The phenomenal success of Hotmail, Napster and the instant messaging service, ICQ has proved how companies can attract new users much faster through the internet than they can using traditional off-line advertising. What is less clear is exactly how such rapid, word-of-mouth growth is achieved.
In an attempt to explain this unique ability of the internet to accelerate interest in a product, venture capitalist Steve Jurveston coined the term 'viral marketing' in a 1997 Netscape newsletter.
Jurvetson, who helped to finance the free email service Hotmail, had clearly witnessed the power of viral marketing at close range. By Christmas 1996, within a year of its launch, Hotmail had 10m registered users. At that time, such phenomenal growth had not occurred anywhere else in media history.
Furthermore, this unprecedented performance had been achieved with a marketing budget of just $50,000 (needless to say, this was before Microsoft bought the company). Hotmail's fast-track success was not the result of an extensive advertising campaign, either online or offline. Instead, it has been attributed to a decision made by another Hotmail seed investor, Tim Draper.
Draper was adamant that every email sent by a Hotmail user should incorporate the following message: "Get your free Web based email at Hotmail". By clicking on this line of text, the recipient would be transported to the Hotmail home page. While this message would not have had much effect at the foot of an email sent by the company itself, when sent by a friend or relative it made an impact, confirming Marshall McLuhan's belief that the medium validates the message. The very act of sending a Hotmail message constituted an endorsement of the product and so the current customer was selling to future customers just by communicating with them. The recipients of a Hotmail message learnt not only that the product works, but also that their friend is a user.
Jurveston now believes that a viral marketing component must be built into the DNA of every internet company in order for it to succeed. "I can't think of any dot.com that I'd consider that doesn't come with a viral marketing element," he says. Jurveston also cites Metcalfe's Law to illustrate the viral effect of word of mouth on the net.
According to Metcalfe's Law, the value of a network increases as the square of the number of users connected to it. This law of increasing returns evidently applies to viral marketing in a way that it does not apply to offline word of mouth publicity. This is because, for better or worse, people are more connected in cyberspace than they are in the real world. As Seth Godin writes in his e-book, Unleashing the Ideavirus: "With word of mouse you can tell 100 friends, or 1,000 friends. Because the numbers are larger and faster than they are offline, the virus grows instead of slows." (See www.ideavirus.com)
While the most vocal proponents of viral marketing are to be found in the US, over the past year many companies in the UK have been successfully adopting viral techniques. Last summer, for instance, Thomas Cook, generated 250,000 new customers through its Weekend Breaks email marketing campaign, while rival travel operator Lastminute.com achieved similar results with its PDA-based Euro 2000 campaign.
Islay Malt, which makes Laphroaig malt whisky, used a viral marketing campaign to boost awareness of the brand in the run up to Christmas. Four different e-Christmas cards were distributed to 7,000 UK members of Friends of Laphroaig. According to the company, more than 40% of those who received the email (which incorporated a link to the selection of e-cards) went on to send a personalised copy to a friend. Michelle Pitts, brand director of Laphroaig, claims that the recipients "loved this distinctive approach, with almost 1,000 sending a card to a friend within three hours of the email being sent out".
While these examples involve using deliberate direct marketing tactics in order to encourage recipients to pass on a marketing message to others, other companies take a more organic approach. For UK-based gambling site Flutter.com, which has built an online community on the concept of person-to-person betting, viral marketing occurs naturally and therefore needs little encouragement.
Websites enabling consumers to engage with each other clearly have a head start when it comes to generating recommendations. (This explains why the only dot.com to have received more consumer-to-consumer referrals than Hotmail is file-swapping music site Napster.)
It is important to remember, however, that word-of-mouth can travel in two directions. Although many people find the term 'viral marketing' offensive, it not only suits the infectious nature of network enhanced word of mouth, but also conjures up its negative potential.
By losing control of the marketing message, companies are at the mercy of online opinion. If customers have a bad experience of a certain product, word can spread at alarming speed. As The Cluetrain Manifesto states: "The networked market knows more than companies do about their own products. And whether the news is good or bad, they tell everyone."
This is not to say that viral marketing should be discouraged. Indeed, viral marketing occurs whether a company wants it to or not - via email, Usenet discussion groups, consumer opinion sites such as E-pinions.com, and other interactive forums.
The only way companies can limit viral marketing's negative capacity is, paradoxically, by openly embracing it. By making it easy for conversations between customers to occur, companies will be satisfying the internet user's primary objective: to interact with other people.
"It's imperative to stop marketing at people," says Godin. "The idea is to create an environment where consumers will market to each other."
This view is supported by John Owrid, a management partner at UK direct marketing agency Ogilvy One, which opened a virtual marketing unit last August."As the net's infrastructure gets stronger, viral marketing gets easier and the rewards for those who can do it properly, get bigger," he says.
Viral marketing therefore completely reverses standard promotional methods such as TV advertising and web banners. Instead of excluding the customer from the creation of a marketing message, once initiated, viral marketing cuts the role of the company to that of a passive bystander. Ultimately, this has a democratising effect on the whole marketing process.
"One of the beautiful things about viral marketing is that all these mechanisms only work when you're talking about a good product," says Emanuel Rosen, author of The Anatomy of Buzz.
However, for companies with confidence in their product, viral marketing can prove more effective than web banners and interruptive forms of advertising. By drawing the customer into the selling process, companies are not only stretching their marketing budgets further, but are also acknowledging the way in which the net has radically redefined the notion of marketing itself.
