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.

If you have a side business for which you design and manufacture stylish shirts to sell in boutiques the usual strategy would be to locate a sales rep to push your product to stores on your behalf. But these reps cover thousands of miles and have many clients. Your product may not be at the top of their list. So why not retrofit a viral loop model? Put a tag on each shirt that offers anyone the chance to reap a 40% commission if they sell your shirts to their local boutiques. Instead of having three or four sales reps covering the entire United States you could potentially have thousands of sales reps selling your shirts to every boutique in every nook and cranny of this country. This is not unlike the method Hotmail used in the mid-1990s--I call it a "viral tag." By adding "Get your free email at Hotmail" with a clickable link, Hotmail's growth skyrocketed, and it amassed some 30 million users in just 18 months.

While in the world of social networks like Facebook, Twitter, in venture capital circles in Silicon Valley and in behavioral advertising viral loops are regarded as a potentially powerful growth accelerant, they have not hit the mainstream. But they have great potential for politics and non-profit organizations with large bases of supportive donors, for online marketing campaigns to sell both real products or digital services, for entrepreneurs bootstrapping businesses who don't have the resources to spend on marketing or PR. Because what could be more efficient and cost-effective than having your users market your product for you?

Q3. Having researched and written this book, you'd doubtless like to sell as many copies as possible. Can viral loops help folks engaged in publishing?

Pimping a book today is like selling an ancient technology at a time when most people are doing their reading in bits and bytes, the economy is weak, consumer spending is down and people have almost limitless entertainment options at their fingertips. Every author I know is experimenting with different ways to market their books, because publishers don't do it for you anymore. Publishers view themselves as being in a "hits" business. They shoot for one or two books every year that will become huge bestsellers and basically subsidize the rest of their list. While they'll pay pretty big money for a book like mine, their policy is not to throw more money at it unless it shows signs that it will be a bestseller. From the author's perspective, of course, it's that classic Catch-22: Publishers won't market a book unless they know it will be a bestseller but you probably won't hit the bestseller lists unless your publisher markets you. But anyone who says they know the formula for guaranteeing a bestseller is lying. Nobody knows. The lone exception, of course, are books by celebrities. If you're Bill or Hill Clinton, Andre Agassi or Sarah Palin, your book is virtually assured to be a bestseller. No one ever said life was fair.

But that doesn't mean the rest of us shouldn't try to crack the code. In my case, I implemented a social media marketing plan involving the Viral Loop Facebook application (apps.facebook.com/viralloop) that tells users how much they are worth--in dollars--to Facebook, based on their level of engagement, the number and level of activity of their friends, and their "influence." It is, at its core, a consumer empowerment play. Users of social networks spend a lot of time on these sites, sending messages, chatting, posting comments, sharing links, photos, videos, joining groups, etc. Facebook doesn't create content. Like, say, Google, it simply organizes it for us. Without that content, however, there would be no Facebook. If Zuckerberg and company only counted 3 million users instead of 300 million Facebook wouldn't have a $6.5 billion valuation. Users have value. The question is how much is each one worth?

I hired social media marketing firm Studioe9 to design a viral widget to calculate this. Because it's not enough to simply write about viral loops. I wanted to create a proof of concept. So far the Viral Loop Facebook app has spread to thousands of users. It not only tells you what you are worth, it will also tell you what your friends are worth-as long as they download the app. The more friends who download it, the more your value goes up, since it pumps up the "influence" part of the equation. There's information on the book, of course, and a clickable link to Amazon where you can buy it. What's encouraging is that 13% of users who click on the ad end up buying a book. That's an incredibly high conversion rate. The app continues to spread, but we are now looking to add a new wrinkle that we believe will really juice the virality. We are talking to several companies about letting users take their Viral Loop values on Facebook and redeem for real products and services. For example, I am worth about $112 to Facebook by last count. What would happen if I could spend that virtual currency on, say, clothes, or add to my airline miles, get discounts on products and services like rental cars, or use it to donate to charity. If it works then and we expand it to other social platforms, it's possible to create an alternative economy that straddles the real world and the virtual world.

Don't laugh. The virtual goods market is already a $1 billion industry in the U.S. and is long established in Asia.

I also had Studioe9 create an iPhone app, a predictions market game powered by InTrade.net, one of the biggest predictions markets on the Web. It also pushes the Viral Loop brand out there. I have paid to place Google keyword search ads for the book. Fast Company, for which I am a contributing writer, has been running full page ads for the book in the magazine. Viral Loop has been excerpted in Fast Company, TechCrunch, Wired in the UK, and the Financial Times, and I have created a series for fastcompany called the Viral Loop Chronicles in which I deconstruct the publishing industry from the perspective of an author. I have done interviews on radio, TV, on the web and given readings and done book signings. The New York Observer dubbed all of this "Adam Penenberg's Crazy Viral Book Blitz."

I make no bones about it. I am trying to own the term viral loop. It's my hope that every time someone says it she will be promoting my book. (I know it sounds crass but I have vowed to be completely transparent.) All of this takes time to bear fruit, of course. In the end, I am banking on selling enough books to create a large base of readers who will, if all goes well, spread the book to their social network of friends, family and colleagues by positive word of mouth--a system that has worked in publishing for centuries. This is only possible if readers believe that it offers them important information, something that they didn't know before but which can help them in their businesses and other online activities. So far the signs are yes they do. SmartMoney named it one of the Fall's Best Reads. Publishers Weekly gave it a glowing review. Bloggers and others are discussing its merits. By excerpting it, venerable publishers like Wired, Fast Company and the Financial Times are endorsing it.  

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Read Part Two of my interview with Penenberg here.