Unleash Your Customers: Increasing Customer Lifetime Value With Viral Application Features

Summary •  Viral growth occurs when active users invite more than one additional user who also becomes active, and subsequently invites more users, and so on. •  Viral Growth decreases your average cost of user acquisition as current users market your application for you. •  Achieving viral growth requires disciplined experimentation and measurement. •  Two frameworks can help you to organize your experimentation and measurement: –  Engagement Loop –  Viral Coefficient •  The following six techniques can help you to optimize your Engagement Loop and Viral Coefficient: 1.  Invitation in the Core: make invitations a core function of application use 2.  Immediate Utility: give your first users something to do before their friends join 3.  Persistence: continually pull users back into your application 4.  Timely Targeting: target new users based on your position in the adoption curve 5.  No Artificial Barriers: make it easy for users to invite as many people as they want 6.  Influencer Targeting: select recipients of viral notifications based on their ability to drive further virality © 2009 Chris Boudreaux 2

Viral growth occurs when active users invite more than one additional user who also becomes active. Viral Growth Linear Growth On average, each active user invites more than On average, each active user invites one new one new user who activates user who activates Active User Active User Invite Invite Activate Activate Invite Activate Activate Activate Invite Activate Activate Activate Activate Activate © 2009 Chris Boudreaux 3

Viral Growth decreases your user acquisition costs as conversion rates increase, at increasing rates. Viral Conversion Decreases Cost per •  Average cost per conversion decreases Conversion because: •  Your users bring you more and more new users, while Average Conversion •  Lead generation and conversion Rate spending remains constant or decreases •  Not all applications need to be viral •  Example: Google search grew its user base with no viral features Avg Cost per Conversion •  Not all applications can be viral Time •  Where possible, incorporate viral principles early in the design process © 2009 Chris Boudreaux 4

Viral performance depends on consistent, disciplined optimization of user engagement and new user attraction. Primary Factors of Viral Growth •  Viral success is extremely difficult to predict in advance •  Lots of experimentation is required •  Your performance will increase to the extent that Engage Attract New you develop a consistent, Existing Users disciplined framework for Users measuring and managing the factors that contribute to engagement and virality. Engagement Loop Viral Coefficient © 2009 Chris Boudreaux 5

The Engagement Loop helps you measure and continually improve user engagement and new user adoption. Engagement Loop With Example Events Trigger Convert Act Message Announce new Click-through Register or Post in News Feed or Feature Comment Send message Attract © 2009 Chris Boudreaux 6

User Engagement can be optimized through continuous improvement of message conversion, action conversion and messages per action. Engagement Message Action Messages Conversion Conversion per Action Trigger Convert Act Message Announce new Click-through Register or Post in News Feed or Feature Comment Send message Viral Coefficient Attract © 2009 Chris Boudreaux 7

The Viral Coefficient can tell you what you need to improve in order to increase your viral spread, even if your application is already viral. Factors of the Viral Coefficient Viral = Invitations x Conversion x Infection Coefficient Average number of Proportion of Proportion of new users invited by invited users who active users who each active user activate invite additional new users •  If your viral coefficient is greater than 1, then your growth will increase exponentially over time, and you will saturate your market (or whatever parts of it you have access to, if your market is highly fragmented). •  If your viral coefficient is smaller than 1, your growth spurts will always end and you will have to keep pumping marketing energy into your application to grow it. •  If your viral coefficient is 0, you will not experience any viral growth. © 2009 Chris Boudreaux 8

If you are paying to acquire users, or seek to control growth, you might limit your viral coefficient to a value less than 1. If you’re doing Why a Viral Application Manager well enough Might Choose Less-Than-Viral here Growth Being less-than-viral enables you to focus more energy here •  Viral growth is unpredictable. •  You have little control over the demographics that eventually dominate your application Acquire Retain Engage Mone1ze •  Growth rates may exceed your available operational capabilities •  Controlling your growth rate allows you to perform meaningful experiments Source: “Almost Viral: A Hybrid Acquisition Strategy” by Jesse Farmer, http://20bits.com/articles/almost-viral-a-hybrid-acquisition-strategy/, April 15, 2009. © 2009 Chris Boudreaux 9

The remainder of this slog post will explain six ways to increase your Viral Coefficient. Selected Techniques for Increasing Your Viral Coefficient Invitations Conversion Infection 1.  Invitation in the 2.  Immediate Utility 5.  No Artificial Barriers Core 3.  Persistence 6.  Influencer Targeting 4.  Timely Targeting Invitation in Immediate Persistence Timely No Artificial Influencer the Core Utility Targeting Barriers Targeting © 2009 Chris Boudreaux 10

To increase the average number of users that each of your active users invite, you must ensure that new user invitation is a core process in your application. Example of Web Applications Providing Invitation as a Core Process Select and rank your top friends, Small invita:on at the bo;om of then tell them about it every email Invite collaborators to a project Send money to non-‐members; referral bonus if they join Invitation in Immediate Persistence Timely No Artificial Influencer the Core Utility Targeting Barriers Targeting © 2009 Chris Boudreaux 11

In order to achieve traction with initial users, you must provide some immediate utility when none of the user’s contacts have joined. Examples of Social Sites Providing Reasons for Value to Lone Users Value to Lone Users •  Most users will not invite other people until they’re familiar with an application. •  If you don’t provide them with •  Send files to non-members something to do before they’re ready to •  Revision tracking invite other users, you will probably lose them before they reach that stage. •  Micro-blogging •  Easy online resume Invitation in Immediate Persistence Timely No Artificial Influencer the Core Utility Targeting Barriers Targeting © 2009 Chris Boudreaux 12

Keep pulling people back into your application – over and over. Examples of Sites That Persistently Be persistent Pull Users Back Into the Site •  Once they’ve joined, you should not just wait for them to start using your system and inviting more users •  As a core process of the application, keep sending useful communications or showing signs that will encourage people to use the system Lists people who viewed your profile in the past seven days When you pull people back in: •  Remind invited people that they can join •  Remind active users that they can invite more people •  Remind users of the beneﬁts of inviting others Reminds users of new features Avoid Spamming that are unlocked with more use •  Do not send reminders all the time without a good reason •  Only take actions on a user’s behalf when they take explicit actions and they expect you to send Status updates and News Feed a message on their behalf Invitation in Immediate Persistence Timely No Artificial Influencer the Core Utility Targeting Barriers Targeting © 2009 Chris Boudreaux 13

Target potential users based on their adoption propensity, according to your place in the adoption curve. 3.  But you are overly concerned about being here 2.  And you should be trying to go 1.  You are here here 4.  So, instead, you go nowhere For more information on driving adoption throughout the adoption curve, see my April 2009 post entitled, “When to Invite Oprah to Join Your Social Network: Driving Adoption in Social Applications” Invitation in Immediate Persistence Timely No Artificial Influencer the Core Utility Targeting Barriers Targeting © 2009 Chris Boudreaux 14

Remove artificial barriers to users inviting new additional users. CyWorld Behavioral Distribution1 •  Most people will not invite anyone •  Highly connected •  A few people will want to invite 100% lots of people •  Negatively influenced by others 80% •  Ask yourself how you will make it easy for those few to invite •  Moderately connected as many as they want: 60% •  “Keep up with the Joneses” 20, 30 40 people at a time 40% •  Not well connected •  Limited interaction 20% with others •  Unaffected by social pressure 0% Users [1] Source: “Do Friends Influence Purchases in a Social Network?”, Raghuram Iyengar, Sangman Han and Sunil Gupta, Harvard Business School, February 26, 2009. Invitation in Immediate Persistence Timely No Artificial Influencer the Core Utility Targeting Barriers Targeting © 2009 Chris Boudreaux 15

Select users to receive viral notifications2 based on the number of their friends, the size of their network or probability of instigating action. Cumulative Users Acquired, by Notification Strategy1 Basis for selecting users to receive viral notifications2 1,200 Recipient network size, weighed for historical influence on friends 1,000 Size of recipient’s network (e.g., eighen value) Total 800 Number of recipient’s friends Adopters 600 400 200 Random 5 10 15 20 25 30 Initial Seeds [1] Source: “Notification Strategies for Social Networks”, Jesse Farmer, 20bits.com, May 5, 2009. [2] Viral notifications are system-generated messages that notify a user’s friends of an action taken by the user, or status change for the user. Examples include status updates on Facebook. Invitation in Immediate Persistence Timely No Artificial Influencer the Core Utility Targeting Barriers Targeting © 2009 Chris Boudreaux 16

Creative Commons License This work is licensed under the Creative Commons Attribution-Noncommercial-Share Alike 3.0 United States License. To view a copy of this license, visit http://creativecommons.org/licenses/by- nc-sa/3.0/us/ or send a letter to Creative Commons, 171 Second Street, Suite 300, San Francisco, California, 94105, USA. 17 © 2009 Chris Boudreaux

Social Media Governance Empowerment With Accountability My name is Chris Boudreaux and I created SocialMediaGovernance.com to provide tools and resources for leaders and managers who want to get the most from their social media and social application investments. I lead cross-functional teams of business and technology professionals to create new capabilities and services, from strategy through execution. I am a former Naval Officer and I've led product development and business transformation initiatives at companies including Bank of America, Boeing, eBay and Microsoft. Today I live in Silicon Valley, and I have lived and worked in Charlotte, Chicago, Germany, London, San Francisco and Seattle. •  Visit my blog: http://SocialMediaGovernance.com/blog •  Twitter: @cboudreaux 18 © 2009 Chris Boudreaux

Unleash Your Customers: Increasing Customer Lifetime Value With Viral Application Features

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