In Part Two of my interview with Adam Penenberg, the author of the new book on viral marketing called Viral Loop, he revealed how to find out your dollar-value on Facebook; how a game called Zynga makes a
fortune off of "virtual goods"; and how the banner ad is killing online
journalism. (Part One of my interview is here.)
Your book suggests that friend networks are only going to
grow in value, as companies rely on their customers to spread their
products. Might this cause a backlash?
Viral marketing is not new. In David Liss' latest novel, The Devil's Company, he paints a delicious scene that involves an early 18th Century representative of the Dutch East India Company offering free clothes to noblemen who were popular in their social strata. Within days there's a run on this particular fabric, as it becomes the must-have garment for the elite. Already our relationships have been turned into informal marketing arrangements. That's because you trust your friends. If your buddy likes Saucony shoes and tells you about their merits then you are much more likely to buy them than if you saw an ad online or in a magazine. You trust your friend because you don't think he has been bought out by the company selling those shoes.
The important thing to remember is you can't fool people and expect your product to go viral. Users have to like it so much they are willing--even enthusiastic--about spreading the product to their social networks. It's part of collective curation, when the audience decides what's good. If you are heavy handed and don't offer the user value they are not going to cooperate. In fact, they are going to rebel. When they do you're in trouble. Because if you push revenue schemes too hard people will migrate elsewhere. This is what happened to many of the early app makes on Facebook. They installed too powerful viral hooks, commandeering users' address books without permission. But their growth was not sustainable. Because nothing that is bad can go viral. You need people's cooperation.
I wonder if viral loop companies aren't particularly risky long term investments. When barriers to entry in your niche are so low that you can grow into a multi-million dollar company without even advertising, don't the same conditions that enabled your success apply to your future rivals? I'm thinking of Friendster, MySpace and Facebook. I know a lot of people who cycled through all three - and it seems likely that something else is going to be next. Are viral loop companies particularly prone to boom and bust?
For all the talk about Facebook's growth rate declining, it gained 50 million users over the span of 60 days last summer. Twitter is also growing at a fantastic rate. Both have very loyal users who spend an enviable amount of time using them. In the world there are more than 100 social networks and growing, and probably 1 billion people on them. The number of people getting on the Internet is also growing fast. I don't see either one hitting ultimate saturation. Of course, that will happen one day. It happened to eBay, which has a market cap of about $30 billion. Is it growing like it once did? No. But I'd rather have eBay's problems today than, say, Friendster's, which took off quickly but sabotaged its own success. It simply couldn't keep up with demand; it had terrible problems scaling, which I go into in the book. In the end its users migrated to other networks like MySpace and Facebook. MySpace's problems have a lot to do with social and economic class. Facebook became the network of college students, then college-educated people. MySpace became "ghettoized"; profile pages can remind you of flashy rims on souped-up cars. Then News Corp layered in advertising in a quest to make money. It has backfired. Facebook, on the other hand, has had missteps but has managed to hold on to its audience.