Michael Karnjanaprakorn

While reading through the latest issue of Fast Company, I came across a great article about Ning.com. The intro paragraph reads, “it isn’t just a site where users can build their own social networks — Ning is a model of how to create a perpetual growth machine.” It’s true. Ning has a smart business model. Let other people create their own niche social networks and invite their friends.  This has put Ning in a great place to monetize it. Imagine if you are trying to target mothers in Kansas City that knit as a hobby. I’m sure you can find them on Ning. But even more importantly, the article talks about a concept called “Viral Expansion Loops” which I find both interesting and fascinating..

Here’s something you probably don’t know about the Internet: Simply by designing your product the right way, you can build a billion-dollar business from scratch. No advertising or marketing budget, no need for a sales force, and venture capitalists will kill for the chance to throw money at you.

The secret is what’s called a “viral expansion loop,” a concept little known outside of Silicon Valley (go ahead, Google it — you won’t find much). It’s a type of engineering alchemy that, done right, almost guarantees a self-replicating, borglike growth: One user becomes two, then four, eight, to a million and beyond. It’s not unlike taking a penny and doubling it daily for 30 days. By the end of a week, you’d have 64 cents; within two weeks, $81.92; by day 30, about $5.4 million.

When your currency is ideas, people become emotionally attached,” Ning’s Bianchini says. “Then you become a public utility like Blogger, YouTube, or Facebook.

Now, I like this for a couple of reasons. It goes back to a couple of beliefs that I have regarding branding. If you build the product around utility and experience for people (and not for profit), they will tell their friends about it. It’s really that simple. If it’s really cool and helps make my life easier, I’ll use it and advocate to all my friends about it.

Noah, over at okdork.com, created a pretty simple equation to determine viral loops.

General Viral Formula
X * Y = virality level / viral coefficient

10 people join your site *
15 invites per person sent *
10% of those people convert to new users =
15 new users to the site

15 new users / 10 original = 1.5 viral coefficient / virality level

Things you can do to make viral:

improve x: figure out a way to get them to send more invites. Or return more times to be able to invite more often.
increase y: work on ways the recipient is more likely to accept an invite.

So, it got me to thinking, what are some ways to improve x and increase y?

Improve X
Why would someone send out invites to their friends? What are the factors?
- Utility, experience, network effect (“I sign up because all my friends are on it”), etc.

What are some mechanisms that a website can place to facilitate this?
- Clear explanation of benefits, simplicity in use, build the product with “viral hooks”

Increase Y
What would make someone accept an invite?
- Trust the person it’s sent from, they understand what the invite is for, etc.

What are some mechanisms to increase invite acceptions?
- Explanation of what they are signing up for in emails, a customizable page explaining benefits when they click on a link in the email,

Any thoughts out there? I would really love to dig deeper on this topic.