Book Summary: Viral Loop

The book Viral Loop was written by Adam Penenberg to help us understand why things go viral and how we can use it to improve our businesses.

The notion of creating a "viral business" isn't new. Tupperware has been using a viral loop to market plastic containers since 1948. The whole business strategy is based on current salespeople recruiting new salespeople.

However, there is a significant distinction between creating a viral video and creating a viral company. A viral business incorporates virality into its product. The product expands simply as a result of its consumers' use of it.

Hotmail famously included a link in the body of every message that offered the receiver a free webmail account. More individuals joined up for Hotmail as a result of the number of emails sent by Hotmail users.

Let's get started.

Building a Viral Business

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Tupperware was tapping into massive social networks of women to establish a tremendously viral company many years ago, long before Mark Zuckerberg's parents had even met.

A lady named Brownie Wise is credited for throwing the world's first Tupperware party in 1949. Still, she referred to them as "Poly-T parties" at the time, referring to the material Tupperware was composed of.

You've undoubtedly been invited to a similar party in recent years, as a slew of new businesses has sprung up utilizing a similar concept.

Wise sold $152,149.13 worth of Tupperware in 1949 alone (now worth more than $1.4 million).

More parties meant more customers, but it also meant more sellers, who in turn generated more buyers, who made more sellers, who made more buyers, who in turn created... As a result, the cycle continued.

Wise went on to become the first woman to appear on the cover of Business Week, where she quoted, "If we build the people, they'll build the business."

This sort of business strategy is responsible for the success (and continued success) of many Internet firms throughout the world. Before we can discuss them, we must first grasp some basic yet powerful math. This is where the viral co-efficient comes in.

Understanding the Viral Co-efficient

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A viral coefficient indicates how many new users a typical new user attracts into a company or network. Let's start with a simple example, assuming we have ten customers, to begin with.

If those first ten individuals join up, they then sign up six more people; we have a viral coefficient of 0.6, which means that for every new user you acquire, they will bring in another 0.6 through their networks.

So the initial ten users will bring in six new users, and those six will bring in four new users. Those four will bring in two new users until the viral impact is exhausted after six cycles.

Consider what would happen if you started with the same ten people and a viral coefficient of 0.9. Those first ten people would recruit nine more individuals, who would recruit eight more people, who would recruit seven more people, and so on.

Under this circumstance, the viral loop would not end until the 17th loop, when you would have 85 new members. So, simply by boosting your viral co-efficient from 0.6 to 0.9, you've increased the number of individuals entering your system by a lot.

Consider what happens if you increase your co-efficient from 0.9 to 1.2. Those first ten individuals attract 12 more people, who in turn attract 14 more people, who in turn attract 16 more people, and so on. The cycle never stops in this scenario.

You'll have 1,281 users by the end of the 17th loop, where the 0.6 scenario brought in 25 people, and the 0.9 scenario brought in 85.

According to arithmetic, your growth shifts from linear to exponential as you go from a co-efficient of less than one to higher than one—business growth's Holy Grail.

The Characteristics of Viral Loop Businesses

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There are eight qualities that virtually all successful viral loop firms have before you drop everything to figure out how to apply this to your business:

They are, first and foremost, web-based. This sort of real viral proliferation is only possible because of the Internet.

Second, they're unrestricted. These firms' business models rely on a secondary income source - either premium services or selling advertising to third-party corporations on the site.

Third, their users are the ones who produce the material. Google is an excellent illustration of this; they just arrange the material generated on the Internet.

Fourth, they employ a straightforward notion that is simple to implement.

Fifth, virality is pre-installed. Simply by utilizing the product, users spread the word about it.

Sixth, adoption is quite quick.

Seventh, growth is both exponential and predictable. If the product is built with the right viral hooks, viral growth will follow a predictable pattern.

Eighth, network effects are pre-programmed. In other words, the more people who utilize the service, the more valuable it gets.

Take, for example, the invention of the telephone. If you are the first and only person to purchase a phone, the service is effectively useless because you have no one to call. However, as the number of individuals who buy phones grows, owning one becomes more valuable.

Viral Marketing

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It's time to start thinking about making our marketing go viral if you don't have a company strategy that lends itself to virality.

Sabeer Bhatia was a budding entrepreneur who was having trouble raising funds for his product, JavaSoft, a collection of web development tools he and his partner developed to make development quicker and faster.

By the time he arrived at the offices of Steve Jurvetson, a partner at venture capital company Draper Fisher Jurvetson, he had been passed over 20 times. Jurvetson was ready to become their 21st "no" when Bhatia mentioned a product feature called webmail.

Webmail would be used by JavaSoft users to interact with one another. You had one email address you used at work and another email address you used at home on your home computer at this time.

No service allowed you to check your mail while on the road. Jurvetson accurately predicted that such a service would be in high demand.

The product was named Hotmail by Bhatia and Jack Smith, and it was sponsored by DFJ.

There was no economic plan for it at the moment, and everyone was concerned about how they would attract new members. Bhatia wanted to advertise on billboards and radio. Still, Jurvetson said it was simply too expensive for a product they were giving for free.

Tim Draper (the Draper in DFJ) remembered hearing about the Tupperware case study while getting his MBA at Harvard and wondered if they might accomplish anything similar with webmail.

He recommended adding a note at the bottom of every email received through Hotmail that said, "P.S.: I love you. Get your free email at Hotmail."

Bhatia and Smith despised the concept and decided to create Hotmail without it. People were joining up for Hotmail, albeit at a slower pace than they had planned.

Draper persisted in pressing the matter. Bhatia and Smith eventually agreed to publish the message, but only without the "P.S. I love you" section. The service quickly grew in popularity, and within six months, they had a million customers signed up.

At first, their viral co-efficient was 2, which meant that they brought in two more for every new user who signed up for Hotmail.

They had 5 million subscribers before the end of their first year and enrolled 60,000 new users every day. Microsoft eventually bought the firm for $400 million. Not bad for a firm that had only been around for a year and a half.

So, wherever possible, have your consumers perform the promotion for you as the first and only lesson in viral marketing.

Tweaking Your Viral Coefficient

If you don't get your viral coefficient above 1 the first time try, try again.

The man behind the social network Bebo, Michael Birch has a fascinating background that includes testing and toying with his ideas until they achieve the virality he seeks.

In fact, he had to go through three unsuccessful enterprises before finding his first winner. He founded the company Birthday Alarm in 2001 to notify people of their friends' birthdays. The first step in using the service was to send an email to all of your friends asking when their birthdays were.

He began experimenting when the site initially developed slowly. The more basic he made the site, the more popular it became.

He then included a cut-and-paste feature, so you didn't have to input your friends' email addresses. You may import your whole address list into Birthday Alarm with only a few clicks. With ten thousand individuals joining each day, the viral coefficient surpassed one.

The second experiment they attempted was a program that automatically imported your contacts, making the email import procedure simpler. They started with Hotmail address books, and signups rose to 100,000 per day on the first day the program was released.

The lesson is straightforward. You must continually adjust and test to discover what works to achieve genuine viral growth.

Conclusion

It is incredibly tough to create a business or marketing plan that goes viral. However, suppose you can learn from others who have done it effectively in the past and are ready to put in the time and effort to develop your model.

In that case, you may be on your way to building your own viral business.

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