Write Better English - Day 15

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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 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 of little known outside of Silicon Valley. 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 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.

Viral loops have emerged as perhaps the most significant business accelerant to hit Silicon Valley since the search engine. They power many of the icons of Web 2.0, including Google, PayPal, YouTube, eBay, Facebook, MySpace, Digg, LinkedIn, Twitter, and Flickr. But don't confuse a viral loop with viral advertising or videos such as Saturday Night Live's "Lazy Sunday" or the Mentos-Diet Coke Bellagio fountain. Viral advertising can't be replicated; by definition, a viral loop must be.

If you really want to understand how the dynamic works, there's no better place to look than Ning, a startup in Palo Alto - located across the street from Facebook and a few clicks down the road from Google - that was designed specifically to exploit viral loops. The brainchild of former Goldman Sachs investment banker Gina Bianchini and celebrity geek Marc Andreessen, Ning has been growing automagically from the moment it launched its Social Networks for Everything - a free platform for do-it-yourself social networks - in February of last year. By June, there were 60,000 Ning nets and by August, 80,000. At year's end, there were 150,000, and today, more than 230,000. About 40% of Ning's social networks originate outside the United States, and members from 176 countries have signed up, with the service already available in several languages, including Chinese, Japanese, Spanish, and Dutch. The company estimates that, at this rate, by New Year's Eve 2010 it will host some 4 million social networks, with tens of millions of members, serving up billions of page views daily.


Bianchini, a 35-year-old northern California native, met Andreessen after receiving her MBA from Stanford and launching a software startup that tracked and measured advertising. Andreessen sat on the board of the company, which went under in the dotcom crash; he and Bianchini dated for a spell before becoming friends.


They both use the same expression to describe Ning's business model:" incorporating virality into the functionality of the product." In English, that means Ning grows because each new user begets more users. Every time someone sets up a social network, he has no choice but to invite friends, family, colleagues, and like-minded stragers to sign on as well. The company calculates that each person signed up for a Ning group is worth, on average, 2 people, compounded daily: On day two, that individual brings in 4 group members and on day three, 8; within a week, she has brought in 128 people. Which is how Ning has been able to grow at a daily average of more than .4% and add 500 new groups a day, doubling roughly every 137 days.

In the early days, not everyone knew what to make of Ning. The company spent three years building out the site's underlying platform; a year into that process, it released a couple dozen social applications in order to begin testing and refining what they had made. Those applications, which Bianchini readily admits were "very simple," led Micheal Arringtone to post an entry on his TechCrunch blog entitled "Ning RIP?": "The reality of Ning is that it has lost whatever coolness it had, no one uses it, and Ning is going to have a very hard time getting people's attention." But Arrington did an about-face 18 months later, after the copmany attracted 100,000 online groups in about six months and some $44 million in capital, mostly from Legg Mason and T. Rowe Price. "Everyone wants a social network of their own, and Ning is here to give them one," Arrington wrote. "The company sure has come a long way since I pronouced it dead in early 2006. Sometimes I like it when I'm wrong."


Significantly, viral-loop networks don't create content - they organize it. They provide an environment that is, in theory, almost infinitely scalable, and then rely on the wisdom of crowds to create or aggregate masses of material to fill it. The more people, the more content, the most powerful the lure for those sitting on the sidelines. "The ciral adoption model" is the "cheapest way to grow an audience," says Union Square Ventures' Wilson. At no time in history has it been possible to market to so many by starting with so little.

That kind of parsing is difficult to do retroactively. Facebook got hammered when it tried to retrofit itself with a new ad-driven scheme called Beacon, which passed customer information on to more than 40 participating Web sites such as Blockbuster and Fandango - and alerted users' Facebook friends about their purchases on those sites. To Facebook, it was harnessing the power of word-of-mouth advertising. To many Facebookers, it felt like a creepy intrusion. After aplogizing, the copmany improved its opt-in/opt-out mechanism.

But Ning doesn't face that risk. It displays the kinds of ads Web surfers are accustomed to seeing on blogs, news sites, all over the Internet, especially tailored to their particular social-net niche. Extreme skiers see ads targeted to extreme skiing, and so on. Right now, Google places Ning's ads, but eventually, Bianchini and Andreessen plan to serve their own. And even today, if you want to control the ads on your Ning network, you can pay as you go for the infrastructure - for a monthly fee of $20. About 3% of group leaders chose this option. Either way, Ning makes out.

Excerpt from Fast Company's article: Ning's Infinite Ambition