Building A Viral Business Isn't About Alchemy

from the an-insult-to-hard-work dept

Adam Penenberg is a fantastic tech journalist whose work I've admired for many years. However, I simply can't figure out what made him write a huge fluff piece in Fast Company magazine that makes a number of stunningly bad claims. Mostly, the article is a love note to Marc Andreessen's Ning social network in-a-box startup that has had its ups and downs but has been able to raise a lot of money. You get the feeling that Penenberg is trying to pick up on a "trend" that can be flipped into a trendy business book. In this case, the trend is: "viral expansion loop," which Penenberg makes out to be a secretive "magic sauce" known only in Silicon Valley that will turn your startup into a huge success with investors shoving each other aside to throw money at you.

This is wrong for so many reasons, it's hard to know where to start. Rafat Ali at PaidContent goes through the piece bit by bit to trash it, while Owen Thomas at Valleywag dissects what Pennenberg got wrong about Ning. But much more important is the overall message that Pennenberg's article sends: that all you need to know is this "secret formula" and you'll build yourself "a billion dollar business."

The thing is, there's no secret -- and so far, there's been no billion dollar business based on these concepts. "Viral expansion loops" may be a new term, but it's just a repackaging of "the network effect," which has been widely known and discussed for ages. There have already been multiple books on it, so, if Penenberg thinks this is a book, he's late to the game. But, personally, what's even more dangerous to unwitting entrepreneurs is this thought that if you can create a product where each user gets new people to join, you're an automatic success that will grow forever. Penenberg promises that using such a system "almost guarantees a self-replicating, borglike growth" and that "you can build a billion-dollar business from scratch." Yet, he gives no actual proof to support either statement.

Sure, there are companies that have grown virally -- but that's nothing new at all. And, if you look at the most successful "viral" growth stories, almost all of them kicked off with well-known, well-connected or well-funded founders. Thay've had a lot less to do with some "engineering alchemy" (as Penenberg claims) than with a group of folks who seeded the process and got it running. I've seen tons of "viral" apps out there that went nowhere. And it wasn't because they lacked that "engineering alchemy" or a "viral expansion loop." It was because building a business is difficult and takes a lot of effort, and not everyone succeeds at it. Penenberg's article is the worst kind of business fluff article: not only is it wrong, but it will get people to think that it's easy to do something that's actually very, very difficult.

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  • identicon
    Trp, 21 Apr 2008 @ 3:53pm

    Viral expansion loops

    So do I have to order my viral expansion loops through the mail? I'm guessing it will take too long that way ...and I need the loops today!

    reply to this | link to this | view in chronology ]

  • identicon
    Jon L, 21 Apr 2008 @ 4:21pm

    hot or not

    This is so true (Mike & Rajit's positions) - everyone just assumes that if you send a chain letter (invite someone to whatever you're doing) that you're going to just magically grow exponentially.

    I've actually seen this as a core part of some startups (that actually manage to get *some* funding too! insane!) business plans recently.

    Instead of focusing on the larger picture of what exactly it is about your product that will resonate with users and get them excited, your staff spends time in product-centric chat rooms trying to badger users into inviting other users to get the traffic numbers up. It's nuts.

    A lot of people seem to be trying to reinvent the wheel at the same time. Is it the actual underlying tech that makes your proposition valuable, or is it the way in which the technology is being used?

    There's a good number of businesses out there that would do better to license and adapt existing solutions to deliver the experience or the service they want to deliver rather than build from the ground up.

    reply to this | link to this | view in chronology ]

  • identicon
    Joseph P., 21 Apr 2008 @ 8:19pm

    Viral expansion loops

    "But, personally, what's even more dangerous to unwitting entrepreneurs is this thought that if you can create a product where each user gets new people to join, you're an automatic success that will grow forever."

    Sounds like Amway, no?

    reply to this | link to this | view in chronology ]

  • identicon
    oregonnerd, 22 Apr 2008 @ 10:20am


    The confusion of social networking with networking toward a given purpose (goal-oriented or case-oriented rather than class-oriented values: a job not a religion)...has been rather glaringly underlined as a heinous offense. Thank you. However, I don't doubt soon we'll be praying to dollar bills...

    reply to this | link to this | view in chronology ]

  • identicon
    Howard Plumley, 23 Apr 2008 @ 9:41am

    Infinite growth isn't!

    Viral marketing, network effect, ponzi schemes - what happens when dreams meet math. The downfall is the limit of people to buy into the dream. "If each new member gets two more ...", is mathematically 2 to the nth (number of generations) cummulative. Two to the tenth is imaginable your 512 members need 1024 new members. The 16th layer your 32768 users need 65,536 new customers. It always breaks down. And if you use investments of the new members to pay profits of the older members - you will go to jail.

    reply to this | link to this | view in chronology ]

  • identicon
    Richard Dale-Mesaros, 23 Apr 2008 @ 8:32pm


    Thanks for opening up a can of worms Mike!

    I went on over to NING after reading Adam's article and tried to sign up for a few real estate investor social networks. It's a bit frustrating when you have to do a completely new profile for EVERY network you wish to join. Also, I wonder what a niche group is supposed to do wehen they realise they need some custom functionality for their network on NING - is it going to be too generic?

    I echo the comments regarding the strength of a social network; we launched ours a couple of months ago and we're thinking REAL hard about what we can do to make our site 'sticky' and useful for our members, otherwise, we're DONE!

    Strike fast!

    Richard :)
    Chief Deal Weaver

    reply to this | link to this | view in chronology ]

  • identicon
    dean, 8 May 2008 @ 5:08pm

    If Not Ning then what?

    The hammer falls fast on Ning and Penenberg's article for unsupported statements, illogical assumptions, and language that approximates a biased sales pitch. Yes Fast Company went overboard but lets consider the following.

    Let's look at what Ning represents: traffic. Ning's Alexa ranking is 566 globally, #196 in US, and in the top 1,000 sites in 18 countries. Yes many scoff at Alexa but the fact remains: Ning is getting serious eye balls!

    In an industry like Real Estate, where the majority are tech challenged and unwilling to adopt blogging as their primary marketing tool, Ning is a fantastic alternative.

    The Ning platform is rich with functionality. The look is excellent compared to the facebooks, linkedins, and plaxo's of the world. And Ning provides organization in comparison to it's counterparts.

    Viral Loops or plain network effects call it whatever. The facts are simple. If you have a good product or service, if you are not tech savvy, if you want the next generation of social networking, then Ning is not a bad alternative.

    reply to this | link to this | view in chronology ]

  • identicon
    Peter Panns, 12 Feb 2009 @ 6:11pm

    Re: If Not Ning then what?

    I came across this new site Noovo which is similar to Ning, let's you create groups and aggregates content like FriendFeed..also implemented interesting viral loop Gmail/Facebook Connect feature.

    reply to this | link to this | view in chronology ]

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