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Viral Marketing = Free Customers January 16, 2007

Posted by ravimhatre in Consumer internet, Lead gen, viral, viral marketing, web 2.0.
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For websites with social networking or community features “going viral” or acheiving a viral coefficient greater than 1.0 represents the holy grail of traffic acquisition. What’s behind this? Going viral means that new user acquisition costs have essentially been driven to ZERO. This is a significant departure from the current state-of-the-art.

The friction of the “real world” means traditional businesses need to invest in sales and marketing to acquire and retain customers. Whether selling to enterprises or consumers and whether the sales process is direct, “high touch” or indirect via telesales, direct mail, etc, the process of bringing in customers requires money proportional to the number of new users. Internet 1.0 businesses have fared slightly better through expanded online reach but still need to invest in keyword marketing, affiliate revenue sharing and other acquisition and distribution vehicles to acquire incremental customers.

Viral marketing has emerged as a mainstream Web 2.0 phenomena whereby existing users do the work and bear the time and expense of delivering additional new users. While not univerasally applicable (yet), we think the power of viral marketing as a zero or exceptionally low cost agent for acquiring customers will expand to be applied across lots of new categories. To date we’ve observed several early variants on the model:

1) Peer to Peer Communication and Messaging: Applications like Skype or Hotmail where inherent use of the application requires a user to forward the application to other users and have them register in order to particiapte. CPM (Yahoo!Mail) and contextual (gmail) advertising and pre-paid subscription (Skype) business models have all been used to monetize these viral ecosystems.

2) Online Self Expression and Social Networking: Sites like MySpace , Flickr, and YouTube and new distributed social self expression sites or widgets like RockYou (LSVP portfolio company), Widgetbox and others enable users to invite friends to view personalized digital content. These new viewers are required to become registrants on the social networking site or can make the decision to adopt a widget in order to broadcast their own content inducing a viral growth cycle as these new users then invite additional viewers into the system. Thus far, monetization has occured primarly through online advertising although early experiments with the sale of digital goods (HotorNot) foreshadow a more transaction-based monetization model.

3) Viral email marketing: This usually takes place by way of online offers which are proposed to an initial set of consumers. Embedded in the offer is an earnable incentive or reward for successfully forwarding the identical offer to additional consumers. Campaigns can yield large numbers of responses even for offers sent to a small initial set of customers.

4) Vertical community sites. Like more horizontal social networking sites, these portals enable like-minded consumers with a particular interest to invite new users to participate in a shared affinity group. The more people who are part of the community, the faster the rate of the communities viral growth due to exponential increases in the richness of content and number of invitations sent out to new members. Viral community sites enable sharing of interests across topics ranging from finding sales leads (Jigsaw) or finding a new career (LinkedIn) to finding the trendiest new clothing styles (Stylehive – LSVP portfolio company) or getting the latest tips on new movies (Flixster – LSVP portfolio company). Today much of the monetization occurs through impression based advertising although future monetization could emerge via subscriptions, lead generation, and transactional commerce services aimed at vendors interested in accessing highly targetted channels of distribution.

We think the principals of viral marketing and viral user acquisition will be applied well beyond current initial use cases as Web 2.0 continues to evolve. It should yield some exciting new investment opportunities which we’re looking forward to hearing about and getting involved in.

Comments»

1. Ben - January 16, 2007

I have talked about this a couple of times when I described what we are doing and why. If MySpace has 100M users and it only cost them $10 to acquire each one of them, that would be $1B of investment in user acquisition. Now MySpace is a great deal and frankly pretty valuable, but if you had to spend $1B to build it—not such a great deal.

Now consider that in the local space, alot of companies are spending $1000 to acquire a merchants….it takes an pretty incredible business model to pay $1000 to acquire a merchant and make money. We think it should also be zero just like you mentioned above.

2. Joe Suh - January 16, 2007

Viral marketing works great in theory, but proves to be a difficult art to master unless the product is truly unique and valuable. Even myspace growth wasn’t exactly viral and used a lot of the Web 1.0 tricks you mentioned (click on my name to see some stats)

BTW, shouldn’t there be some disclaimers about RockYou and Stylehive? :)

3. andre taliercio - January 16, 2007

I believe viral marketing should one of the strategies. It is hard to control and predict. As a result it is had for a manager to just sit and “watch”. However, agreed; if viral marketing does not work for a social network, then the service is questionable. It remains the basic tool to gain/expand a customer base.

4. Ravi Mhatre - January 16, 2007

Thanks for the thoughtfull comments above.

I completely agree that identifying directional themes likely to engender a viral social response is more art than science. However, once basic response patterns have been established, even if their net viral coefficient is LT 1.0, quantitative techniques can be applied to idenitify the right tweaks and refinements of user patterns and site features to engender full virality and exponential growth.

Andre, one of the things we’re most excited about is the ability of a number of new websites to supplement intuition with highly analytical platforms that are enabling more control over viral growth patterns.

Joe, sorry for the oversight RE disclaimers. The requisite “LSVP Portollio company” tagline has now been appended to Stylehive, RockYou and Flixster above.

Best,
Ravi

5. Ben - January 16, 2007

If you know that the percent of new members who invite X the average number they invite X your acceptance rate is even close to 1, you can spend money on acquiring new users because the viral rate drops your CPA to the floor. In fact if it is close to 1 and inorganically member are acquirable reasonable cost, you have to blow out the inorganics becuase it takes your viral efforts and helps achieve critical mass cheaply (assuming inorganics are as viral as organics).

This all matters most in businesses where the network builds inherant value–the value not only comes from users but from those users being networked—Linkedin is a great example of this.

6. joe - January 17, 2007

Thanks Ravi – my disclosure comment was more tongue-in-cheek. I didn’t know Flixster was also one of LSVP’s. I’ve admired (and copied) some of their viral marketing techniques.

I agree teams like Flixster have tweaked and refined the formula down to a science. They know what the % returns are of certain techniques. But most (including some entrepreneurs) that have a pedestrian knowledge of starting and launching social media, also have a romantic, simplistic view of “viral growth.” It is somewhere between black magic and an iterative process of experimentation – both of which heavily rely on a good amount of initial seeding.

99% of a userbase may have come through word-of-mouth and other viral practices, but the initial 1% is the crucial core.

Just my tangential 2 cents and early experiences,
joe

7. andre taliercio - January 17, 2007

Ravi, Would to great post to write about analytical platforms enabling more control over viral growth patterns.

8. DashNote Weblog » Blog Archive » Leveraging viral effects to lower user acquisition costs - January 17, 2007

[...] recent post in the LSVP Blog discusses the benefits of “Viral Marketing”. I’m not sure how a [...]

9. David Armstrong - January 17, 2007

There’s no doubt its a holy grail, word of mouth always has been. I think there has been too much hype though and when that happens, the basics get overlooked. Viral marketing methods work when the product is something of value….so efforts towards design, usability, and solving pain is most of the solution. Enabling viral marketing then becomes two efforts, creating the conventions from Web 1.0 that people expect, share with a friend is an example and the unique Web 2.0 strategies that are more social, using RSS/Blogs, etc. I’d encourage anyone interested to to get a real understanding of the different networking laws…Sarnoff, Metcalf and most important Reed’s Law. You can email me through my site if you want to open a dialog.

10. Konrad Braun - January 22, 2007

David… you hit the head of the nail… thanks!

Konrad Braun
http://www.PowerHits.ca.tt

11. Viral Marketing; Art AND Science « Lightspeed Venture Partners Blog - February 1, 2007

[...] 2.0, viral, Ecommerce, viral marketing, Consumer internet. trackback Just a short addition to my previous post. There’s been some interesting commentary on the need for both “art” and [...]

12. ontok » Blog Archive » Plea for a theory of the viral start - February 1, 2007

[...] starting to get pieces of a theory together. Here are a few starting points, broad: * Jeremy Liew Viral Marketing = Free Customers * Fred Wilson on Flickr, the “Seminal Web 2.0 Service” and nitty gritty: * Guy Kawasaki [...]

13. Jon Henry - February 8, 2007

As a principal in the development of a community blog or social media package we are discovering the importance of feeding the community in the early stages is vital. The user to user or viral marketing is essential for continued growth. But the initial cost is not just a $ figure but a total resource commitment.These types of sites typically require user contributed content as well as user to user marketing. The creators must contribute both of these initially in order to start the snowball rolling. We believe there is a key cross section in gaining long lasting user attention. The X and Y axis if you will is Geographic location and Topic. Just launch in January is a growing community based on the Geographic location of Kansas and the topic of quilting. Kanquilt.com a very targeted group but very loyal and active. We also RSS the content of these smaller communities to a higher level community strictly based on geography Indexkansas.com.

14. Seven Ways to GO VIRAL « Lightspeed Venture Partners Blog - March 2, 2007

[...] evolved from word of mouth to a much more scientific endeavor in the online world.  Based on my previous posts and some additional thinking about the subject I’ve defined seven mechanisms that [...]

15. Viral Marketing « Swapperme.Com-What Can You Trade? - March 12, 2007

[...] has evolved from word of mouth to a much more scientific endeavor in the online world. Based on my previous posts and some additional thinking about the subject I’ve defined seven mechanisms that companies [...]

16. Oxfam America Unwrapped at The Gong Show by Andrew Parker - November 16, 2007

[...] For example, on Oxfam America Unwrapped I can gift a sheep to a friend, but what the friend actually receives is a physical card. Perhaps the recipient will put the card on display in their house, and a few house guests will see it. That’s the maximum virality of this idea in its current implementation. Instead, I propose that the friend receive a digital representation of the gift too, on Facebook or in a widget that’s embeddable on a blog. Then, if I were the recipient, all of the people that read my blog or see my facebook profile would see my gift, thus, significantly increasing the viral distribution coefficient. [...]

17. sehar - November 17, 2007

i want to make free web site but i want to get profit from this site

18. Zoota - June 6, 2008

@ Ben

Facebook provides the infrastructure for social media optimisation and viral marketing – we are not expected to build it.

In terms of marketing with video, I think we may have missed the mark a little. The goal with video is to create a particular feeling or sensation around a product, or alternately to create a language that gets reused. There is a good explanation of that here -

http://www.demonzmedia.com/DemonzBlog/?p=9

19. hugeng hilman prakoso - June 10, 2008

what about MLM?

20. videocompetition - January 30, 2009

check out http://www.facebook.com/lexicon to see how often certain keyterms are being used on the site.

You can also see what key terms are associated with the term you are searching for. (e.g. if you search for McCain, what other words are used in the same sentence – Obama? Policy? etc…)

21. Pachuca Press TD Marketing - March 24, 2009

Converting Every Visitor into Subscriber If a person visits your website and leaves, chances are that he or she will not come back, especially if there are no compelling reasons to do so. After all, we all behave rather impulsively on the Internet, so much so that we can easily forget where we were 10 web pages ago. But the bottom line is that your visitor may not come back to your website again. If 1,000 visitors visit your website, leave and never come back again, you can imagine the amount of potential revenue lost, simply because they do not come back. You could have converted a fraction of the visitors into your customers. Some may say that creating unique content can keep some of the visitors coming back, but very often, unique content is not the solution. The real, long-term solution lies in converting your visitors into subscribers of your mailing list. Before your visitor leaves your website, you want to convert him or her into your subscriber via a simple opt-in to your mailing list. You do this by asking for your visitor’s name and email address through your opt-in form. And if your visitor signs up to be on your mailing list, you can still follow up with him via email. You can get your subscriber to consider your offer, or endorse another offer to him or her. All in all, you want to convert as many visitors into subscribers as possible and obtain the potential revenue you rightfully deserve – the easy, wise way.

22. emandlank - April 22, 2009

mm. bookmarked ))

23. 3 drivers of growth for your business model. Choose one. | Casey-Computing and Technology - September 1, 2009

[...] – Here, the key metrics are Acquisition and Referral, combined into the now-famous viral coefficient. If the coefficient is > 1.0, you generally have a viral hit on your hands. You get increasing [...]

24. 3 drivers of growth for your business model. Choose one. | UpOff.com - September 1, 2009

[...] – Here, the key metrics are Acquisition and Referral, combined into the now-famous viral coefficient. If the coefficient is > 1.0, you generally have a viral hit on your hands. You get increasing [...]

25. 3 drivers of growth for your business model. Choose one. | Hot Trends 2 Tweet - September 2, 2009

[...] – Here, the key metrics are Acquisition and Referral, combined into the now-famous viral coefficient. If the coefficient is > 1.0, you generally have a viral hit on your hands. You get increasing [...]

26. Chas. Cooper - May 16, 2010

The viral coefficient is useful as an after-the-fact measure of success, but lacks the tools necessary to create that success. Marketers can achieve a viral coefficient of >1 by debunking the viral coefficient, addressing its shortcomings, and breaking down the key variables that go into it.

27. Free customers | TrkiyeumHuriyeti - March 5, 2011

[...] Viral Marketing = Free Customers « Lightspeed Venture Partners BlogJan 16, 2007 … Here are a few starting points, broad: * Jeremy Liew Viral Marketing = Free Customers * Fred Wilson on Flickr, the “Seminal Web 2.0 Service” … [...]

28. Lesson Learned This Week: Be Direct and be your own HYPE MACHINE « Prettylittleceo's Blog - October 8, 2011

[...] “We don’t even know what caused it, really”.  He then goes on to talk about his viral coefficient being like a .8.   The way he said it I knew it was supposed to be a big deal. So I said [...]


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