Every time the “next big thing” app comes out and takes the Internet by storm, many of our first assumptions are that the app creators are now phenomenally wealthy.
After all, millions of people are using it so obviously a good chunk of them are buying too, right?
Being Viral Doesn’t Always Lead to Revenue Growth
More often than not, the new apps that take off like a rocket ship actually do pretty poorly from a monetary perspective. At least for a little while.
While they may have nailed their viral loops early on, most products have a LOT to learn about:
- Who their customers are
- How they interact with the product
- What keeps them around
- What makes them buy, buy more, and buy more often
The list goes on.
The important thing to remember here is that most financially-successful companies are NOT viral at all. On the flipside, many absurdly-viral products are NOT financially-successful at all.
One does NOT equal the other.
However, IF you can take the smart path and inject great optimization processes into your product to allow you to become a real business, you can have each of these factors feed each other.
Viral Loops are Good for One and One Thing Only
. . . bringing in traffic.
However, once you’ve got traffic, you need to:
- Convert the traffic into Users, Acolytes, and finally, Advocates
- Monetize all of these roles by transforming them into Customers
- Transform Customers into Repeat Customers
- Proactively maintain the relationship with your long-term, repeat customers
In other words, your traffic is worthless unless you can build a bridge between growth and revenue.
We’ve already talked about a key transition between activation and retention. Through that same lens, there’s a similar key transition between retention and monetization. And like its predecessor, it’s important that this transition be mapped in detail and optimized diligently.
How Virality Can Hurt Your Bottom Line
If you’re not careful, you can optimize your product for virality without planning for building business value and monetization into your strategy.
This is because truly great viral loops often give Advocates a sense of completion after completing the loop. Many of these users will then leave immediately following completing a loop – which results in you missing out on an opportunity to monetize a loyal user.
Many absurdly viral products that sweep the Internet like a wildfire are just plain old viral loops. There are No retention strategies in place, and there are NO monetization strategies in place.
It’s the growth engineer’s version of the “if you build it, they will come” mentality . . . which kills most products.
Real viral marketing “nirvana” occurs when you are successfully able to blend your viral loop with your retention funnel and your monetization funnel.
Achieving Viral Marketing Bliss
So how does one obtain viral marketing nirvana?
Here are two examples:
- Hotmail (now part of Outlook.com) leveraged viral communication marketing to continually fuel viral growth through the day-to-day use of their product. As users communicated with others on other email clients, Hotmail exposed more and more people to their brand new free web-based email application.
- PayPal leveraged viral incentive marketing to drive monetization. The primary use of their product involved taking small fees from transactions digitally sent and received online. Early on they offered a “bounty” of $20 per referral when friends signed up. This then led to those friends sending and receiving money from others. This led to more transactions, more fees incurred, more referrals . . . and so it went.
The retention and monetization methods for your product may not be obvious, but put your thinking cap on and you’ll get there. And remember that you’re engineering a viral product in order to create a self-driving growth engine for your business, emphasis on the “for your BUSINESS.”
So the (hopefully obvious) question you need to ask yourself is:
In Year 1, which of the following would I rather have?
- 10 million signups that resulted in 10,000 retained users after 30 days (1% retention)
- 100k signups that resulted in 5,000 retained users after 30 days (5% retention)
If you answered something like “10 million signups because I’d have more overall retained users after 30 days” then you should probably rethink your priorities.
The CORRECT answer is the second choice, for the following reasons:
- Your 5x HIGHER 30-day retention rate means more users stick around, which means you’re creating more value for the customers who sign up.
- Your 100x LOWER signup total means you won’t have already risked saturating the market with a product that you clearly haven’t optimized in terms of value or retention.
- Since you haven’t totally saturated your market, you’ll have far higher growth potential going into Year 2.
- Your issue now is simply finding traffic. Of all the problems to solve, this is by far the easiest.
The more efficiently you can bridge the gap of growth and virality with retention and monetization then the more successful your business will be.
But don’t confuse growing fast with growing successfully.
In the next chapter I’ll show exactly why this is such an important distinction to make using a real world example, so hopefully you don’t make the same mistake.
How Did Hot or Not's Viral Marketing End Up Breaking Their Company?
Ever hear of the website Hot or Not? Maybe you have because for a time there they were a viral sensation. But they made one major mistake that ended up costing them millions, maybe more. And it all came down to how they monetized their viral engine.
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