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What I’m reading: Viral Loop by Adam Penenberg

Followup to Ning’s Viral Loop article

I was recently sent a copy of Viral Loop by Adam Penenberg, which just came out. I was first introduced to Adam in early 2008, when Marc Andreessen wrote us both while Adam was starting to write an article about Ning and their viral loops. That article was ultimately published in April 2008 as Ning’s Infinite Ambition, which you should read if you haven’t. After the article, Adam subsequently spent more time researching the topic, ultimately resulting in the book. I finished it and wanted to share a high-level summary and also talk through some points that the book brings up.

The book mostly covers a series of case studies from both offline and online companies. These include detailed dissections of viral companies from all stripes, including:

  • Offline: Tupperware, Ponzi schemes
  • Andreessen’s companies: Mosaic/Netscape, and Ning
  • Bubble era companies: Hotmail, eBay, PayPal, HotOrNot
  • Web 2.0 startups: Flickr, YouTube, MySpace, Bebo, Tribe, Tagged
  • Widgets and apps, etc: Facebook, Slide, RockYou, Zynga

Some of the companies get pages and pages, and others just get a paragraph or two. But there’s a lot of stories that were new even to me, which is always a good sign, since I tend to love reading this kind of stuff.

The book also covers a bunch of high-level concepts about virality, such as the viral coefficient, viral loops, RockYou’s model for calculating virality, etc. All in all, a useful intro to all the major concepts in the field. It’s a great walkthrough of the history of viral companies since the late 90s when some of the formalizations started to happen.

Metrics-focused virality versus not?
One of the interesting distinctions that isn’t made in the book is the trend of startups who use quantitative techniques to optimize their virality versus products that went viral through other means. In particular, a lot of modern techniques are borrowed from the world of leadgen, ecommerce, and advertising, including:

  • Formally defining landing pages (and using associated techniques)
  • Creation and formal creation of funnels
  • A/B testing
  • Extensive use of analytics and targeting
  • Deep understanding of email marketing, deliverability, and addressbook importing

From my personal experience, it seems like a lot of these ideas about virality ultimately originated from a few small teams here in the Bay Area who have now helped generations of viral companies succeed.

To me, the most important work in metrics-based viral marketing came from these companies below – I’ve listed the companies along with “descendent” startups who took the culture, playbook, and to build the next group of viral companies

  • PayPal (Peter Thiel and Max Levchin)
  • Jumpstart (Greg Tseng and Johann Schleier-Smith)
    • Crushlink, Tagged, Hi5, others
  • Plaxo (Sean Parker)
  • Tickle (James Currier)
    • Ooga Labs (Medpedia, Wonderhill)
  • BirthdayAlarm (Michael Birch)
    • Bebo, Flixster

There is lots and lots of overlap amongst this group above, and people cross-advise each others’ companies. Let me also caveat that the list isn’t exhaustive, and there are plenty of important VCs, advisors, and entrepreneurs that “get it” and help cross-pollinate between companies. In particular, I’ve found that the PayPal folks are involved in a tremendous number of companies in the Bay Area, and have been teaching their various companies to go viral for quite a while.

That said, I believe that the social relationships above have become less important over time to startups, as the knowledge around designing and optimizing viral loops has become more widespread. Certainly the Facebook economy has taught a wider generation of 20-something developers on how to build highly viral applications, with or without the help of the folks above. I’d note that some of them aren’t as numbers-oriented as copycat-oriented, but it’s still working for many people. As a result, I think the Bay Area is set up nicely to create the next generation of web companies as the bench in this area has gotten very deep indeed.

Who am I missing? Email me or let me know if I am in the comments. Or if someone on the above list would like to graciously identify who taught them the viral playbook, I can help trace the history further :-)

“Viral Loop” stays high-level
One aspect, both good and bad, about the Viral Loop book is that it stays pretty high level. As mentioned above, even after you understand what a viral loop is, you have to understand the tools of the trade well enough to go execute one. Learning the ins-and-outs of direct marketing takes a long time, especially to become an expert.

Adam does a great job keeping the book high-level and relevant to people both inside and outside of the industry, but certainly it doesn’t go into any of the details that have to be mastered to do the actual execution part.

It is for this reason that the total supply of viral experts will always be relatively constrained. Anyone worth their salt would likely be working on an amazing project, early on in the team, rather than working for an established startup. Instead, what tends to happen is that the community operates on a “money + knowledge” type of relationship, in which successful viral experts advise new startups to provide both angel investment and advisory.

The limitations of viral loops as a force multiplier
Another thing that isn’t discussed much in the book, which I think is very important, is the limitations of viral loops. The quantitatively marketed companies that I mention above certainly have their successes, but similarly, many of them are plateauing and failing as well.

The reason is that there are some important factors that are not well-understood by the extended community.

First, I refer to this great presentation by Siqi Chen (of Serious Business) and David King (of Green Patch), called Metrics for Social Games:

The first slide contains a deep truth: Metrics are a force multiplier. If you don’t have a great product, then you won’t get anywhere. But if you have a great product, then it help you build a huge business.

I’ve written about a similar concept in a blog post called Creating value versus optimizing revenue.

Hitting saturation in viral networks
Another important limitation is that there’s a finite number of users out there, and after you churn through all of them, all you have to look forward to is the long plateau. I first wrote about this in my post Facebook Viral Marketing: When and why do apps “jump the shark.”

I wrote that post back in March 2008, and a lot has happened on the Facebook platform since then. This includes an incredible growth rate of the underlying platform itself (now hitting 325 million monthly actives), the appearance of Social Gaming, and it turns out that the current model to beat on Facebook comes from Zynga. They get around the jumping the shark issue by releasing lots and lots of games – 17 on Facebook, 9 on MySpace, 8 on other networks, and 5 on iPhone. And more to come every day :-)

Although it doesn’t seem like much of a problem for most companies to hit the saturation ceiling in the networks they are operating in, it is a huge problem for VC-backed startups because then the story stops being about growth. So for the entrepreneurs who are working on their startups, it becomes important to hit a product/market fit early, and scale then, rather than prematurely going viral without a long-term product direction.

Buy the book here
Hope you enjoyed the post, and you can buy Adam Penenberg’s Viral Loop here.

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