Viral Loop


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The traditional brick-and-mortar business model is no longer the only option for the aspiring entrepreneur. Many of today’s greatest successes belong to those who have captured the power of the viral loop by designing products and services that spread themselves through the channels of the Internet, propelled by word-of-mouth recommendations.

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Viral Loop

  1. 2. VIRAL LOOP From Facebook to Twitter, How Today’s Smartest Businesses Grow Themselves AUTHOR: Adam L. Penenberg PUBLISHER: Hyperion Books DATE OF PUBLICATION: 2009 238 pages
  2. 3. FEATURES OF THE BOOK Any would-be viral entrepreneurs, or even interested observers, could benefit from Adam L. Penenberg’s Viral Loop. Penenberg presents numerous narratives of viral success and failure, from the party-based sales strategy of Tupperware to the overwhelming viral success of Amazon, Google, and Twitter. Penenberg supplements these narratives with his own analysis of what makes for a successful business model on this new “viral plain.” The book is meant to be read from cover to cover, as successive chapters assume the information presented earlier in the book. Viral Loop is also dotted with helpful charts and graphs, and ends with an index of successful viral loop companies.
  3. 4. THE BIG IDEA Penenberg details 13 characteristics that are common to successful viral loop companies: 1. Web-based : Built on the the Internet. 2. Free : Users access the product at no charge. 3. Organizational Technology : Provides a template for user creativity. 4. Simple Concept : Elegant and user-friendly. 5. Built-in Virality : Users are motivated to spread product.
  4. 5. THE BIG IDEA 6. Extremely Fast Adoption : Expands quickly. 7. Exponential Growth : Each user attracts more users. 8. Virality Inde x: Average user attracts at least one more user. 9. Predictable Growth Rates : Expands at a predictable rate. 10. Network Effects : Attractiveness increases as clinetele grows. 11. Stackability : Works in concert with other viral loop services. 12. Point of Nondisplacement : Becomes self-sustaining. 13. Ultimate Saturation : Growth finally slows.
  5. 6. INTRODUCTION In Viral Loop, journalist and professor Adam L. Penenberg explores this technological revolution and explains how the smartest businesses are getting out in front and cashing in. Penenberg relates the stories of companies like eBay, Facebook, Friendster, Google, Netscape, and PayPal, analyzing what these companies have in common and what separates the victors from the also-rans. All of this adds up to a rough blueprint for success in an increasingly mobile, interconnected, viral world.
  6. 7. PART ONE: BASICS OF VIRALITY The arena for business success is more open and expansive than ever before. An entrepreneur no longer needs a network of industry connections, a large budget, a prestigious MBA, or a massive sales force to strike it rich. Many of the greatest success stories of the last 20 years – eBay, PayPal, Amazon, Facebook, MySpace, Google, and several others – have been created by bright, motivated individuals who simply understood, or at least stumbled onto, the power of virality .   
  7. 8. PART ONE: BASICS OF VIRALITY A “viral” product or service is one that possesses an inbuilt incentive for sharing. This incentive, when effective, produces a “viral expansion loop” in which each new user recruits additional users, thus setting off a pattern of explosive exponential growth. In such cases the entrepreneur does not need to do anything to increase her company’s exposure – if anything, she will have to scramble to ensure that her infrastructure is adequate to support the massive influx of new users.  
  8. 9. PART TWO: DISSECTING THE VIRAL LOOP Web-based Almost all viral loop businesses are based online. Building one’s business on the Internet grants a degree of flexibility and agility that no conventional brick-and-mortar start-up can equal. An online music or book store can stock products from millions of performers or authors. A conventional store, by contrast, would be crippled by the overhead associated with such a large inventory. The Internet is thus the best forum for the explosive growth of a successful viral business.  
  9. 10. PART TWO: DISSECTING THE VIRAL LOOP Free Massive viral businesses like Google and Facebook have grown so quickly in large part because they require precious little investment on the part of the consumer, and no monetary investment at all. The most successful viral loop companies may eventually become able to incorporate limited for-pay services, but access to the main platform is, and must remain, free.
  10. 11. PART TWO: DISSECTING THE VIRAL LOOP Organizational Technology If commerce has become a conversation, so have most other realms of public life, from politics to research to artistic production. This is due in large part to viral businesses like YouTube, Amazon, Facebook, Twitter, and Craigslist, not to mention the vast world of the blogosphere. None of these businesses create content; instead, they provide a well-organized grid for its creation, dissemination, and evaluation.
  11. 12. PART TWO: DISSECTING THE VIRAL LOOP Simple Concept Organizational technologies like Facebook and Twitter might be the result of fevered, painstaking calculation, and they might ride on the shoulders of incredibly complex algorithms, but the best organizational technologies are the least noticeable. They are designed to provide an elegant, user-friendly platform and then get out of the way, making room for the creativity of their users. Google and Craigslist have built global empires on clean, simple pages that favor uncluttered text and intuitive interfaces.
  12. 13. PART TWO: DISSECTING THE VIRAL LOOP Built-in Virality & Extremely Fast Adoption The key to transforming a simple concept into a massive payoff is virality. Services like PayPal and Facebook become more useful and interesting to consumers as more people join. Consequently, each individual user has a built-in incentive, whether personal or commercial, to invite his associates.
  13. 14. PART TWO: DISSECTING THE VIRAL LOOP Exponential Growth Standard business models assume a growth curve that is linear and directly proportional to marketing expenditure: for each unit of money spent on crafting and disseminating advertisements, X number of customers will be acquired. This model does not apply to successful viral loop companies, which expand exponentially. Virality Index & Predictable Growth Rates A company’s virality index – the average number of additional customers that each new user brings in – is the most important figure for the success of a viral business model.
  14. 15. PART TWO: DISSECTING THE VIRAL LOOP Network Effects Just as a Facebook user benefits when her former classmate acquires an account, Facebook becomes more attractive to potential users with each additional user it acquires. Whether the individual is considering joining Facebook to kill time, to make professional contacts, or to reconnect with old friends, the more users Facebook maintains, the better her chances are of accomplishing her goal.
  15. 16. PART TWO: DISSECTING THE VIRAL LOOP Stackability The phenomenal success of a few first-generation viral loop businesses has spawned an online megalopolis of simple, free forums for communication and commerce. Some second-generation viral loop companies like YouTube and PayPal have risen to prominence by piggybacking on the success of older companies like MySpace and eBay.
  16. 17. PART TWO: DISSECTING THE VIRAL LOOP Point of Nondisplacement As a viral loop develops and solidifies, it gains a forward momentum that is difficult to arrest, at least from the outside. At a certain point, a company can be said to have reached a point of nondisplacement, “adding users even if it does nothing and becoming virtually impregnable” to assault by competition.
  17. 18. PART TWO: DISSECTING THE VIRAL LOOP Ultimate Saturation Companies that reach a point of nondisplacement may be impervious to competitive takedown, but they do have to cope with the limits of their markets. At any given time, there are a limited number of people who possess the desire and ability to become users of say, Twitter or PayPal.
  18. 19. PART THREE: OUR VIRAL FUTURE The challenge for individuals is to keep these technologies in perspective , to remember that there is a reality that takes place outside of their smartphone’s vibrant LCD display. The challenge for businesses is to keep expanding the reach of viral connectivity while containing its in-built capacities for exploitation : spam, identity theft, scams, and hackers. There is every reason to expect that just such a balance is achievable, that exploitative practices will be kept in bounds by the threat of customer alienation.
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