens at the airport. Intel and others were in a one-up challenge to see who could build the smallest chip that did more. Whether Wi-Fi or satellite connections, smartphone users have many ways of getting online. But the wireless internet means more than being able to check email at a coffee shop. Firefighters could turn traffic lights to green during a call, people could report a crime or report a pothole to the City – anyone, anywhere could tap into the mobile informational grid with millions of means spreading from screen to screen. Better screens and chips designed to offer the full color web on handheld means people will be spending more time online transmitting messages, links and ideas digitally. This created a huge business opportunity for those who figured it out.

 

Viral marketing for the perpetual viral advertisement. In 1996, Sabeer Bhatia and Jack Smith launched Hotmail.com offering a free email. They generated 100 signups in the first hour. Hotmail’s growth took off and in just a few months it was up over two million users. It topped five million by its one year anniversary and registered over 60,000 new users a day while becoming established for its speed and reliability. In 1997, Bhatia and Smith met with Bill Gates about selling Hotmail.com. Microsoft offered 350 million dollars but Bhatia declined it. On December 31, 1997, Bhatia closed the deal at almost 400 million dollars. This viral loop business had grown faster than any other company. And this set the stage for other viral companies to follow suit. At one point, one in four people on the internet maintained a hotmail account and today it continues to be one of the three most popular web mill programs in the world along with Yahoo and Gmail.

 

When the audience decides what’s good – a cycle of boom, bust and sustained growth. The internet created new stores of capacity with high speed connectivity. Consumers are enjoying unprecedented power with high speed internet. And in the late 1990’s, music entered the internet. The ability to get music online came to light for any type of song or album. However, at first music was attainable for free being spread illegally and that soon ended after individuals faced criminal charges. By 2004, 13 million songs were available online.

 

The internet is providing intense competition with newspapers. Newspapers held a monopoly over time years ago but that is changing with easy access to the internet as readers can now read about anything at anytime. Several generations are growing up and coming of age on the internet and newspapers are setting up shop online.

 

Operate at a loss to start a product and get it out there. Viral video is a marketing strategy and letting go of your brand is important. The more willing you are to let go a little the more you can get in touch with consumers. In the past, if you had a problem you wrote a letter to the complaint department. Now the web allows the consumers unprecedented power and businesses either talk to their customers or face their wrath of reviews, postings or blogs. Companies are trying to gain from this system.

 

Viral networks. In 1996, in eBay’s early years, it had 41,000 registered users, received 100 emails a day and had a dozen employees; and in 1997, 341,000 registered users, 1,200 emails a day and 41 employee. By 1998, eBay had 2.1 million registered users, 2,500 emails a day and 138 employees; and in 1999 ten million registered users, 4,000 emails a day and 641 employees. But eBay had issues with hackers which damaged eBay’s system and their reputation. If you can’t scale, you fail (to handle rapid growth efficiently). Sites must run with minimal margin for errors. But the number one rule for any online business is to keep the lights on.

 

PayPal – the first stackable network. In 1998, Max Levchin, Peter Thiel, Elon Musk, Ken Howery and Luke Nosek co-founded Paypal. PayPal hired experts with talent rather than by degrees, some of whom had actually dropped out of college. From the beginning, PayPal was to grow virally through Hotmail and Napster. Customers would be able to spread the technology to others. PayPal started out with $10 into each customer’s account and added another $10 if they referred PayPal to another customer as they had no other expenses.

 

Stacking PayPal over eBay. eBay sellers needed a better way to complete transactions online. The process of becoming a credit card payment took weeks and there was also the concern with fraud. Consumers questioned whether PayPal could be trusted. After two months, eBay users and buyers enrolled in PayPal. One viral network superimposed over another. The possibilities would be unlimited. PayPal started losing revenues due to fraud, mainly due to the Russian mob. In the middle of 2000, one criminal ring stole over a four month period 5.7 million dollars by creating a robotic script to automatically open thousands of PayPal accounts at a time. Instead of receiving Beanie Babies or used books, the criminals siphoned millions in cold hard cash and someone had to pay for it. When a credit card user contests a charge, the merchant is the one holding the bag, which in this case was PayPal. PayPal was losing an average of ten million dollars a month. Levchin added additional requests to the signup process. A registrant was instructed to retype into a box a set of letters in a grid, something a machine could not do. Levchin designed it so when anyone tried to mess with the system it would spell out “nice try.” Shortly after instituting this instruction, the Russian cyber criminal left Levchin a nasty email for taking away his livelihood. PayPal’s credit card fraud dropped to less than one percent and PayPal continued to grow virally. eBay was negotiating with PayPal and PayPal was valued at 1.2 billion dollars and eBay offered 1.5 billion dollars. Not all the co-founders wanted to sell so the deal was off. Then a few days later, they agreed to sell. They each took in more than 100 million dollars and walked away from the viral company they had created. PayPal is one of eBay’s biggest businesses. Shortly after Levchin was entering his early 30’s he had bought a mansion but never even lived there. He was afraid he had topped in his career like an athlete entering his 30’s and continued pursuing other projects.

 

Flickr, YouTube, MySpace, spreadable spreadables, stackable stackables and the point of nondisplacement. When PayPal launched, less than ten percent of households had broadband connections. By 2004, the number had risen to 30 percent and to 70 percent by 2008. The blog (web log) has evolved into a sphere of means and ideas constantly shaped by the millions of web users who write, read and comment on blogs. Many of whom follow links that are spread virally. The blogosphere can contain inefficiencies, score settling and misinformation, and can contain nasty and rudish comments. But it is also a market place of ideas. Blogging was utilized in the 2008 Presidential campaign competing with traditional press. In 2002, Flickr was founded. Flickr was intended to allow users to share photos. Flickr was sold to Yahoo for 40 million dollars. MySpace was launched six months after Flickr in 2003. MySpace soon surpassed over twelve million users. YouTube was designed for video sharing and launched in 2005. In 2006, Google purchased YouTube for 1.6 million dollars.

 

Tweaking the viral coefficient. MySpace was attracting the young and Facebook was attracting college students. Vevo was launched and eventually sold in 2008 for 850 million dollars to AOL. Viral clusters – anyone tied with a business is tied to sites. Facebook has taken over MySpace. From the beginning, Facebook targeted college campuses. Wherever there were students, Facebook grew. Mark Zuckerberg, founder of Facebook, earned a reputation at Harvard as a digitally talented programmer. In 2004, Facebook debuted at Harvard. Soon Facebook was spread to other colleges. In March of 2007, Zuckerberg was sued for breach of contract and fraud and the case settled out of court for 65 million dollars. Facebook increased growth when it added “people you may know.” Facebook expanded into other languages and spread globally.

 

Facebook is cutting into Google’s search as Facebook users can search topics through other users. In a Google search, studies show that 90 percent of people don’t bother to search past the first page, and 97 percent don’t read past page three. There is a lot of money at stake as the difference of appearing on page one versus page four of results can be worth millions of dollars. The best possible place for a lead generation used to be at a cocktail party. Today, being online and social media is today’s version of that.

 

The Search for a new ad unit. People on Facebook spend a lot of time on the internet and will click on ads. There are a million places to put ads on the internet. The long tail marketing effect is selling more of less. Advertisers broadcast TV commercials considerably louder than the show they interrupt with longer commercial breaks. Consumers can now use their remotes to channel search during commercials or have recording devices so they can fast forward through the commercials. An entire industry has popped up around the concept of behavioral marketing.

 

There is a battle over security and privacy which has already been lost. Cities have affixed traffic cameras at stop lights, department stores and casinos have videos throughout, universities have videos to monitor students and teachers as well as other businesses. And identity theft affects one in eight through social networks, marketers, Google searches, etc., and once your information is out there it can never be taken back. And with Google Earth it allows anyone to see where you live. And what can you do about it – the only way to keep your life personal is to pay with cash for everything, don’t establish a bank account or take out a home mortgage! Your information is worth billions as the more companies know about your likes and dislikes, the easier it is for them to buy and the more money they will make. Realize there is little tangible harm when your personal information is being used for more advertising toward you. Identity theft is a threat but it’s not the information that commits the crime. Banks and credit card companies cover most of your losses passing it onto the merchants. Parents over 40 never talked about their personal life, but now those younger share everything. Media is a daily part of our lives. The loss of privacy could mean the opportunity to build a better society.

 

Treat users as partners. The user becomes a willing participant in the marketer consumer game. Facebook wouldn’t be Facebook without the hundreds of millions of users. For the online viral loop companies the users create content. Network effect is the more who join the more who have an incentive to join and stackability laid on top of another helps both grow. Creating viral loop businesses is just a small part of what we do and who we are. Today, the web has proved to be a potent force to allow businesses to spread further and faster than ever imagined. But the number one rule for any online business is to get your brand out there and keep the lights on.

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