Viral Loop Interview Part I: The Fastest Way to Make $1 Million

Journalist Adam Penenberg is the author of Viral Loop: From Facebook to Twitter, How Today's Smartest Businesses Grow Themselves -- a book that is getting rave reviews in the business press, and garnering attention from media watchers fascinated by the way it's being marketed by its author.  In Part One of my interview with Professor Penenberg, the reporter who also caught infamous fabulist Stephen Glass, we discuss the legacy of viral marketing, from town criers to Tupperware parties to Twitter.

What is a "viral loop"?

A viral expansion loop is equivalent to a virtuous circle. It's accomplished by incorporating virality into the functionality of a product. That's a mouth full, so let's just say that, in plain English, it means a company grows because each new user begets more users. Just by using a product users spread it. After all, what's the sense of being on Facebook if none of your friends are, or putting something up for sale on eBay if no is around to bid on it? The result is a type of alchemy that, done right, can lead to a self-replicating, borg-like growth: One user becomes two, then four, eight, to a million and more. It's not unlike taking a penny and doubling it every day for a month: By day 30, you'd have about $5.4 million. Eight days after that you'd top $1 billion. The trick is you have to create something people really want, so much so that your customers will happily spread your product for you. That's one of the most intriguing things about today's Web: You can grow a business like you never could before and achieve almost cosmic valuations in record time. While it may sound like something you'd hear on a late night cable TV infomercial, it happens to be true.

Some of the iconic businesses of our time--eBay, PayPal, Skype, Facebook, MySpace, Twitter, Digg, Google and many more--have been powered by viral loops. They all experienced enviable hockey stick-like growth. That's because people's behavior is, in large enough numbers, largely predictable. So when a company is fortunate enough to achieve a viral loop it keeps on growing even if it does nothing. Unlike traditional marketing, when you try to reach consumers with your message, your users do it all for you. It's much more powerful.

But viral lops aren't just for businesses. Barack Obama wove virality into his presidential campaign after retaining Chris Hughes, a 24-year-old co-founder of Facebook, who held the informal title "Online Organizing Guru." Hughes retrofitted grassroots campaigning to Web 2.0 by weaving together social networks and the mobile Internet into a central platform of Obama's presidential campaign. His volunteers not only attracted more volunteers, and spread the campaign's messages, they raised boatloads of money--$500 million online alone over two years. Viral loops also describe the way that web videos on YouTube "go viral," passed from one enthusiastic user to his social network of friends, to their friends, and so on, and so on, not unlike that old shampoo commercial from the 1970s.

It's easy to see how viral loops work on the Internet, where linking, forwarding, and sharing are common practice. Does this phenomenon apply to businesses that aren't primarily Web based?

Viral loops aren't new. They just didn't have as sophisticated a propulsion system as they do today. Town criers in the Middle Ages barked out the news of the day, which was then echoed by townsfolk. Paul Revere spread the word that the British were coming, but it was the other patriots that amplified his alarm far and wide. Gossip, joke cycles, and chain letters mailed through the nation's postal system that urge recipients to make copies and send to 10 other people or suffer dire consequences, all have viral transmissions. Then came the telephone, the first efficient person-to-person mode of communication, which, before the rise of the Internet, offered an unprecedented level of virality.

But with the emergence of the Web, which is at its essence one vast viral plain, jokes, memes, and information that touched someone's heart, funny bone, or both could be dispatched to dozens, if not hundreds, of people at the click of a mouse. The pace of virality picked up dramatically. Anything that hits the Internet has the capability to become viral. It was only a matter of time before businesses began to recognize the benefits of viral campaigns to extend their brands, and in the process increase sales, or create completely viral products that spread just by being used. The more interconnected we become by using social networks and tuning in to the Web via mobile devices, the stronger this virality becomes, and the more powerful these viral loops become.

My favorite example of a non-Web-based business that harnessed the power of viral loops is Tupperware. Yes, that purveyor of plastic food storage kitsch. In the late 1940s and early 1950s, however, Tupperware containers were viewed as space age products. Selling them through department stores didn't work so well because shoppers didn't know what to make of them. But a woman named Bonnie Wise took the idea of the home party plan and applied it to Tupperware. The idea was simple: A Tupper salesperson would start out by asking a friend or relative to host a combination social event/sales presentation. Let's say 20 women showed up. Not only was the party a trusted environment (not unlike Facebook) where it was possible to sell a lot of Tupperware, but for every, say, 20 guests, two others would throw Tupperware parties, and invite their social network of friends and relatives. It's actually a primitive version of a viral loop, because every woman holding a Tupperware party would not only be pushing products, she would also generate greater numbers of saleswomen. The more Tupperware sold, the more people selling Tupperware. It was like having thousands of salespeople working on commission, and it was extremely effective. By 1954, Wise was so famous she became the first woman to grace Business Week's cover. Today Tupperware's market cap is north of $2 billion.

Presented by

Conor Friedersdorf is a staff writer at The Atlantic, where he focuses on politics and national affairs. He lives in Venice, California, and is the founding editor of The Best of Journalism, a newsletter devoted to exceptional nonfiction.

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