Virality, viral loops, incentives and digital word of mouth all get sort of mixed together. They are all growth mechanisms for digital businesses. And they are all about taking advantage of the connections between digitized users.
These growth mechanisms, based on the connections between consumers, have become increasingly important for both digital and traditional businesses. The number of products and services competing for user attention has exploded and acquiring customers and their attention is becoming increasingly difficult.
If you are a local supermarket or restaurant, getting customers wasn’t traditionally that hard. It was mostly about location and you were competing against the other markets and restaurants in your neighborhood. But now you’re competing against a huge number of markets and restaurants selling online. As the world becomes more digital and connected, business competition is increasingly shifting to the demand side. So having strong mechanisms to attract users, such as virality and digital word of mouth, is really, really important.
That said, I put all these growth hacks under Tactics. And, while necessary, they are not a source of long-term strength.
The two I really pay attention to are Virality (T3) and Digital Word of Mouth (T8), but with a big caveat. None of these tactics will make a product successful. They can only amplify a product or service that customers are already really enthusiastic about. Regular old word of mouth (“hey Bob, take a look at this product, It’s great.”) is still the foundation. All these digital connections and growth hacks can only amplify something that already tremendous enthusiasm. And that is now required in business. You have to have phenomenal, 10x product or service as a starting point.
Virality at Zoom and Early Pinduoduo
Virality is arguably the most powerful mechanism for customer acquisition. It’s a big deal and it can launch a new company up rapidly. This is why venture capitalists love it. But it usually doesn’t last forever. Pinduoduo had it in its early days. Zoom still has it.
I define virality as a product or service whose very usage brings in other customers. New customer adoption is inherent to the use of the product / service itself. For example:
- To do a video conference with someone on Zoom, you need to get the other person to sign up.
- To chat with a friend on Facebook or WhatsApp, your friend needs to sign up.
- To work on a project together on Dropbox or Slack, the team needs to sign up.
- To send someone money, they need to sign up to receive it.
Communication and collaboration tools are often inherently viral. And Zoom is mostly a communication tool. Although it wants to be a collaboration tool.
But that is different than the virality we saw at early Pinduoduo. Chinese consumers wanting to buy a box of tissues (a really popular item on Pinduoduo) would get one price if they bought it alone. But they got a lower price if they got friends on WeChat to buy with you. Group buying is by definition viral. And it turns out social media is a particularly good way to do group buying, hence the fuzzy idea of “social ecommerce” that was floating around a few years ago. Pinduoduo was really a case of a young ecommerce company using its partnership with WeChat to do group buying, a viral growth mechanism. WeChat doesn’t really let any other services do this. This had a lot to do with Tencent wanting to break into ecommerce, the domain of Alibaba and JD.
Virality is actually pretty rare. Communication and collaboration tools have it. Payment tools have it. Group buying has it, but it tends to fade in importance. What is more common is digital word of mouth.
We’re All in the Digital Word of Mouth Business Now
Virality is about turning your customers into sales agents for your business. Your users get others to start using your product. And for digital services, this can be millions of people. And if it is a multiple sided platform with several user groups, you can do this on multiple sides. In theory, you can turn consumers, content creators, merchants and other user groups into sales agents. This can also get you more engagement and data.
- For Zoom, the users are sales agents who bring more users to the platform. And this is monetized later through subscriptions and B2B contracts.
- For Pinduoduo, consumers are the sales agents and it is monetized both through sales and also through merchant advertising.
But with word of mouth, we move from users as sales agents to users as marketing agents. Our users don’t get other people to sign up. They just talk about the service, hopefully online. Virtually any business can turn their users into marketing agents. These are often put into five types.
- Word of mouth. Customers just talk about your product and recommend it to others. Usually because they really like it.
- Referrals with incentives. You see this all the time. Giving customers credits or reward points. Lots of gamefication happens here.
- Referrals without incentives. This can be invitation-only services and events. Various types of exclusivity. Really anything that gets customers to actively share and promote without financial or other incentives.
- Shareability. Customers just naturally share information about your product. This is like Word of Mouth but more unconscious. Like people sharing photos and articles about how to use L’Oreal make-up. Or tourists sharing pictures of restaurants. Instagram and Pinterest are very shareable platforms for content by merchants and brands.
- Casual contact. This is when product and services just moves through the world and gets seen. This was how Mobike and Ofo grew without spending any money on advertising. Their brightly colored bicycles were ridden all over town and people saw them.
None of this is new. The difference is it happens much easier and much more powerfully in an increasingly connected world. Digital is scalable so you can turn users into marketing agents by the millions. But, as I mentioned, getting and keeping customer attention (by sales or marketing) is becoming a bigger part of the fight.
Which brings me to the last point for today.
Digital Customer Networks and Psychology Can Be Amplifiers
Everything I just mentioned is about getting customers to sell and market for you. It is about viewing customers as a connected network. And in a digital age, the power and reach of such connections is really growing.
This is why I think Chinese consumers are so important. Not just because there are +1.3B of them. But because they they are all connected and very active digitally. If you can build virality, word of mouth, casual contact or incentives into your business in China, it can really take off like a rocket.
Another amplifier is psychology. Multi-level marketing businesses such as Mary Kay Cosmetics and Herbalife have built their businesses on people selling to their friends and family. These businesses are mostly built on social pressure and other psychology, not the products. Selling to friends and family creates a big psychological effect on them. They feel a lot of pressure to buy. But if you look at Herbalife and Mary Kay, the products are basic and overpriced. There is no research and development. The business is mostly about using psychology within marketing and sales. Note: Most multilevel marketing is banned in China. But I think you can see these types of psychology effects in social e-commerce and other marketing done through WeChat.
Final Point: Dropbox and How Virality Can Make You Lose
One company that had great success via virality was Dropbox. You sign up for a free account and can store your files in the cloud. Like Zoom, it was a freemium model. But to share documents with colleagues, they would have to get a Dropbox account to access your files. So if Zoom is virality based on communication, Dropbox is virality based on collaboration. And they had great success and grew rapidly from this.
But this powerful growth mechanism, based on virality, obscured a larger problem. It made Dropbox focus on the B2C market where they were getting fantastic growth. But it turns out this is not a very good market for cloud storage and collaboration. The real market is in enterprises and B2B, where you sell organically but also with a direct sales force. Dropbox didn’t go after the B2B market for a long time. They didn’t hire sales staff and do meetings with companies to get their service into companies. And this gave their lagging competitor Box.com time to make big inroads in B2B.
Sometimes having fast, easy growth can make life too easy. Sometimes a powerful viral mechanism can hide strategic and other weaknesses. It reminds me of people who get jobs or lots of attention because of who their parents are or because they are attractive. They often end up being weak competitors because things were too easy for them. I sort of think of virality this way.
Ok. That’s it for today. Cheers, jeff
- Forget Network Effects. Go for Switching Costs. (Asia Tech Strategy – Daily Lesson / Update)
- What is the Secret of Pinduoduo’s Success? With Matthew Brennan and Elliott Zaagman. (1 of 2) (Jeff’s Asia Tech Class – Podcast 45)
From the Concept Library, concepts for this article are:
- Virality and Word of Mouth
From the Company Library, companies for this article are:
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