This book summary and review of Viral Loop: From Facebook to Twitter, How Today’s Smartest Businesses Grow Themselves was prepared by Bryce D. Savoy while an Accounting Major in the College of Business at Southeastern Louisiana University.
Executive Summary of Viral Loop and Review
Viral Loop: From Facebook to Twitter, How Today’s Smartest Businesses Grow Themselves by Adam Penenberg is a business book aimed towards informing the world on how companies have taken an age-old marketing technique, viral marketing, and used it to grow in exponential amounts from a simple marketing technique/plan.
The beginning of the book starts off discussing the earliest forms of viral marketing. The first two businesses/schemes discussed are Tupperware and Ponzi-Schemes. In a nutshell, Earl Silas Tupper’s product worked but had no way of getting the word out.
A lady by the name of Brownie Wise, saw that people need to see exactly how these containers worked, so she came up with patio parties, later coined Tupperware parties which brought Tupper out of the slums and helped save the company. Another form of viral marketing, although illegal, was Ponzi-Schemes, named after a famous Italian schemer. Which basically worked off the “rob-Peter-to-pay-Paul” way of thinking.
The scheme originator would come up with profitable idea and get “investors” to pay, and in turn the investors would get investors, and so on until the whole scheme would come crumbling down, and the originator would make off with the money.
The book then begins to go through the history of the internet and computer programming. It tells about the beginnings of the internet and the competitiveness that was present with programmers and engineers to be the next best internet portal or browser and how companies in Silicon Valley such as Netscape, and Mosiac would start off the Internet Boom. It also discusses the people involved in this creation of an internet browser.
The next section talks about the evolution of social networks, and how they came about. Such websites as Ning, Bebo, Facebook, Flickr,eBay, MySpace are introduced by the book and it goes through and tells about the start up of each and what lead them to be successful, and in some cases what lead to their demise.
Viral loops were created by these companies, which means that one person would tell a friend, then they would tell their friends, this plotted on a graph makes what the author calls a hockey stick shaped curved.
This translates into exponential growth in use of the websites. It also goes into detail how companies such as Facebook, MySpace, Google, and many others make money off of free services that are offered by their social networking sites (Yes, Google is primarily a search engine, but it too is spread “virally” by its users).
The book also talks about how technology changes, and how the rate of how fast technology changes. Most supercomputers started off taking up whole rooms, now they take up one server rack. Microchips shrink in size every year, and the devices they go in get smaller and better.
Traditional ways of shooting movies is also changing, and switching to digital formats, easier and cheaper to work with. Also its goes into detail about new forms of ways to advertise using viral loops, and how to make money off of it.
Viral marketing, and viral loops can be parts of any business. Those who have harnessed the power of them reap the benefits, and those who had the chance but did not failed. But as time progresses, viral loops become more elaborate, but they also are traced back to the same concept used for decades ago.
The Top Ten Things Managers Need to Know
1. There are many companies out there that spend hundred’s of Millions of dollars on traditional forms of marketing. This enormous amount of money spent leads to the demise of many companies.
2. A simple, and most of the time free, form of marketing is Viral Marketing.
3. Viral marketing/promoting begins as one person with an idea/website/network that tells one friend, and that friend, tells another, and so on. This replicates just as a virus does, but in this case being a good thing.
4. The internet opened up a whole new medium for people to communicate and connect to with one another. Humans by nature are preprogrammed to want to be connected with each other.
5. Many people thought that after the internet boom turned out to be a flop, that no one would ever be successful in using the internet to prosper. They were all wrong.
6. Simple ideas, turned into multi-billion dollar businesses.
7. Once your idea is accepted, and you begin replicating exponentially, make sure you have the resources, and hardware to keep up with the deep demand associated with your business.
8. Computer chips reduce in size, and double in speed almost yearly.
9. It seems to be a trend that most creators of social networks and other viral companies is to create it, sell it, and move on to the next venture.
10. With all the new advances in technology, we become more and more connected to others around the world. But at the same time, we lose more and more privacy.
Full Summary of Viral Loop
Tupperware and Ponzi Schemes-The Original Viral Models
Before the time of the internet and online social networks, viral loops were present yet they were not yet coined “viral”. Early examples are Tupperware and Ponzi Schemes. Earl Tupper was a man of many inventions, most of which did not sell well, but he did work in a plastics factory and came up with an invention that would revolutionize the way we store food and other perishable items. But there was one problem, his marketing plans continued to fail, until a savior by the name of Brownie Wise came along.
She saw that if people could see first hand how to use these products, they were more likely to buy them. She started by having a patio party with a number of her friends. Some would buy the Tupperware, and some would go on to host their own parties.
This same cycle of more people becoming Tupperware party hosts, continued to expand the number of people in the network. This exponentially increases the number of people in the network if people continue to host more and more parties. Another form of viral looping, although illegal, is Ponzi Schemes. This scheme was named after a famous Itialian schemer named Charles Ponzi.
In a nutshell this scheme consists of an investment proposal the promises high return on investment. This attracts investors to dump their money into the schemer’s control.
Then as friends of the investor got wind, they too would invest. They were also bought, until the whole pyramid fell down. The originator gets off with all the money and leaves the investors broke.
The First Online Viral Expansion Loop
When the internet first came about, users thought of it as just a place for text and scholarly journals, and that it should be fairly hard to use. It was geared towards the more educated crowd. Then came Mosaic, it was written by Marc Andreesen and colleagues of his.
It allowed the internet to have pictures and for users to create their own websites if they wanted. This opened the door for possibilities of uses of the internet. Mosaic was spread mostly by word of mouth, making it viral. Mosaic allowed the number of networks to grow potentially infinitely.
People loved it, and more and more people created web pages for personal and business uses. The only problem was that the NCSA technically owned Mosaic, so Andreesen and James Clark coded what they called a “Mosaic Killer”.
This was what lead to the creation of Netscape which quickly and virally became the web browser that ended up on 75% of all internet users.
This event is said to have started the internet boom of the early 90’s. Bill Gates of Microsoft said that there was no way to make money off of this free browser, later to find out very false.
The Spreadable Product as New Business Paradigm
Marc Andreesen’s newest company named Ning, brings social networks to a new level. It allows users to create their own social networks geared towards ideas, and things that interest them such as politics, causes, non-profit organizations, hobbies and more.
People on Ning post photos, comments and videos relating to nearly anything under the sun. It too relies on viral nature of social networks to spread and grow. Viral companies can also be stacked, as in the case of the auction site eBay, and the instant and secure money transfer medium PayPal.
These two companies combined to become the main way people transfer money, and shop highly discounted. Viral companies all shared many characteristics such as: being web-based, free, organized technology, simple concept, built-in virality, fast adoption, and exponential growth just to name a few.
With the increase of viral networks, there is also an increase in the need for speed of connection, and ease of use. Microprocessors get smaller and faster, making it easier to spread.
But with all of this speed and interconnectedness comes the loss of privacy and the ease of retrieval of others people’s information. This allows hackers the ease of ruining lives, and stealing information. This is one of the downfalls of being so large.
The Perpetual Viral Advertisement
The creation of Mosaic and Netscape laid the foundation for the growth and expansion of the internet and websites. The next step in the internet was the creation of a free web-based email. Sabeer Bhatia and Jack Smith created the first webmail service ever that was free to users.
At first it was hard to get people to invest in the idea because no one had ever done it before. But Bhatia’s stubbornness allowed them to get the capital to start this free email service.
They way that they became viral was by inserting the line “Get your free email at Hotmail” at the end of each email, which prompted millions to join, soon surpassing big names such as AOL.
Hotmail was later sold to Microsoft and renamed MSN Hotmail, and is still in use today, and still free.
When the Audience Decides What’s Good
As time passes, technology changes. Items such as phones, computers, and cameras get smaller and more powerful, and also more affordable.
This streamlining of technology also helps smaller companies and entrepreneurs enter an industry more easily. This is true in such instances as the movie industry.
Traditional movies require very expensive film and only those big names who can afford to promote, and staff these expensive movies can enter the market. The increase in the quality and decrease in price of pricey cameras is allowing smaller independent film makers to get their movies out there.
With digital film mediums, it’s allowing independent film makers to post their video online with YouTube, and Podcasts.
Underground films can become viral very quickly, and can let these independents to profit with out the need of extra capital.
Viral Video as Marketing Strategy
With invention of the video collection website, YouTube, there is now a medium to share videos to viewers all over the world. The site tracks how may people view each video, and allows your to embed these videos in websites, and on profile pages of social networking sites such as Facebook, MySpace, and Twitter.
This allows the viral effect to step and increase the number of views that a video gets. It spreads ideas and views of the videos also. A lot of times a company gets advertisement inadvertently or even accidentally.
This is true in the case of Mentos, the mint company. They were spending upwards of $20 million a year on traditional advertising and weren’t getting results.
In 2005 two friends, by the name of Fritz Grobe and Stephen Voltz, got word from a friend that if you mix Mentos and Diet Coke together that it causes the bottle to explode. They tried this, and it worked. They wanted to see how far they could take this, so they got a friend to film them as they laid out 200 Diet Coke bottles in an elaborate design, and used over 500 Mentos mints to do a controlled explosion.
The video was a hit, and their website saw over 2 million views in the first 9 days. Sales of both Coke and Mentos increased by 5-15% proving that this free viral video nonsense can benefit even the larger companies.
Marketers from Mentos also caught wind of the video and were amazed by it. But this form of advertising doesn’t work for all. Some companies had huge flops trying this method of viral advertising.
eBay and the Viral Growth Conundrum
Another viral success story is that of one of eBay.
eBay was founded by Pierre Omidyar. Omidyar had gotten screwed over on an investment deal, and thought that a perfect way to buy and sell would be in the auction format, and have it based online.
He began having these online auctions for free, and people soon started spreading the word about his site named AuctionWeb. It got to where Omidyar was receiving envelops filled with money on a daily basis.
He then quit is full time job and at the same time the number of auctions being conducted exponentially grew.
Omidyar didn’t take in to consideration scaling when doing this. As it continued to grow it continued to have server failures, and it was constantly down. eBay’s CEO at the time knew that the only way this site would flourish is if it were to scale up so that its capacity could increase. Her name was Meg Whitman from Playskool.
This scalability was needed so it could increase as the number of users increased. eBay was one of the prime examples of why a viral company needed to be able to scale its operations. eBay was on the verge of dying out if couldn’t keep its servers up.
Other companies such as Friendster who couldn’t keep up, also failed.
PayPal: The First Stackable Network
Max Levchin and Peter Thiel are masterminds behind PayPal. In the early stages they wanted to create a platform that people could give each other IOU’s through PDA’s. Eventually though they used the internet as the vehicle to transfer money securely from person to person.
This created a way for people to accept money with out have to have expensive credit card machines. Levchin and Thiel virally spread their service by basically bribing people to pass it on.
They would give $10 to each new user, and they would also give you $10 for each new person that you referred to the site. This however lead to hackers who used automation programs to create thousands of new accounts to cash in on the $10 per account promotion.
This cost PayPal millions of dollars every month. This led to security measures such as having the customer type in blurred phrases, that couldn’t be read by automated hacking tools.
This cut down on the amount of fraud committed, and saved PayPal millions. PayPal at first had a love-hate relationship with eBay, but end the end eBay bought PayPal and the two viral companies compliment each other quite nicely.
PayPal is said to bank more money for eBay now, than eBay auction site itself.
Flickr, YouTube, Myspace
Flickr become one of the first ways to organize photos, and allow other users to comment on photos. This opened the door for other companies such as MySpace. Flickr though complemented the blog world and allowed the tagging of people in photos.
This allowed retrieval of photos much easier. Social networking web sites such as MySpace built off of this idea and created user profiles.
A glitch in their programming code allowed users to use HTML code to further customize their profiles. Instead of correcting the error they allowed it so that users could have their own space. The idea behind social web sites is that people will only use these sites if their friends are.
If everyone is using the site, then more and more will virally join. MySpace thrived because of this ability to customize. In 2005 YouTube came out and it worked hand in hand with MySpace to allow users to embed YouTube videos on their MySpace pages.
Again using the viral method, YouTube spread extremely fast acquiring millions of videos and organizing them to be easily searchable.
Facebook began at Harvard by the hand of student by the name of Mark Zuckerberg. At first his site was only accessible to students at Harvard.
Then it expanded to other schools, but it limited itself to only people who had valid college emails. This kept it sort of exclusive to a certain extent. Zuckerberg and his team made their system scalable so it could grow as the number of users grew.
Facebook has since grown and expanded to hundreds of millions of users worldwide, and is no longer just limited to college students. It’s available to anyone with a valid email address. The site continually evolves to the needs and wants of its users which helps it continue to grow.
Just as Facebook thrives there are many social networks that continue to fail, mainly because of scalability.
The Search for a New Ad Unit
Google stumbled upon a new way to search for information, and to present ads. The keyword search brought its users closer to what they were actually looking for.
The keyword search is much more effective than earlier outdated banner ads on websites that were loosing effectiveness quickly. The creation of this lead to better search engines, an example Google.
This powerful search engine although a great tool, also did away with a lot of privacy, which became an issue with many users. It is to the point now that search engines track every move we make, down to each click and how long we stayed on a website.
This tracking also lead to the now more important time spent on websites than actual number of clicks for the website, further growing the industry of Adwords.
· Here is a sampling of what others have said about the book and its author:
Most reviews of the book Viral Loop By Adam Penenberg state that it’s a brilliant way to give an inside look to how free use social networks and other sites are so successful. It explains in detail how they began and what keeps them going. Many also see the book as a tool to teach small business owners how to use viral loops, and networks to their advantage. A lot of readers though complained of it the book being very repetitive yet still informative.
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