Nearly every company that offers an online service or subscription wants to “go viral”. It’s the holy grail of online services. While it can be a remarkably effective way to build a large and loyal consumer base, it doesn’t work for every business.
In order to naturally and organically leverage network effects you product needs to do at least one of two things:
1. Naturally touch other people. The first digital company (that I know of) to take advantage of natural networks for customer acquisition was hotmail. Tim Draper, partner at DFJ and an early investor in Hotmail, suggested that they auto-append the phrase ""P.S. Get your free email at Hotmail". This simple addition fueled one of the most amazing customer acquisition phenomena ever–and helped Hotmail sign up over 1.5 million users in its first 18 months.
More recent examples include YouSendIt, a file delivery and email service, and Zoomerang, an online survey tool. All of the people receiving a survey are potential surveyors.
All of these organically networked businesses offer free subscriptions. They have paid subscription offerings too, but the free offering is key because it gets the recipients of the service transaction to consider using the service, with very low risk. The free version of the service offering needs to be structured in such a way so as not to cannibalize the paid subscription business.
AND/OR
2. Provide greater value to people with bigger networks (the "networked effect"). Such a product may not be naturally viral, but it still has a strong organic incentive for viral growth. If I get greater value when more of my friends or colleagues are using the service, I am likely to encourage people to give it a try. One of the great success stories using this model is the AT&T Friends and Family Program. For those of you who live under a rock, AT&T offers a plan that allows unlimited calls to a defined group of people who also use AT&T, thus encouraging customers to strongarm their most frequent conversation partners to join AT&T and not another mobile service. Other examples of Value-oriented virality include a Facebook (what if you created a profile and nobody came?) and Skype (you need someone at the other end of the line!)
There are many, many online services that are not organically viral or networked. However, some of these companies have worked to develop opportunities for virality within their products, even when not naturally present. One such example is Netflix. While you don’t naturally “touch” friends when you are choosing movies, nor do you have any compelling reason to “need” friends to get value from a movie service, Netflix has leveraged network effects in in 2 key ways:
- Creating a community that sits on the core service. Members can search for friends who are also members, and invite them to share share movie picks, guess what movies friends might like and recommend movies to specific people. Not only is this an extra source of value for subscribers, it is also a means of increasing switching costs for subscribers, who may grow hooked on knowing what movies friends and family are watching.
- Explicitly asking subscribers to refer friends. As far as I know, Netflix has never gone so far as to offer a bounty to friends for referrals, but since their early days, Netflix has prominently featured a tool to enable Netflix to refer friends to the site. This tactic leverages the loyalty people feel toward Netflix. Just another clever tactic used by one of the most thoughtful and analytical companies out there.
For every company that can organically or inorganically leverage network effects, there are dozens of services that can’t. Netflix is the exception, as a company who has created network effects that are not intrinsic to the primary product.
Most companies that provide online or mobile services think their companies should be able to leverage network effects. But if there is not intrinsic connector, and your audience is not naturally inclined to be social with other product users (i.e. there is no discernable benefit to them) it is unlikely that you will be able to see any effect. Too many companies waste time creating features, marketing programs and even financial incentives to encourage network behavior, instead of focusing on elegantly solving the problem at hand. Don’t make that mistake.
