Qworky Review: Viral Loop

At Qworky, we are building our small business software-house the social media way. More than anything else, we see social media as being all about communication, and consider it a game changer for how people transfer information and their thoughts alike. Given the foundational role of communication to meetings, we are incorporating the principles of these innovative communication tools into the very fabric of our software, as well as our company at large.

As part of our effort to embody the most progressive of these principles, our reading lists include books not only about meetings but also on the social media experiences that are driving this revolution. Adam Penenberg’s Viral Loop: From Facebook to Twitter, How Today’s Smartest Businesses Grow Themselves is the second in our series of Qworky Reviews.

So what exactly is a viral loop?

“In plain English, it means a company grows because each new user begets more users. Just by using a product they spread it,” explains Penenberg. This works because viral loop companies design products that take advantage of the human trait/behavior in which we “seek to pass on interesting or funny memes or products to our personal social networks.”

“The trick is they created something people really want, so much so that their customers happily spread their product for them through their own social networks of friends, family, colleagues, and peers…your customers will make your business grow for you. Just by using a product users are, in essence, offering a testimonial.”

Its easy to see, there is immense value in free promotions from happy customers to friends and colleagues. It is a powerful insight, and is central to why viral loops have been deemed the most advanced direct-marketing strategy that is being developed in the world right now. (See Business Week ‘Would You Recommend Us?’ for another interesting take on this concept from Jena McGregor.) Quite frankly, “friends, family, and colleagues are far more credible than any advertisement a marketer could dream up.” These are trusted people, and when it comes to viral loops, it seems the message itself is often less important than the messenger it is coming from.

Yet beyond the human desire to pass along these items to trusted members of our networks, there is an added incentive to relay these positive testimonials free of charge referred to as a “network effect”. This term was first used to describe the spread of telephones when they were introduced, and refers to how the benefits received from a phone increase in proportion to the number of other people in your networks that have one as well. Just as a phone is only as valuable as the number of people you wish to reach through it, many viral loop companies are similarly based on a model where, “the more people, the more content; the more powerful the lure for those sitting on the sidelines, the more value the company has.” This value model is further exhibited by Metcalfe’s law, which specifies that the value of a communications network is proportional to the square of the number of connected users of the system. Eventually, a network effect creates a situation where “almost everyone joins such a network, the way that everyone has a telephone or an email address, because the value to being on it is so huge as a result of everyone else being on it.” It starts out as alluring for those who decided to join, then becomes increasingly alluring as more within their network joins, until such an extent that others feel compelled to join because the network now has such strong value.

Similarities amongst successful viral loops

The book chronicles companies and products that have achieved success with viral loops. Interestingly, they all share very similar characteristics that led to their success. First off, they all benefit from the web being a “frictionless” domain. This lack of friction makes it easier, and more enticing, to spread word of these products. The fact that these services are all both free and easy to use adds to the enticement to distribute them as well.

The viral loops Penenberg studied also share a similarity of not being creators of content, rather, they provide platforms for their users to create their own content, which the viral loop services organize for them. This prompts another shared characteristic of the products being “stackable”, as in it is possible to lay one viral network over the top of another, fostering and organizing content of one platform within another viral loop platform. Both products can grow and benefit because of it, the most clear example being PayPal’s stacking on top of Ebay to facilitate easy payment for the content on Ebay’s platform by the members of PayPal’s network. Another example cited in the book is how YouTube was able to grow on the back of MySpace and viral loop.

Yet another interrelated characteristic shared amongst viral loops is that they all have predictable growth rates, startups tend to call this hockey stick growth. This is because the “built in virality, in which users spread due to self-interest, and by doing so, offer powerful word-of-mouth endorsement” can be tracked. To be considered viral each person on average must bring in at least one other person, which in turn spurs fast adoption and the exponential growth. This is further enhanced due to the network effect, which these products all share. In light of this, the viral loop networks eventually grow so large that they reach a “point of non-displacement, making it nearly impossible for competitors to take it down, until ultimate saturation when the network reaches a point of maturity and growth slows.” As MySpace can attest however, this point may be over simplified.

The most advanced direct-marketing strategy in the world runs under the radar

“Over the last decade and a half some of the world’s most successful businesses started from scratch and then rode a viral loop. Never before in human history has there been the potential to create wealth this fast, on this scale, and starting with so little.”

Penenberg believes that the impact of social media, and their corresponding viral loops, is yet to be adequately appreciated; running under the radar. Regardless of how much praise and attention they have already received, it is not proportional to their game-changing nature.

“It took only a few years for social networking to comprise more than 25 percent of all Internet traffic, and these connections are sprouting ever more connections,” he argues. “Mass audiences on this scale carry serious potential, hence the fantastical valuations viral loop companies have achieved.”

A company can reach these heights “simply by designing a product the right way”, as incorporating virality into the product integrates advertising, marketing, and sales into one strategy. A powerful proposition indeed!

Final Verdict

I found this book to be quite the valuable introductory tool to the world of viral loops. The exhaustive list of case studies exhibit the significance of these principles very well, and provide an overall view of the landscape of viral loop companies. I’d recommend the book particularly to those striving to understand why, and how, social media companies are able to ride viral loops to such grand success, and generally to anyone who would like a jump-start to their education regarding the most innovative marketing strategies of our time.