Adam Penenberg wants us to understand why things go viral and how you can make it happen for your business. There's a big difference between making a viral video and building a viral business. A viral business builds the virality into the product itself. The product grows merely because it’s users are using the product.
Building a Viral Business
In 1949, a woman by the name of Brownie Wise held what is believed to be the world’s first Tupperware party.In 1949 alone, Wise sold $152,149.13 of Tupperware, which today would be worth more than $1.4 million. More parties not only meant more buyers, it also created more sellers, which in turn created more buyers, and thus, a viral loop. This type of business model is what drove (and continues to drive) the success of Internet businesses around the world. An important concept to understand surrounding this is the viral coefficient
Understanding the Viral Coefficient
A viral coefficient tells you how many people the average new user brings into the business. Let’s start off with a quick example with 10 users. If after those initial 10 people signed up, they in turn got 6 more people to sign up, we end up with a viral coefficient of 0.6, meaning for every new user you get, they will bring in another 0.6 people through their networks. In this example, the first 10 will bring in 6 new users, and those 6 will bring in 4 new users, and those 4 will bring in 2 new users, until eventually the viral effect ends after 6 loops. Therefore the principle states that in order to get a viral loop to begin, you need to have a viral coefficient that’s higher than one. In other words, you need to have each seller bring in more than 1 new user.
The Characteristics of Viral Loop Businesses
There are eight characteristics that almost all successful viral loop companies share:
- They are web-based. The Internet is what makes this type of true viral growth work.
- They are free. The business models all of these businesses use is to overlay another revenue stream later - either premium features, or by selling advertising to outside companies on the site.
- They don’t create the content themselves, their users do. Google is a great example.
- They use a simple concept that is easy to use.
- There is built-in virality. Users spread the product simply by using it.
- There is extremely fast adoption.
- There is exponential and predictable growth.
- There are network effects built in. The more people that use the service, the more valuable the service becomes.
Hotmail is a great example of viral marketing in action. At the time of its creation there was no business model for it, and the question about how they would acquire new users. One of the creators Sabeer Bhatia wanted to use billboard and radio advertising, but an investor determined that it was far too expensive for a product they were giving away for free. The investor, Tim Draper, then suggested that they put a message at the bottom of every email sent through Hotmail that said: “P.S.: I love you. Get your free email at Hotmail”. Within six months they had a million users signed up to the service. At the beginning, their viral coefficient was 2, and by the end of the year they had 5 million users.
Creating a business or a marketing strategy that goes viral is an extremely difficult task. But if you can understand the characteristics of a true viral loop as well as take a few lessons away from those who have done it successfully in the past, you will be well on the way to growing a viral business.