Viral Expansion Loops, Kill Your Marketing Budget

[MJ DeMarco]

How to grow an internet company worth millions with no marketing budget.

I just finished reading an article in Fast Company about Ning (A social network provider) and I an happy to say that it defined an EBusiness growth model that I personally called "Fastlaning" an Ebusiness.

Under old school Web 1.0, the "Fastlaning" of an Ebusiness entailed the use of affiliate programs, link exchanges and other standard practices that broadened reach. With Web 2.0, Fast Company defines it as Viral Expansion Loops (VEL). The rapid rise of many web companies (Facebook, MySpace, Digg) is the result of VELs.

VEL is a perfect example of a Fastlane dynamic -- it incorporates "virality" into the functionality of your product. Each user you acquire begets more users -- with no expenditure of marketing -- your market reach expands exponentially as you acquire more users.

To quote the article:

They both use the same expression to describe Ning's business model: "incorporating virality into the functionality of the product." In English, that means Ning grows because each new user begets more users. Every time someone sets up a social network, he has no choice but to invite friends, family, colleagues, and like-minded strangers to sign on as well. The company calculates that each person signed up for a Ning group is worth, on average, 2 people, compounded daily: On day two, that individual brings in 4 group members and on day three, 8; within a week, she has brought in 128 people. Which is how Ning has been able to grow at a daily average of more than .4% and add 500 new groups a day, doubling roughly every 137 days. "It's the power of compounding, predictable growth rates," Bianchini says.

This clearly demonstrates the power of the product. If you have a product worthy of use/virality, your marketing budget could be terminated. You can build a site with little marketing dollars, to an asset with millions. VEL also embraces our little friend - the power of compounding.

An example of VEL is our own forum user Jon Hacker who just signed up for Twitter and posted his Tweet signature here at the forum. Jon joined twitter and is now a indirect "marketer" of the service. His use will harvest more users (I am yet to join but probably will!).

This article is a must read for any EBusiness folks.


Here's the full text of the article:
http://www.fastcompany.com/magazine/125/nings-infinite-ambition.html

 

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[AroundTheWorld]

++ Thanks for the info!

 

[howard_two]

I read this article over the weekend on the printed version of the magazine. I too learned a lot about this new business model.

Mark Andreessen has become one of my heroes.:hl: I first read about him in Tom Friedman's "The World is flat" but I didn't know the guy was a Billionaire. I said look here is one of the poor guys who developed a great invention (Netscape) just to lose everything to MS. Nevertheless after reading the Fast Co. article, I find out that not only is he a Billionaire, but a serial Billionaire...

Great article indeed.

 

[kurtyordy]

Here is a laymans analysis of the process, correct me if I am off.

Create something great you can afford to give away for free
keep yourself funded while it catches on
either sellout or sell ads

Unless I am mistaken, all the companies cited in the article are free services for the customer. digg, youtube, facebook, myspace, ning, etc.

Just curious, does anyone know an example of a virally grown company where customers had to pay a fee.

 

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[howard_two]

Just curious, does anyone know an example of a virally grown company where customers had to pay a fee.

ebay, Netscape for Business use when first started...But as we can see that is so outdated now.

 

[kurtyordy]

I would say the ebay was not purely viral. they have and still do a lot of advertising. I have yet to see an ad for facebook.

netscape I am not sure about.

 

[mtnman]

I like your question Kurt. I was going to ask something similar. To MJ (speed +) and other experienced online entrepreneurs, is there a certain recipe or thought process to use when designing a viral based web business?

The concept is obvious, but my reasoning for asking for more examples or thought processes is to form new habits that automatically induce this train of thought when considering a web biz plan.

The old school ways of B&M business building, structuring, and marketing are quite different. I often find pieces of those tactics in my web biz plans. The same basic principles apply, but it's just a different world and leverage comes in different forms.

 

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[howard_two]

I would say the ebay was not purely viral. they have and still do a lot of advertising. I have yet to see an ad for facebook.

netscape I am not sure about.

Ok let's use the article itself:

...viral loops are better suited to the frictionless environment of the Internet, where a message or idea can carry essentially forever. Andreessen himself created what is widely perceived as the first online viral loop when he and Eric Bina of the National Center for Supercomputing Applications unleashed the Mosaic browser, the precursor to Netscape Navigator, in April 1993. They shared it with 12 beta users, which blossomed to 100 users, then to 1,000, 10,000, and reaching 1 million in the first 12 months.

regarding ebay, here is another quote fromt the article:

The bigger a viral network gets, the faster it grows. Some of the biggest names on the Internet were built on this model. EBay went from online garage sale to megasite because sellers attracted buyers who attracted more sellers and buyers.

 

[kurtyordy]

regarding ebay, here is another quote fromt the article:

The bigger a viral network gets, the faster it grows. Some of the biggest names on the Internet were built on this model. EBay went from online garage sale to megasite because sellers attracted buyers who attracted more sellers and buyers.

not interested in debating. my only point is, I have never seen and ad for facebook, yet it has grown exponentionally. I have however seen adds for ebay. To me, this would lead me to say facebook has a more pure viral model. Splitting hairs? maybe.

 

[howard_two]

not interested in debating.

nor do I have the time to.

Just trying to make a daily positive contribution to the forums I so much learn from.

 

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[kurtyordy]

I was thinking on this more as I was driving home. I think a paid site lets itself open to viral competition.

I think I had the dough and the connections I would by freebay.com and take down ebay. A free ebay would has the ability to be quite viral I believe.

 

[LightHouse]

this was posted in the comments section

http://www.paidcontent.org/entry/419-fc-omg-like-totally-ning/

 

[Luke12321]

Viral is the way to go. It is just the new way of the web really. Myspace, facebook, ebay....the growth they experienced early had to be such a fun ride, I could only imagine!

 

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[imirza]

Viral is great. However none of the VEL companies YouTube, MySpace, Facebook, Ning, Twitter etc have turned a profit as of yet. Infact the biggest problem with all these companies is they all command huge valuations due to their large member database but, none of them have implemented a solid revenue model.

A successful business solves a need but, it also needs to make money. Right now these VELs are a bunch of charities. They serve the needs of many but make no money (profit).

Obviously it makes sense to start a VEL and sell it after it blows up, so that you can pass the challenge of creating a revenue model to the new owners. Until these companies can monetize, they are just hype.