The Fundamentals of Viral Loops

Social sharing features are oftentimes called viral loops. A company’s goal with a viral loop is to incentivize a user to share the product with her friends. The thinking being that if she likes the product, and she gets a small incentive for sharing, she will tell all her friends, and the product will grow in popularity.

In this post we’ll look at viral loops, how they work and how we measure them. Then we’ll look at social-donations. And finally I’ll talk about where this space is headed.

Basic Viral Loop

Let’s start with one that you may be familiar with: Dropbox – share Dropbox with friends – and get extra storage.

This is fantastic because the storage upgrade has a high perceived value to a current Dropbox user, yet it is a very high margin product for Dropbox, so the customer is getting something that costs $10 but Dropbox is only spending $2 to give it away.

Savings-Driven Viral Loop

The more commoditized version of this is something many companies do – give both sides a coupon. The coupon for both users has a % breakage rate (only a fraction of people will redeem it), so the perceived value is high, and the cost to the company is low. The credit gives the existing customer a reason to come back, and the new user a reason to come now. This is easy, and very effective. This is what every company from Uber to Zappos is doing. And it’s probably not going out of style soon.

Value-Driven-Viral-Loop

This is a slightly more evolved version of the commoditized viral loop – and something that my very own BookRenter.com offers – $5 for $5 – share a $5 off coupon with your friend, and earn $5 in store credit for yourself. The thing that made BookRenter’s sharing feature more impactful than others in running similar programs is that we aligned the share message to our value proposition. BookRenter saves you money on books. So the share message was “I just saved $132.49 using BookRenter! Here’s a $5 coupon .” It took a lot of extra work to get the actual savings number into the share message,

Goal-Driven-Viral-Loop

The best example of this is Living Social’s Me+3. If you buy a massage for yourself, you might be interested in going with 3 girlfriends and making an outing of it. Now here’s the incentive – Living Social gives you a custom share-link

Socially Responsible Business

The other type of soft-touch play that many companies are now making is “a portion of the proceeds go to charity.” In some cases, this aligns very well to their mission, and a new generation of simple-yet-effective socially-responsible businesses are emerging. Chegg, for example, plants a tree for every order. And BookRenter donates $1 to FirstBook. However recently BookRenter dropped FirstBook, and chose to put that money toward scholarships for students instead. Our research found that students, especially in our great recession, simply needed all the help they could get, and would rather that money go back into savings for them. We’ll come back to donations. If you don’t want to offer a coupon, this is a good feel-good reason to share you can offer your users.

Measurement and Tracking

We can actually measure the effectiveness of this program all the way through the share process from the # of customers who see the share-button, to the % who share (advocates), to the # of people who view the shared message (impressions), to the % who click (referral-visits) to the % who purchase (referral-orders) and total how much marginal revenue we drove. With all of this, we can establish the exact value of a share, and then optimize the referral-conversion process. In our acquisition model, we can eventually assume that for every customer we acquire, we actually monetize 1.5.

Long-Term Impact

Something CFO won’t care about, but that you and I know is important, is the long-term value this sharing can drive. Only a small percentage of the people who see the advocates share message will click, but they will be free impressions. And if you did a good job of crafting a good share-mesage that aligns to your value and perhaps shows some data – like the BookRenter Savings $$. “Prasid chose BookRenter and saved $124.29 and wanted you to know.” That’s kinda powerful.

I’ve actually done quite a bit of testing on how to optimize these share-rate against different variables. At BookRenter, we tested 2-3 different combinations of incentives and share messages per season.

There are a number of things that can have a huge impact on the share-rate.

* Generate the share-link for every customer – don’t make them click to create one – it saves one step and is psychologically very powerful
* Optimize to minimize the number of clicks in order to share
* Don’t make the user log into Facebook – again – have them log into your site using Facebook at the beginning of the experience, so that at the share-page there is as-little-extra-work required as possible
* Fewer choices – why give them the option to Tweet, Pin, and Email the coupon, if you know that Facebook’s conversion rate is significantly higher?
* Who do you want to send it to? If you’re on a fashion site, you may not care to share that with everyone in your newsfeed, but you might want to send a deeper-discount to just a few select friends.
* Follow-up email – send them the share-link in a follow-up email
* Reminder emails – this is starting to get obvious – but make sure you send them reminder emails with their share-link at key seasonal moments

State of the Industry

The proliferation of viral loops has been tremendous. There are entire companies whose business models are to provide plug-and-play viral loops to companies. The trouble with these is that they are usually highly unimaginative. In lieu of offering extra storage or free product, a lot of referral programs today simply offer cash – a Visa Gift Card or PayPal credit. Companies have even emerged that, instead of paying people PayPal credit, will let you chose to make a donation to your choice of a few charities. Which is, again, a more commoditized version of what BookRenter and Chegg do, and is a halfhearted nod to corporate social responsibility.

The newer trend, among the more advanced companies, is rather than plug-and-play widgets, an API-based integration that can be skinned completely. SociableLabs is my favorite pick for companies doing this right now. I think the API-based approach can create really tailored experiences, where the share message, the offers, and the # of clicks to share, can all be optimized to yield the best conversion possible. RueLaLa uses SociableLabs to power their share-widgets and creates a seamless experience that looks less bolted-on and more integrated into the experience. The more sophisticated RueLaLa actually pre-populates the share-widget with people that are interested in the brands sold on RueLaLa according to their Facebook likes, which adds an extra layer of value.

I envision that companies that do plug-and-play will slowly recede. That companies for whom sharing widgets make less sense will start to get off the bandwagon in favor of things that make sense to their core business. Loyalty programs – which have another set of plug-and-play widgets – will also recede in popularity – as they also only make sense for certain businesses. And finally, we will all learn to identify things that are core to who we are, and integrate those seamlessly into our products.

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2 thoughts on “The Fundamentals of Viral Loops

  1. Pingback: How to Create a Viral Book Trailer (or Get 1,000,000 Views for Almost Anything)

  2. Hey, quick question for you. Are there any resources demonstrating how to build the unique URL generator to plug into a site. Are there any companies that have plugins I could use that you know of?

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