Executive Summary
Viral loop companies create something that people really want, and then as a result the people spread their product. Examples of these companies are Hotmail, eBay, PayPal, MySpace, Facebook and Twitter. These companies are successful because they incorporate virality into the functionality of their product. “What’s the sense of being on Facebook if none of your friends are?” Penenberg really “hits the nail on the head” with that question and all the companies discussed in this book create that same question for their business. The great part of viral marketing is that people will make your product grow just by using it.
The book is broken down into three parts: Viral Businesses, Viral Marketing, and Viral Network. The first big viral loop company was Tupperware. Tupperware was the first example of the FNR (friends, neighbors, and relatives) concept. It offers the product credibility, because people only tell others about something unless they think it is good.
We have become accustomed to rely on the Internet every day. Most of us do not realize that the Web hasn’t always been as great as it is today. In the early days “surfing the Web was inefficient, time consuming, and largely restricted to those fluent in arcane computer systems.” Marc Andreesen’s browser, Mosaic, became the Internet’s first smash hit, and resulted in a powerful word-of-mouth marketing campaign.
The viral coefficient which is the number of additional members each user brings in. If the coefficient is 1, the company will grow but only at a linear rate. If the coefficient is above 1, it will achieve exponential growth. The viral plain of today is the Internet. Penenberg states that “we are hard-wired to socialize.” We are “biologically driven to commingle online and off.”
We are hooked on speed and the more we do, the less time we have to do it. Three technological innovations were spawned from our busy and speed addicted lives: screens, microprocessors, and ubiquitous connectivity.Hotmail was the first webmail service. Its creators “realized that they should create a way to meld two of the greatest uses of the Internet: email and the Web.”
Scaling is a massive challenge that all viral expansion loop companies reach at some point. Gmail is a product that beat the scaling system by controlling its rate of adoption. They accomplished this by doing an invitation based sign-up system. The Web’s growth caused there to be a void in the area of transactions. PayPal, which was originally designed for the Palm, was the first on the scene. At one point, PayPal was losing $ 10 million a month to fraud. They solved this problem by creating one of the first “captchas”, which forced registrants to enter a random series of hazy letters into a box. They were eventually able to get the fraud level below one percent.
Not many people know that the creators of MySpace were a spammer and a hacker. Tom Anderson was given probation after hacking into a Chase Manhattan Bank data center when he was 14. Tom saw Friendster’s vulnerability and with Chris DeWolfe they built a competitor. MySpace was able to come out on top as a “wild and wholly alternative, partly by accident” because of a HTML coding glitch. YouTube was originally created as a Web version of the viral sensation of Hot or Not. There was a need for something like YouTube because “viewing video clips on the Web was often frustrating and inconvenient.”
Social networks have become a global online phenomenon. They account for 25% of Internet traffic according to Penenberg. The three ways viral loop companies spread are organic, invitation, and viral spam. Organic and invitation are the most prevalent, with one of them being present in each of the viral loop companies. Organic just means that the company is spread with “little or no prompting” and invitation just means that friends invite others to join. Overall, Penenberg is giving businesses the information they need to create a viral loop in their product or company. Anyone in business should read this book and their business and/or products will improve.
The Ten Things Managers Need to Know fromViral Loop
1. Eliminate all the single points of failure in your company.
2. Be prepared for scaling, capacity, and volume increases.
3. Always worry about “keeping the lights on.”
4. Eliminate any bottlenecks that may arise, and know your upper limits and capacity.
5. Be prepared to change course if your viral strategy is not panning out or if it is a false start.
6. Try to make your product free to end users, at least initially.
7. Keep things simple where possible.
8. To advertise well, catch the searcher when they are actually looking for the information.
9. Always work to improve your product’s virality and viral coefficient.
10. Work to earn a reputation for speed and reliability.
Full Summary of Viral Loop
Introduction
Viral loop companies create something that people really want, and then as a result the people spread their product. Examples of these companies are Hotmail, eBay, PayPal, MySpace, Facebook and Twitter. These companies are successful because they incorporate virality into the functionality of their product. “What’s the sense of being on Facebook if none of your friends are?” Penenberg really “hits the nail on the head” with that question and all the companies discussed in this book create that same question for their business. The great part of viral marketing is that people will make your product grow just by using it.
Section 1: Viral Businesses
Tupperware and Ponzi Schemes–the Original Viral Models
The first big viral loop company was Tupperware. Some people in their company found that people did not buy the products unless someone demonstrated how they worked. As a result, home parties and patio parties came about to not only help spread the product, but to virally spread the product. A cycle was started where more parties caused more buyers which caused more sellers who caused more buyers and so on. Tupperware provides an example of the viral cycle of a company. First they reached a point of nondisplacement where not other competitor could touch them then they reached a point of saturation and began a decline. Tupperware was the first example of the FNR (friends, neighbors, and relatives) concept. It offers the product credibility, because people only tell others about something unless they think it is good. Penenberg ends the chapter by saying “the frictionless Web would prove to be a potent force for businesses that followed Tupperware’s viral-loop example.” With that statement, he sets the stage for the rest of the book.
The First Online Viral Expansion Loop
We have become accustomed to rely on the Internet every day. Most of us do not realize that the Web hasn’t always been as great as it is today. In the early days “surfing the Web was inefficient, time consuming, and largely restricted to those fluent in arcane computer systems.” A man named Marc Andreesen set out to fix this early problem. He created a browser that was reliable and easy to use. This came at a time when computers were about to get big and people would need a tool to navigate the Internet. His browser became the Internet’s first smash hit, and resulted in a powerful word-of-mouth marketing campaign. He also discovered the network effect, which means that the more people who have the product, the more value someone else with the product is to each person already with the product. Another term that was discovered is a positive-feedback loop. Simply put the more people who discovered his browser, the more who spread it. The creator of Mosaic went on to create an even better browser called Naviagator. It was considered “the spark that touched off the Internet boom.” The reason Navigator isn’t here anymore is that it had not reached a point of nondisplacement and Bill Gates was able to find a way into the Web browser viral market. He disrupted Navigator’s virality by making Internet Explorer as the default browser on Windows and now it is the standard.
The Spreadable Product as New Business Paradigm
This chapter introduces the viral coefficient which is the number of additional members each user brings in. If the coefficient is 1, the company will grow but only at a linear rate. If the coefficient is above 1, it will achieve exponential growth. Penenberg introduces viral networks by giving a few examples: eBay, PayPal, YouTube, MySpace, and Flickr. Some of these were stacked atop each other, but that is discussed further in chapters to come. Another term brought up in this chapter is a double viral loop in which a product “spreads two ways because every network creator is a user and every user is a potential network creator.”
One of the most informative sections of the book lists the shared characteristics of viral loop companies. Since launching a viral loop company is not easy, the author shares the characteristics of successful companies with the readers. The first characteristic is that they are Web-based, meaning they are better suited to the “frictionless world of the Internet.” The next characteristic is they are free; specifically users consume the product at no charge. Organization technology is the third characteristic and it means that they don’t create content, but their users do and the company simply has to organize it. The next characteristic he listed is that the company is employing a simple concept. The product has to have built-in virality, which means the “users spread the product purely out of their own self-interest.” Another characteristic is extremely fast adoption, and he gives the example of Hotmail which gained 30 million users in 30 months. Also the company needs to have exponential growth, a virality index of one or above, and predictable growth rates. The product needs to have network effects, meaning the more that join, the more that have incentive to join. The product should also have stackability, meaning it can be laid over another viral network to foster each other’s growth. He gives a couple examples of stackability: PayPal & eBay and YouTube & MySpace. Those are discussed later in the book. Finally, there are two points that viral expansion loop businesses reach: the first is the point of nondisplacement and the second is ultimate saturation.
Penenberg introduces yet another term in the third chapter and it is the viral plain. The viral plain of today is the Internet. In this viral plain, we have three instances of our self: the public self which is who you present to the physical world, the personal self which is who you are when you are alone, and the digital self which reaches far beyond the other two onto the web. Penenberg states that “we are hard-wired to socialize.” Research even shows that “engaging with friends helps us live longer and better lives” and that we are “biologically driven to commingle online and off.”
We are hooked on speed and the more we do, the less time we have to do it. Three technological innovations were spawned from our busy and speed addicted lives: screens, microprocessors, and ubiquitous connectivity. Screens are what allow people to “interact with virality.” The cost of the parts used in making microprocessors is “one-millionth of what it was in 1968.” The ubiquitous connectivity came from our lives being so much about mobile Internet capability. All of the “interconnectedness” we have today carries risk. There are viruses, bots, hackers, and buffer overflow attacks. The advantages of the Internet far outweigh these cons.
Section 2: Viral Marketing
The Perpetual Viral Advertisement
Beginning in Chapter 4, Penenberg begins to talk about examples of viral expansion loop companies. The first is Hotmail which of course was the first webmail service. Before webmail people were tied down to one computer because of email. Luckily a couple guys by the names of Sabeer Bhatia and Jack Smith “realized that they should create a way to meld two of the greatest uses of the Internet: email and the Web.” Hotmail spread by word of mouth and “word of mouse.” Hotmail was successful in earning a reputation for speed and reliability. Hotmail became a viral loop company that grew faster than any company in history and made each of the creators $ 75 million richer. They set the stage for other companies to follow suit.
When the Audience Decides What’s Good
Broadband allows us to consume the Web instantly and has become the new railroad. Two things came to the Web and made quite an impact: music and pirates. These two allowed for the forming of Napster, the first peer-to-peer network, which of course spread virally. Penenberg states that “it’s hard to feel sympathy for a multibillion-dollar industry, the recording industry has trouble rallying the public around its cause.” Who can say they haven’t downloaded some music illegally at some point in their life?
We dash through life at a frantic pace. We don’t pick up newspapers anymore, because we know everything in them is a day late. Basically the Web is killing the newspapers, because it is the new medium and it meets our demand for new information.
Viral Video as Marketing Strategy
This chapter shows how viral a Web video can be and reap great benefits for a company. The example the author uses is the Mentos/Diet Coke fountain replica. Even Mentos said, “It reflected our personality.” This example shows that a company has to let go of their brand, meaning their product should allow for a forum of creativity. Mentos went with the video and their product was able to sell better because it got more popular. The free publicity was worth $ 10 million to the company. But the “craziness with Mentos” didn’t fit Diet Coke’s “brand personality.” Viral Web videos like this one offer the audience a “value proposition.” Penenberg states that “People want to engage in the content.”
The worse thing a company can do when one of these Web videos comes out using one of their products is send out a cease-and-desist letter, which FedEx did. A company called Blendtec has made a series of YouTube videos called “Will it blend?” and it caused them to sell four times as many blenders. When trying to accomplish what Mentos and Blendtec did, Penenberg says that “you have to have a light touch and be careful not to act like a guy in his mid-fourties trying to be a hipster.”
Section 3: Viral Networks
eBay and the Viral Growth Conundrum
Scaling is a massive challenge that all viral expansion loop companies reach at some point. As these companies spread, they are sometimes “forced to invent whole new technologies and practices.” Friendster is an example of a company that refused to make scaling possible. They had a growing number of members, but their main problem was the four degrees of social connections. These “connections” were increasing faster and faster and were dragging down the system and causing problems for users. Just ridding their product of those connections could have made them the Facebook of today. Gmail is a product that beat the scaling system by controlling controlling its rate of adoption. They accomplished this by doing an invitation based sign-up system.
eBay was started with all the following in mind: “complete transparency, equal access for all, [and] price would be whatever the highest bidder was willing to pay.” Those characteristics made eBay what is today and caused it to be very successful. eBay at one point hit some of the scaling problems mentioned earlier. They had multiple single points of failure in their setup and the one thing you have to do with a viral network is “keep the lights on.” eBay was able to find that to be able to beat the scaling problem, a viral loop company has to find its upper limits, capacity and any bottlenecks.
PayPal: The First Stackable Network
The Web’s growth caused there to be a void in the area of transactions. The only way to do online business with a nonmerchant, meaning someone not accepting credit cards, was to mail a check or money order. This was against what the Internet was about: “instantaneous communication and convenience.” The mobile cash concept came in to fill that void. PayPal, which was originally designed for the Palm, was the first on the scene. Interestingly enough it took off on eBay, causing its creators to say “This isn’t designed for eBay.” It actually made perfect sense, because sellers on eBay were looking for a better way to complete transactions online. The great thing about PayPal was that it was free and it “didn’t lay the responsibility for fraud on its users.” This was the first time a viral network (PayPal) was stacked on top of another viral network (eBay).
PayPal hit a snag and its name was fraud and it threatened to run them out of business. At one point, PayPal was losing $ 10 million a month to fraud. PayPal called upon a “Fraud Fighter” to come in and fix their huge problem. He accomplished this by creating one of the first “captchas”, which forced registrants to enter a random series of hazy letters into a box. This was able to help the system determine if a registrant was a human or a machine. The next thing the “Fraud Fighter” did was create a tool “to automatically flag suspicious activity and freeze the accounts.” With just these two fixes the fraud level dropped below one percent. PayPal now was able to achieve a point of nondisplacement once those problems were fixed.
Flickr, YouTube, MySpace
Flickr was the first viral network to stack on top of the “expanding blogosphere.” Flickr was created as a “primitive social network with photo share capability and incorporated tagging to better organize photographs.” This was one of the first times tagging was used and finally allowed a photo to be easily found.
Not many people know that the creators of MySpace were a spammer and a hacker. Tom Anderson was given probation after hacking into a Chase Manhattan Bank data center when he was 14. Tom saw Friendster’s vulnerability and with Chris DeWolfe they built a competitor. Friendster was struggling with scaling, server bottlenecks, and user backlash of their policing of the site. MySpace was able to come out on top as a “wild and wholly alternative, partly by accident” because of a HTML coding glitch. The profiles users created were able to be “vehicles for self-expression.” Like Friendster, MySpace had a network concept. Unlike Friendster, they realized it made it “virtually impossible to scale” and eliminated it. Interestingly he eliminated it by making himself everyone’s friend. Most users didn’t even mind not being able to “track out their degrees of separation anyway.”
YouTube was originally created as a Web version of the viral sensation of Hot or Not. There was a need for something like YouTube because “viewing video clips on the Web was often frustrating and inconvenient.” YouTube came in as a faster and quicker video experience. Like many other viral loop companies, YouTube showed that once a viral network achieves a viral loop and a point of nondisplacement, it can’t be stopped. Their “viral loop was even more potent then MySpace’s [viral loop].”
Tweaking the Viral Coefficient
A man by the name of Michael Birch set out to create a viral business and wanted to use Hotmail as his model. He wasn’t successful at his first few attempts, but along the way he was “learning what worked and what didn’t.” His first success was called Birthday Alarm. Birch constantly kept tweaking his site to get it right and he discovered that the “simpler he made things, the more viral the site became.” Birch wasn’t satisfied with just Birthday Alarm.
Have you heard of Bebo? Birch wanted to create a copycat of Friendster using his Birthday Alarm code. He adopted a “grow-at-all-costs network effects model.” Bebo was created in the United States, but it went in a surprising direction. Most people haven’t heard of Bebo, because it took off in the United Kingdom. Birch and his wife created a viral popular site and sold it to AOL for $ 850 million dollars (more than News Corp. paid for MySpace).
Viral Clusters
Social networks have become a global online phenomenon. They account for 25% of Internet traffic according to Penenberg. The main example Penenberg draws from in this chapter is Facebook. In the beginning, Facebook was aimed at college campuses. Mark Zuckerberg, the creator of Facebook, said that “by offering a superior and more efficient product, you can pretty predictably displace any competitor even if they have network effects.” Zuckerberg was always trying to make Facebook better and make it keep growing. One way he did this was to add the “people you may know” feature, which bumped up its viral coefficient. Zuckerberg’s ultimate goal is to make Facebook the global standard for social networking.
Throughout the book, Penenberg gives the readers examples of viral companies. Most of them got big and got bought and that is their usual strategy. Many “naysayers” claim that viral companies like Facebook in “social network land” will not ever be able to find a way to make money off of them. The author ends the chapter with, “if history is any they are wrong.” Just look at the social applications that have spawned off of Facebook. This leads the reader to the next chapter where advertising is explained.
The Search for the New Ad Unit
The chapter starts off with a historical perspective on conventional wisdom that was wrong. In 1876, the “president of Western Union brushed off Alexander Grand Bell’s telephone as little more than an ‘electric toy.’” An Oxford University professor predicted that the electric light would never be heard of again after the 1878 Paris Exhibition. A client was advised by a banker not to invest in Henry Ford’s company in 1903 because the “horse is here to stay, but the automobile is only a novelty.” A more recent example is given of Bill Gates who was “years behind in seeing the promise of the Internet.”
When the Web first got big, people had trouble believing that money could be made off of it. The challenge to proving them wrong was convincing people it was “safe to share their credit card information over the Web.” Penenberg then goes on to explain how Google surpassed all the competition. They prevailed because Google maintained a simple interface and focused on their underlying search technology. The competition was worried about adding more to their “menu of offerings.” Google was also at the forefront of intent based advertising, meaning the advertisements caught a “searcher at the very moment they were looking for the information.” Normally we don’t want to see advertisements, but when we are shopping we would love to see exactly what we want.
Penenberg reminds the readers of a time when there were only three television networks and a third of the audience could be reached at one time. Now the audience is “fragmented” in the new media landscape. The question for marketers to ask is, “How can marketers cut through the clutter to get their message across to consumers who are increasingly hostile to having their time interrupted?” The answer is that the “ad has to offer a value proposition,” meaning the advertisement needs to engage the audience.
With all of the world’s interconnectedness, privacy has become somewhat of an issue. The typical American is caught on camera two hundred times. Penenberg gets right down to it and says that the “battle over privacy has already been lost.” He then goes on to say that the “loss of privacy could mean the opportunity to build a better society.” Penenberg makes a great point by sharing that “there is a phenomenon in peoples’ interaction.”
Epilogue
In this section, Penenberg compares viral companies to humans and there are shocking similarities. We are viral creatures and creating viral loop businesses is just part of who we are and what we do. Then he goes on to explain how viral loop companies spread. The three ways are organic, invitation, and viral spam. Organic and invitation are the most prevalent, with one of them being present in each of the viral loop companies. Organic just means that the company is spread with “little or no prompting” and invitation just means that friends invite others to join. Overall, Penenberg is giving businesses the information they need to create a viral loop in their product or company. Anyone in business should read this book and their business and/or products will improve.
Personal Insights
Why I think:
The author is one of the most brilliant people around because:
Adam L. Penenberg is brilliant, because he was able to convey extraordinary technically challenging material to normal people in a way they can understand. He is bringing the concept of a viral expansion loop to many people who have never heard of it in just over 200 pages. I have never read a technology based book so interesting before. He gave great insight into many of the companies of Silicon Valley. The author chronologically explained the birth and maturity of viral networks, not an easy feat. He even made a website showing how what his book talked about works. He is one of the few authors I know of that can actual do what he writes about.
If I were the author of the book, I would have done these three things differently:
Gave more in-depth definitions of the underlying definitions in the book, since they are used all throughout the book.
Added a chapter on specifically how a business person can either implement a viral loop into their existing company or start a new viral loop company on a step-by-step basis.
Gave more information on how a non-profit organization can implement a viral loop.
Reading this book made me think differently about the topic in these ways:
I now realize how much it takes to make a company like Facebook or eBay to be where it is today. I never thought of just why they were able to grow so large.
Now I understand what it takes to advertise a product in today’s Web based market.
I have an understanding of how viral loop companies didn’t just pop up, they have been in the making since the 1920s.
I’ll apply what I’ve learned in this book in my career by:
I will put more effort into using the full power of the Web in my business.
Keep my product simple, because that’s the way customers like it.
I will prepare for scaling and bottlenecks and keep an eye out for bottlenecks in production or processing.
Here is a sampling of what others have said about the book and its author:
“What others (scholarly and magazine reviews – along with on-line reviews – not simply reviews off the back of the book) have said about the book and its author?”
Overall, all the reviews I found had great things to say about Adam L. Penenberg, the author of Viral Loop. Publishers Weekly describes the book as “solidly researched and briskly-written.” They also say, he “has certainly done his homework.” Publishers Weekly says that the author “captures a great business and tech story, as well as a defining moment in out online culture.” Ivana Taylor calls Viral Loop “not only educational, but really entertaining.” Penenberg was able to accomplish this because he is a journalism professor and writes for many well known magazines. He is an “expert in explaining highly technical information to an audience that needs to learn and understand it.” Companies should use Viral Loop as their “bible for helping small businesses build their brand and business online.” Judy Brink-Drescher of the Library Journal writes that “Penenberg provides insight into the entrepreneurial minds behind the most successful and most disastrous corporate viral attempts.” She also writes that this book will “appeal to anyone curious about the legendary rise and rebirth of Silicon Valley.” On Google’s Books site, 26 out of 29 reviewers give the book four or five stars. Penenberg seems to have really “hit the nail on the head” with his book, Viral Loop.
Bibliography
Brink-Drescher, J. (2009). Editorial review. Library Journal, 134(19), Retrieved from
http://www.libraryjournal.com/article/CA6705440.html?q=viral+loop
Taylor, Ivana. (2009, November 21). Review of viral loop. Retrieved from
http://smallbiztrends.com/2009/11/review-of-viral-loop.html
Web exclusive book reviews. (2009, October 26). Publishers Weekly, Retrieved from
http://www.publishersweekly.com/article/396596-Web_Exclusive_Book_Reviews_10_26_2009.php?q=viral+loop
+++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Contact Info: To contact the author of this “Summary and Review of Viral Loop,” please email shawn.parker@selu.edu or shawn@shawnjparker.com.
Biography
David C. Wyld (dwyld.kwu@gmail.com) is the Robert Maurin Professor of Management at Southeastern Louisiana University in Hammond, Louisiana. He is a management consultant, researcher/writer, and executive educator. His blog, Wyld About Business, can be viewed at http://wyld-business.blogspot.com/. He also serves as the Director of the Reverse Auction Research Center (http://reverseauctionresearch.blogspot.com/), a hub of research and news in the expanding world of competitive bidding. Dr. Wyld also maintains compilations of works he has helped his students to turn into editorially-reviewed publications at the following sites:
Management Concepts (http://toptenmanagement.blogspot.com/)
Book Reviews (http://wyld-about-books.blogspot.com/) and
Travel and International Foods (http://wyld-about-food.blogspot.com/).
+++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
http://www.bukisa.com/articles/374807_the-six-minute-book-summary-of-viral-loop-from-facebook-to-twitter-how-todays-smartest-businesses-grow-themselves-by-adam-penenberg
