The Penenberg Post by Adam Penenberg

02:47 pm | 0 recommendations | 2 comments

Bookstore Baksheesh: The Real Estate Deals That Sell Books

Step into any Barnes & Noble and the first thing you see are tables covered in books. 'Tis the season, so there's the "Happy Holidays" table, with its quirky array of titles--Cornell West's new memoir, Ken Auletta's Googled, Alexandra Horowitz's Inside of a Dog: What Dogs See, Smell, and Know, a biography of Thelonious Monk--authors and subjects with seemingly little if anything in common. The "Gift Books" table (20% off) is stacked with painstakingly crafted art books--one with gorgeous photos of the Vatican flanked by the Marvel Comics Encyclopedia and a history of Lego, the snappable children's toy. There's "Children's Books," "History," "Biographies," "New Arrivals," and "New in Paperback." Off to the right, Dean Koontz warrants his own narrow shelf. So does Michael Crichton. Beat a path to the cash register and you may stop to chuckle at the "Humor" table.

Have you ever wondered who decides which of the 55,000 books published each year end up on which tables and why? It's not serendipity, not by chance, not because some Barnes & Noble tastemaker is trying to lure us with the most scintillating reads of the year. It's marketing, pure and simple, all of it bought and paid for by publishers. One editor I spoke with, who, like almost everyone else I interviewed for this column insisted on anonymity for fear of alienating powerful booksellers, calls it "bookstore baksheesh."

The practice is known as Co-op, and each book on each table costs publishers anywhere from $3,000 to $30,000, and even up to $50,000 depending on placement. The closer a table is to the front of the store, the more expensive the real estate. But quantity, duration, and even the season affect what publishers must pay. Holiday placement--Christmas, New Years (when a flood of self-improvement "new you" books comes out), Fathers Day, and Mothers Day are big seasonal tables and demand higher prices. If you see books with their covers facing you, odds are publishers paid for the privilege. (These are called "end cap" displays.) While I'd like to believe that my new book, Viral Loop, is one of the best business titles of the fall (SmartMoney did), my publisher had to pay Barnes & Noble to include it in the "Best of Business" bay for a month and the "New Arrivals Hardcover" table for two weeks.

Barnes & Noble is not alone in charging publishers for placement. Borders names its price for front-of-the-store placement. Large independent booksellers sometimes glean money for tables and get $50 for mentioning a book in their newsletters. On Amazon, my publisher paid for a month of "Buy Viral Loop Get Predictably Irrational" and at 19 airports there were displays at Paradies stores pairing Viral Loop with Fast Company magazine.

Booksellers and publishers have draped a veil of secrecy over the entire practice. A spokesperson for one publisher told me this "information is considered proprietary" and "it would be against company policy" to talk about it "even anonymously." But really, there's nothing nefarious about it. It's all part of the retail game. When you control the distribution channels, you get to make the rules. Department store, supermarket and drug store chains all demand pay-to-play placement on their shelves.

"If you took everything out of a supermarket that was bought and paid for promotions, it would look like Soviet Russia," says Lorraine Shanley, a principal of Market Partners International, a consulting firm. "Books have a kind of halo effect because they are advertisement-free, but they are not promotions-free."

Barnes & Noble monetizes only a scant 3% to 5% of a store's total space, far less than supermarkets. The miles and miles of shelves crammed with books with only their spines showing don't cost publishers anything. But because Barnes & Noble, Amazon and Borders control distribution, they have immense clout, deciding which titles stick out when customers browse their stores and Web sites. They are empowered by a scarcity of space: There are so many books but only so much square footage available in stores. But publishers only invest in titles they predict will sell, and Barnes & Noble has the final say, sometimes refusing to stock books on tables if it decides customers won't buy them. For mid-list books, the booksellers have the upper hand. For top-selling authors like Mitch Albom and now Sarah Palin, the bookstores need the books to fly off shelves as badly as the publisher do, and in that scenario the publishers often gain leverage.

While authors complain the loudest, it's a tough business for everyone involved. A recent post on "The Profitable Publisher" blog kindly crunches numbers. If a book lists for $30, the publisher gets between $15 and $18, but it has to pay a wholesaler 15% ($4.50) and a distributor another 15%. Take the higher number and Hyperion, HarperCollins, Simon & Schuster, and the rest end up with $9. Pre-publication (cover design, text design, copyediting, etc.) run about a buck. Printing: $3.25. Author royalties, maybe $3 a book. Don't forget salaries, rent and the like, which may cost a buck or two on each title. Then there are returns, with booksellers returning unsold merchandise to the publishers, who either remainder it for pennies on the dollar, or simply pulp it. In the end a publisher is fortunate to wring a few cents on a book. No wonder it's a hits business, with John Grisham, Dan Brown, Stephenie Meyer, and J.K. Rowling carrying the rest of us. If a publisher gets one or two big books a year, it might report margins of 10%--if it's lucky.

Meanwhile, bookstores don't have it any easier. Of the $12 Barnes & Noble receives for carrying a $30 hardcover, a high percentage is earmarked to overhead. A store has to sell about 2,000 hardcovers just to pay rent on a superstore, which can reach $20,000 a month or more. Then there are salaries in both the store and corporate headquarters, utility bills, maintenance, taxes, marketing, and advertising. Maybe, just maybe, the company earns a buck or two off of each title. If it doesn't sell enough books, it doesn't stay in business.

With publishers and booksellers battling over such slender margins, no wonder booksellers aren't shy about pushing publishers around, since, well, they can. Amazon calculates how much business it did over the course of a year with a publisher and dictates how much it will spend on marketing, like it or not; it also offers used books on the same page as new titles (royalties accrue only on new books) which publishers view as an affront but are powerless to prevent. Barnes & Noble deducts marketing costs from the amount it owes each publisher for the books it sells and has its own rules for returns--20%, 30%, sometimes 40% of a particular title--which it ships back to publishers who must eat the cost.

A former children's book publisher, who left the business 10 years ago, still gripes about Barnes & Noble. "They're bullies," he says. Out of the blue he would receive a truckload of books that had been sitting on shelves for two or three years, many of them torn, dog-eared or colored in. Sometimes, he claims, they weren't even his books. He'd send them back but Barnes & Noble would simply deduct the amount from his account. It wasn't personal, just business.

And this business permeates everything. So the next time you find yourself wandering into a Barnes & Noble and stop at a table to thumb through a book that catches your eye, remember that a publisher paid to put it there, hoping you would do just that. It's not that you've been punk'd. You've just been marketed to.

Adam L. Penenberg is author of Viral Loop: From Facebook to Twitter, How Today's Smartest Businesses Grow Themselves. A journalism professor at the Arthur L. Carter Journalism Institute at New York University, Penenberg is a contributing writer to Fast Company. Viral Loop Chronicles appears weekly.

[Photos by brewbooks]

11:22 pm | 0 recommendations | 2 comments

How to Write a Book Proposal That Sells

Since Viral Loop hit bookstores a month ago, I've chronicled the Viral Loop Facebook application that was designed to spread and accompany the iPhone app to promote the book, my social Web marketing plan, explained why publishers don't market authors, and why book reviews don't matter anymore. But one question that readers always ask is how do you get a book deal in the first place?

Assuming you have an idea that a reader would plunk down $25 to read about, the first step (after you get an agent; I'll address that in a future Viral Loop Chronicle) is to craft a non-fiction book proposal--the more detailed the better. And I'm going to show you how to do that, but first: What kind of book should you write?

You have far greater odds of success writing non-fiction than fiction. According to veteran author June Cotner, 85% of the 55,000 new titles released annually are in non-fiction, and 75% of these are from first-time authors. Six publishers are responsible for about 80% of all books published. But keep in mind that there's an art to writing a saleable book proposal. It is, above all else, a selling document.

Over the past decade I've written seven full-length proposals and sold three, with each advance more than double the previous one's. The last--for Viral Loop--sold at a heated auction involving five publishers bidding over three days. All told, I've earned about $1 million in advances over the years. But that doesn't guarantee I'll ever sell another book. One basic fact of book publishing is the public can be fickle and editors even more unpredictable. While every author has different ideas as to what constitutes a great proposal. Here's mine:

When my agent sends out a proposal I have no idea what will happen. For Viral Loop, editors received it on a Tuesday and by Wednesday publishers were bidding. That never happened to me before and may never happen again. With Tragic Indifference, seven publishers passed but two made offers; my first book, Spooked, which was about corporate espionage, garnered just one bid.

I've also had wrenching failures too, and I think I learned more from these than I did from the works I sold. Five years ago, for instance, I spent three months and thousands of dollars researching and writing a proposal for a book I titled The 100th Man. In it, I told the story of Ray Krone, the 100th person exonerated for a crime he didn't commit by new methods of DNA testing. Krone, a postman, was charged with the grisly murder/post-mortem rape of a Phoenix bartender. None of the blood or DNA collected at the crime scene matched Krone. Nevertheless, detectives suspected him because the perp left a bite mark on the deceased's breast, which a so-called bite mark expert claimed matched Krone's.

A jury found him guilty. The judge, noting that Krone refused to atone, cited his lack of remorse when giving him the death penalty. His family retained a top attorney, who wrangled a retrial based on a technicality. At the second trial, he was found guilty again, sentenced to life.

Krone languished behind bars for 10 ½ years, a model prisoner, until he received a phone call from his attorney.

"What are you doing for dinner?" he asked.

Krone stammered. "What the hell do you think I'm doing for dinner," he said. "Eatin' the same prison shit I eat every night."

"Ray," he whispered. "You're going home. The judge just signed the papers."

A new DNA test had not only exonerated him but resulted in a match with another inmate, a man that had been hanging around the bar the night the woman was killed. Detectives, however, never bothered to track him down, even though he was mentioned in police reports.

As the warden led Krone to freedom his fellow prisoners cheered, screaming, hooting, clapping, rapping tin cups against walls. Krone gave them hope. Nearing the front gate, the warden said, "Ray, call your mother," passing Krone his cell phone. Krone had never used one before and the warden had to dial the number for him. "Mom," he stammered. "I'm coming home."

Outside a phalanx of reporters and TV cameras awaited. The fact that Krone was the 100th prisoner exonerated because of DNA made it big news. Krone stood awkwardly at a makeshift podium.

"Ray," a reporter called out. "Are you bitter?"

After some reflection, Krone said, "No. I'm not bitter. I've been bitter for ten-and-a-half years, and I refuse to be bitter another day."

When I read what Krone said, I just had to write about him. We arranged to meet in New York, where I accompanied him and his family to The Exonerated, a stage drama that weaves the stories of six innocent people released from prison after serving time on death row. Afterward Krone stood before the audience to tell his story, which was more riveting than anything in the play. Krone and his family agreed to cooperate fully, and his attorney mailed me thousands of pages of court documents, forensics papers and police reports. It was a treasure trove of information.

When my then-agent read the 50-page proposal, he said, "I can't sell this." He detailed a rash of problems. How could I drive the narrative when my main character was in prison while most of the action was happening on the outside, as his family and attorney worked tirelessly to get him out? While Krone was a sympathetic character, he wasn't larger than life, and in his experience publishers would be loath to pay for a work with an everyman as the lead character. Finally, lots of these kinds of stories were being published in magazines. By the time The 100th Man could come out, the public, he reasoned, would have tired of the issue.

I didn't believe him so I slipped the proposal to an editor at HarperCollins, who said essentially the same thing. He recommended I try a True Crime publisher, where an editor told me she cried when she read the proposal, complimenting me on how beautifully written it was. But she too said no one would buy it.

Which brings me to my last point: Just because you think it's a great idea, the kind of book you'd want to read, doesn't mean anyone will publish it.

Adam L. Penenberg is author of Viral Loop: From Facebook to Twitter, How Today's Smartest Businesses Grow Themselves. A journalism professor at the Arthur L. Carter Journalism Institute at New York University, Penenberg is a contributing writer to Fast Company. Viral Loop Chronicles appears weekly on Fast Company.

08:33 pm | 0 recommendations | 1 comment

Blanket America's Charitable Capitalism Is Going Viral

As Mesh Gelman, the 34-year-old Orthodox Jewish owner of a bed, bath, and window furnishings designer in Manhattan, crowded around his desk with his staff to watch Barack Obama's inaugural address, the newly sworn-in president said something that so moved him, he took it as a sign--if not from God at least from the new leader of the free world.

"For we know that our patchwork heritage is a strength, not a weakness," Obama orated. "We are a nation of Christians and Muslims, Jews and Hindus--and nonbelievers." Obama touched on the "bitter swill of civil war and segregation," emerging "from that dark chapter stronger and more united," expressing a belief that the "old hatreds shall someday pass," and that "as the world grows smaller, our common humanity shall reveal itself." Interpreting this as a call to action, Gelman turned to his design director. "He just said 'patchwork,' a quilt," he told her. "There's something there." Gelman fumbled for a pen and paper and scrawled "Patchwork Heritage."

From these unlikely beginnings sprouted Blanket America, an innovative approach to charity that juxtaposes social good with the mechanism of capitalism. Here's how it works: Buy a patchwork quilt with the tag "Blanket America" and Gelman, through his company, Extreme Linen, will donate a plain blanket (retail value: between $15 to $20) to someone in need. In fact, his goal is to give away 1 million blankets this winter through Gifts in Kind, which will distribute the blankets to local charities and act as a third party auditor. And starting next week, you'll be able to help Gelman's cause with the Viral Loop-Blanket America widget.

I got involved with Blanket America after Gelman read some pieces I'd written about the social media campaign I'd created for Viral Loop with design firm Studioe9 in New York. Intrigued by the possibilities, he asked them to create a campaign for Blanket America. But with the launch date looming--and winter approaching--there wasn't enough time. So Studioe9 asked me to donate the Viral Loop Facebook application to the cause for a month. Hence the newly re-branded Viral Loop-Blanket America widget, which has an installed base of several thousand users. It will be completely redesigned to express the Blanket America cause and spread across Facebook.

One thing will remain: The core functionaility of the widget. The Viral Loop Facebook app tells a user what he is worth to Facebook in dollars, based on his level of engagement, number of friends and their level of activity, and his influence, which is based partly on his ability to spread the widget. What does that have to do with Gelman's charity? Everything, because Blanket America and the Viral Loop widget are expressions of the participation economy. This means that participants do more than just consume. Participation is built directly into "consumer" choice. Look at Facebook. If it weren't for you, me and about 300 million other users it would have little value. Facebook needs you, and the more you participate, the more valuable you are to Facebook. Everything you do on Facebook ripples through the community and serves to keep others engaged, which benefits Facebook.

Blanket America creates a different mechanism for charity. For every item a user buys, another is given away to someone in need. Therefore each act of consumption is also social instead of anti-social. Demand and donation become synonymous. When someone targets their needs, they are also targeting someone else's needs.

Unlike charities that offer a percentage of proceeds to the needy or the "Newman's Own" model, which donates all profit after taxes to charitable causes, Blanket America counts on consumers acting like consumers, doing what consumers do--and the seller takes on the charitable responsibilities. Zynga, the app maker, recently sold special seeds in its Farmville game, with players using real dollars to buy virtual goods, and raised more than $320,000 for two non-profits in Haiti. Gelman, in contrast, believes that charity begins at home, and the best way he can accomplish this, he says, is to "influence the consumer at the point of consumption."

The idea of making a consumer choice a driver of profound social engagement is tantamount to acknowledging that users, by virtue of their participation, are essentially valuable and not just a bottomless pit to dump inert product. Not only are you worth something, you are worth something to others. Viral Loop was developed, in part, to show how value is created in a social economy. With Blanket America, we can also show how the idea of "value" itself is really much more than just you, and as you build your value the implications are both immediate and vast.

It's a fascinating dynamic. The more you buy, the more you give, and the capitalist (i.e. the seller, who makes out in the bargain, too) takes on the responsibility of earmarking a percentage of that profit in the form of an actual physical object. Gelman doesn't plan to stop at blankets. He wants to brand "Blanket America" on all sorts of products--clothes, toys, kitchen appliances, household goods, available through classic retail stores, over the Web and via QVC. Ultimately he hopes that consumers will look for it like they used to look for the "Made in the U.S.A" label, or purchase eco-friendly products today. This could all be thought of a new kind of consumer advocacy. Not only are consumers drivers of value through consumption, they are the drivers of change.

Gelman designed the Blanket America Heritage Quilt to represent the idea of our "patchwork heritage." As a nation, he says, our different shapes and sizes were sewn together for one common purpose. The front is made up of fabrics representing the original colonies. On the reverse is President Obama's inaugural speech. But the customer and the needy aren't the only ones to benefit.

"Wal-mart showed volume more than makes up for margin," Gelman told me in his Garment District Showroom. "If you are a company and you buy into the Blanket America model, you might make less money but sell a lot more goods. Then everyone wins."

02:00 pm | 0 recommendations | 2 comments

How Gary Vee Crushed His Way to a Bestseller

There are two kinds of books that are almost surefire hits and which publishers will bid what may seem like insane amounts: Those written by (or ghostwritten for) celebrities, and those written by (or ghostwritten for) celebrities.

Andre Agassi signed a deal for a reported $5 million for his upcoming autobiography, which isn't yet available but already inching its way toward the top of Amazon's sales rankings. Bill Clinton received $15 million to write his 2005 autobiography, My Life, widely viewed as the largest advance in book publishing history (until Oprah Winfrey signed a contract for a weight-loss book). Hillary Clinton took in an $8 million advance for her tale of her years in the White House. While their publishers shelled out an armored car's worth of cash, the Clintons and Winfrey sold millions of books and easily earned back their advances and then some. Sarah "Going Rogue" Palin attracted a comparatively modest $1.25 million for her forthcoming memoir, yet based on preorders--it's #2 on Amazon's sales rankings a full two weeks before its release--HarperCollins stands to reap a windfall.

If you want to be a successful author it helps to be famous. With the advent of social media, however, the rules are changing, and that leads me to Gary Vaynerchuk, author of Crush It: Why Now Is The Time To Cash In On Your Passion. He boils down his message to this: Follow your passion, then deploy social networking tools to not only build your business but to extend your own personal brand that "makes you all the money and, more important, brings you all the happiness you could ever want."

Some may have scoffed when earlier this year, GaryVee, which is how he often refers to himself, inked a 10-book deal worth a reported 7-figures with HarperStudio. A week after the Crush It hit store shelves his slender volume (barely 140 pages) landed on The New York Times Business Book Bestseller List. Who's scoffing now?

I've been watching Crush It's progress with interest since Viral Loop was published the same day. While sales of my book might be characterized as brisk, GaryVee's are a veritable tsunami. About 80 people came to my launch party; hundreds attended a book signing he gave at Borders. To date, 11 people have reviewed my book on Amazon. More than 90 have reviewed his, and whenever someone posts a negative review his legions of admirers attack the few dissenting voices. (Now that's customer loyalty.) I've followed him in TV interviews and on radio programs. He is a marketing machine.

My book identifies the growth engine behind viral phenomena like Hotmail, eBay, PayPal, Facebook, Twitter, Skype, illustrating how these entrepreneurs built multimillion and in some cases billion-dollar businesses from scratch, all without spending a dime on marketing. Their users spread their product for them. It outlines concepts like "viral coefficient," stackability--how a company like YouTube, for example, grew on top of MySpace to eventually become bigger than its host--the pitfalls of scaling to handle an onslaught of millions of users, designing a product to go viral, "viral tags," "viral media," humans' biological need for social networking both online and off-, and even the dark side of virality, when information becomes a weapon. Five publishers found the concept compelling enough to bid for it over three days in what one editor called "a very spirited auction." Without a built-in audience, however, I needed to adopt a long-term strategy to publicize Viral Loop.

In the sprit of the book, I implemented a social media marketing plan involving a Facebook application that tells users how much they are worth in dollars to Facebook based on their level of engagement, the number and level of activity of their friends, and their "influence." It has spread to thousands of users and I have been talking to companies about letting users take their Viral Loop values on Facebook and use them to buy real things, which would really juice its virality. I also commissioned an iPhone app, a predictions market game powered by InTrade.net, one of the biggest predictions markets on the Web.

All of this takes time to bear fruit. In essence, I am banking on selling enough books to create a large base of readers who will, if all goes well, spread the book to their social network of friends, family and colleagues by positive word of mouth--a system that has worked in publishing for centuries. But it can be slow going and although I've received very positive feedback on Viral Loop success is not assured.

GaryVee's book, on the other hand, is an inspirational work; you read it and you immediately believe you, too, could create a moneymaking enterprise with you as the boss. (I plan to include it on the syllabus of Entrepreneurial Journalism, a new graduate level course at New York University that I am scheduled to teach in the spring.) By creating a built-in following he may have become the first social media celebrity--the kind of guy publishers love.

How did he do it? The son of a Belarusian wine merchant from New Jersey, Vaynerchuk decided a few years ago to start a video podcast series about wine for regular people. His obstreperous, Jim Cramer-like charisma plays well over the Web--he's very funny and engaging, throwing out words like "douchebag" during wine tastings. After his wine video podcasts proved to be popular he transitioned into proffering career advice to would be entrepreneurs.

His timing, it seems, could not be better. As Sara Nelson, former publisher of Publishers Weekly, put it in the Wall Street Journal Online, GaryVee "may be the first to have become a celebrity in an era that merges the Internet, a recession, and rampant career dissatisfaction." Nelson reported that one editor at a major publishing house told her, "I can't tell you how many fix-your-career, reinvent-yourself proposals we've seen in the past few months." But "what sets Mr. Vaynerchuk apart from all those guru-wannabes may be that he already has an ardent fan base of frustrated entrepreneuers, the recently downsized and the generally careerologically challenged. He has a 'platform,' in other words, a built-in audience."

Or as GaryVee says in his book: "Three years ago I was an anomaly, a guy with very limited technology skills who used social sites like Facebook and Twitter and Tumblr to build a highly fulfilling and profitable personal brand ... The opportunities are endless--I don't think enough people have grasped just how much society and business and even the Internet have changed--and my story is about to become a lot less usual."

Ashton Kutcher has more than 3.9 million followers on Twitter largely because he's a star. Gary Vee has amassed 850,000 followers, which has helped make him a star. The difference is that it took him just a few years.

In many ways, Gary Vee sounds like one of the companies I write about in my book. He's become a Viral Loop brand, growing almost exponentially. Where he will stop, no one knows.

Adam L. Penenberg is author of Viral Loop: From Facebook to Twitter, How Today's Smartest Businesses Grow Themselves. A journalism professor at the Arthur L. Carter Journalism Institute at New York University, Penenberg is a contributing writer to Fast Company. Viral Loop Chronicles appears weekly on Fast Company.

09:40 pm | 0 recommendations | 3 comments

Death of the Book Review

My first book, Spooked, a hard look at corporate espionage, came out in 2000 and received about 30 reviews in all sorts of publications. There were the usual suspects, like The New York Times, Publishers Weekly, Wall Street Journal, and Library Journal, to the less usual--National Post, Electronic Business--to the now defunct (Business 2.0). My second book, Tragic Indifference, shed light on the Ford-Firestone imbroglio, when Firestone tires were blowing apart sending Ford Explorers rolling over at highway speed, leaving a trail of broken bodies in their wake. Published in late 2003, it garnered just seven reviews.

Now I'm on my third book, Viral Loop, which hit bookstore shelves last week. It's been reviewed exactly once--in SmartMoney magazine, which named it one of the "7 Best Fall Reads." To be fair, Publishers Weekly and Library Journal have scheduled reviews, but frankly it doesn't matter. Book reviews don't sell books anymore. All they do is act as marketing fragments for publishers and authors to spin for promotion.

Good reviews help, at best, incrementally, and bad reviews hurt, at worst, incrementally. They're published then they disappear, living on as pithy testimonials on authors' Web sites, or on the back covers or in the fronts of paperback editions.

It wasn't always this way. A rave review 20 years ago in, say, The New York Times, Washington Post, or Publishers Weekly could usher an obscure author into the limelight. Those were the days when there were dozens upon dozens of book review sections in newspapers and magazines. Since then their number has steadily diminished. The Washington Post Book Review is kaput and other newspapers found they couldn't sell ads in their book sections. Magazines can ill afford to devote the few pages they have left for editorial about books. Columbia University has even cancelled its course on book reviewing, given by critic James Shapiro. There was too little demand for it.

Naturally, there are survivors. But The New York Times Sunday Book Review seems more concerned with big name authors--or with promoting Times staffers that Boss Sulzberger pays--than with surveying the mass of new talent out there. Publishers Weekly has a circulation of 25,000 (mostly book industry professionals). That's less than half the number of people who attend New York Giants football games. The New York Review of Books reaches more readers, but while the reviews are elegantly crafted they are usually concerned with fairly esoteric subject matter.

Like news, book reviews have become crowd-sourced, with bloggers and Amazon readers leading the way. But these reviews, unlike those that appear in publications, do have an impact on sales, because they appear right next to the product being sold and persist in online perpetuity. Would you buy an electric razor at Macy's if the department store listed a bevy of complaints from dissatisfied customers next to it? Indeed, an academic paper by Yale Economics professor Judith Chevalier found that while positive reviews increase a book's sales and negative reviews dampen them, "the impact of 1-star reviews is greater than the impact of 5-star reviews."

It's no wonder authors game reviews on Amazon. They are also victimized by them. Hence what I call the Amazon Review Cycle: A book comes out and the first reviews tend to earn 5-stars--on the very day it is first made available to the public. Why is that? Because the author's friends and family flock to the page to offer support; most haven't even read the book. Characteristically the reviews are short, vague, and positively glowing. Then come the meanies who dislike the author. We all make enemies during the course of our careers, and what follow are the snippy, snarky 1-star disparagements, also submitted by those who haven't read the book.

After friends and family come readers with no connection to the author, but they, too, often have agendas. On my Amazon page, Frank Todaro, from Houston, Texas, gave Viral Loop 1 star. Was it my research? My prose? My theories? No, he hasn't read the book. He panned it because Amazon priced the e-book version above $9.99. "Why is the Kindle version too expensive?" Todaro wrote. "Do not buy this book till the Kindle version is priced correctly."

Dear Amazon: Please lower the price of the Kindle version of Viral Loop to $9.99. Hey, Frank! I'm the frickin' author, not Jeff Bezos. Take it up with him. In the meantime, don't buy the Kindle version if you can't afford fourteen lousy bucks, but don't blame the author for pricing. We have nothing to do with it.

Freakonomics co-author Stephen Dubner once took to task an Amazon reviewer named Loyd Eskildson, who, Dubner claimed, was re-dating his reviews--some of them months old--to give them greater prominence. "I noticed this only because the same two-star review of Freakonomics kept magically appearing near the top of the reviews page," Dubner wrote. "Eskildson's preferences and predilections (including a fondness for exclamation points!) are pretty clear from a glance at his reviews, but his re-dating motives are, to me at least, less clear."

But the dirty secret of book reviews is that they have always been rife with abuse, even when left to the ostensible pros. Every author knows what I'm talking about, the reviewers (most of whom have never written books) that use their pulpit to settle scores.

In my case, business reporter Alison Leigh Cowan of The New York Times wrote an over-the-top, scathing review of Spooked, in which she not only attacked the book, she questioned my ethics, because I refused to cooperate with the Justice Department, which was threatening to subpoena me so I would out a confidential source at a grand jury hearing and potential trial. I quit Forbes where I was a senior editor because the magazine's lawyer was pressuring me to work out a deal with prosecutors. Who was the source? He--along with his minions--had hacked nytimes.com, replacing Times content with their own, which was largely obscene and highly critical of tech reporter John Markoff. (History buffs can read up on the incident here, here, here, and here.)

Not only did Cowan have a conflict of interest because The New York Times--and one of its best-known reporters--had been attacked by the person whose identity I was protecting, she was friends with a top Forbes editor who never forgave me for taking my battle with the magazine public. According to those who witnessed it, the editor danced in the hallway the day the review came out.

Yet Spooked also received a starred review in Publishers Weekly, the Dallas Morning News called it "a fascinating portrait," an "eye opener," and The National Post said it was "an admirably well-crafted and informed book on the subject of corporate espionage." There were some mixed reviews, but nobody came remotely close to Cowan's vitriol.

Oh, and The New York Times Magazine excerpted a chapter of the book the week before Cowan's review came out. She neglected to mention that.

Then again, why would she? Cowan wasn't reviewing the book. She was settling a score. And so do many of those littering book pages on Amazon with 1-star reviews. The difference is that these Amazon evildoers really do dampen book sales. Cowan's ax job probably didn't.

I'll explore more of the ins and outs of marketing a book at a time when the old rules don't apply anymore in upcoming posts of the VIRAL LOOP CHRONICLES on Fast Company.

Adam L. Penenberg is author of Viral Loop: From Facebook to Twitter, How Today's Smartest Businesses Grow Themselves. A journalism professor at the Arthur L. Carter Journalism Institute at New York University, Penenberg is a contributing writer to Fast Company.

10:00 am | 0 recommendations | 5 comments

Forget Everything You've Heard About Book Publishing

Part 1: Today's Author, Yesterday's Business

Forget everything you've heard about book publishing.

For instance, recently at a party to celebrate the publication of my latest book, a number of people asked, "Is your publisher sending you on a tour to promote your book?"

Dicl;dsCKWDfce9qdck. Sorry, I was laughing so hard recounting this story that I hit my head on my keyboard.

These friends/colleagues/acquaintances/random people I met were inquiring about Viral Loop: From Facebook to Twitter, How Today's Smartest Businesses Grow Themselves. It tells the stories of the fastest growing companies in history--Skype, Hotmail, eBay, PayPal, Facebook, Twitter, Flickr, and many more, all of which grew virally. By amassing such huge numbers of users without spending a dime on marketing, they were able to create multimillion and in some cases billion-dollar businesses practically overnight. They did it by creating a product that its users spread for them. In other words, to use it, they had to spread it. Never before in human history has it been possible to create this much wealth, this fast, and starting with so little. I'd like to think Viral Loop is partially inspirational. If they can create billion-dollar companies from scratch, why can't you? (Read an excerpt here and here.)

Most people have a vision of publishing that ceased to exist years ago: writers of yore traipsing bookstore to bookstore across America to offer readings and scrawl inscriptions to the handful of strangers who bothered to show up. It sounds so quaint. Alas, today's publishers have little patience for such low-yield marketing efforts. Building a writer's career isn't part of the equation. It's all about the bottom line. If legendary editor Maxwell Perkins, who patiently guided some of our nation's greatest writers (Hemingway, F. Scott Fitzgerald, Thomas Wolfe) were alive today, he'd probably be working in public relations.

Publishers don't pump serious marketing money into a book unless they know it's a hit, even after coughing up a six-figure advance. They don't commit to ad budgets in contract negotiations and are loath to spend a dime on authors' Web sites, travel, or any other expenses. That's because so few of the books they publish actually "earn out," that is, sell enough copies so that the author's advance is covered by his or her sales. A book that sells enough copies to justify an author's advance is about as common as a kind or thoughtful anonymous comment on Gawker.

There's an old saying in publishing: Your agent hasn't done his job if you earn back your advance. But, you might ask, how can a book be a hit if your publisher doesn't get behind it?

Therein lies the mystery of marketing a book at a time the old rules don't apply. As a former book editor of mine explained, publishers follow the broadcast TV model. You schedule a show for primetime and see if it develops an audience. If it does, you throw your weight behind it. If it doesn't you pull the plug. Book publishing is a "hits" business, with a tiny fraction of huge sellers--thank you Dan Brown, Malcolm Gladwell, and soon, Sarah Palin--carrying the rest of us losers. Publishers don't care about dropping money on 99 books if the 100th is a Tipping Point or Freakonomics. This also characterizes the music business and we can see how well that turned out, but I digress.

Instead of a publisher building your career, you're on your own. And if you talk to editors you'll get an earful. They wonder why authors don't take a percentage of their advance to pay for their own marketing. Why should the publisher have to do it all? They paid you for the work, didn't they? For too long authors have acted like crybabies, waiting for publishers to be like, well, publishers used to be. That was a long time ago, when editors used to, well, edit, but much of that responsibility has been passed on to literary agents.

I'm not kvetching, mind you. I can honestly say that Hyperion, which released Viral Loop, is the best publisher I've worked with. But there is nothing sexy about an author selling a book. It isn't about cocktail parties, readings, and witty repartee at the Algonquin Hotel. Nowadays it's about press coverage, social media, Facebook and Twitter, iPhone apps, virality, and the hope that if you hang on long enough and convince enough people to buy and read your book, they will market it for you.

How? Because if they like it--really like it--they will, without prompting, enthusiastically recommend your book to a friend, and so on, and so on (like the old "psst" shampoo commercial). It's word-of-mouth, the gold standard of marketing, because a recommendation to buy comes from a trusted source like a friend or family member. This is how publishing has always worked, of course. It's just the journey there that's become particularly treacherous.

The hardest part for most authors is to create that initial large installed base of readers. Some like Gary Vaynerchuk, who dictated Crush It: Why Now Is The Time to Cash In On Your Passion, are, as Gary Vee would put it, "crushing it!" Most, however, fail.

I'll explore all of this and more in upcoming posts of the VIRAL LOOP CHRONICLES on Fast Company.

Adam L. Penenberg is author of Viral Loop: From Facebook to Twitter, How Today's Smartest Businesses Grow Themselves. A journalism professor at the Arthur L. Carter Journalism Institute at New York University, Penenberg is a contributing writer to Fast Company.

03:57 pm | 0 recommendations | Be the first to comment

Viral Loop iPhone App Predictions Game

First there was the book, then the Facebook widget, and now the Viral Loop iPhone app, which went officially live today. It just goes to show that marketing a book ain't what it used to be.

While the Facebook application tells you what you're worth in dollars to Facebook based on your level of engagement, your friends' activity level and your "influence"--defined, in part, by how well you spread the app--the Viral Loop iPhone app is a predictions market--the first to earn its own iPhone app. Simply put, users who download the Viral Loop Predictions Market from Apple's app store or iTunes get $10,000 in play money to bet on the future. (If a user runs out of money, there are ways to raise more capital, like, well, buying the book.)

Along with StudioE9, which created both applications, I partnered with InTrade to handle the back end. Initially I'd planned to handle things--creating the predictions, monitoring forums, etc.--but it soon became obvious that would be a gargantuan undertaking. InTrade is perhaps the most successful predictions market on the Web, and comes with a large and enthusiastic audience, which places thousands upon thousands of bets every year.

On InTrade, there are several categories of predictions--including technology, politics, financial, entertainment, arts, and user-generated predictions, which everyone can bet on. There are also discussion threads, where users can bicker with one another, gripe about rules or offer their two cents.

Some recent InTrade predictions include:

• The Google Lunar X Prize to be won on/before 31 Dec 2012. Thus far, out of 332 InTrade.net users, 35% are betting this will happen.
• Microsoft Windows 7 to be released on/before 31 Dec 2009: 99% of the 73 prediction votes cast believe this to be true.
• Barack Obama to be Democratic Presidential Nominee in 2012: 81.3% of the 4,496 predictions cast predict yes.
• Lindsay Lohan to bare all for Playboy: 87% say this is likely, with more than 11,000 users betting.

There are also short deadline predictions, like "The Dow to close 25 points higher than previous close." No matter what your interest, there are probably predictions you can bet on at InTrade.net.

The Viral Loop Predictions Market for the iPhone works with the free virtual money side of InTrade, which also hosts a predictions market where people gamble real money. That's legal overseas (the company is based in Ireland) but being that we live in America, we facilitate only the InTrade.net side of the predictions market. It's a game, nothing more. Anyone wanting to bet real money can't use the Viral Loop app for that.

What does a predictions market have to do with the book and widget? The truth is that most people hate being marketed to. So you have to offer value if you're going to ask someone to buy something of yours. InTrade is a thriving predictions marketplace, and if you want to engage with it over your iPhone you have to go through us. That runs $1.99, since we have to cover development costs, which were pretty steep. After a user logs in there is an unobtrusive ad for the book, a description, and a link to Amazon to buy.

Does an ad like this work? It's too early to tell. But I do know that 13% of the people who downloaded the widget and clicked on the "buy the book" ad ended up purchasing Viral Loop on Amazon. It's a decidedly soft-sell approach. Below is the official press release.

What do you think? Let me know at ViralLoopBook@gmail.com

NEW YORK, NY, and DUBLIN, IRELAND, Oct. 19, 2009/ Viral Loop LLC, founded by Studioe9 and VIRAL LOOP author Adam L. Penenberg, today introduced an iPhone application powered by InTrade, The Leading Prediction Market. The application, the first prediction market available on the iPhone, makes it possible for InTrade users to log in to their account and make predictions (trade contracts) as to whether future events will occur or not.

This new app created by Viral Loop and powered by InTrade also works in conjunction with the Viral Loop Facebook application that tells users how much they and their friends are worth--in dollars--to Facebook, based on their level of engagement, their friends' level of activity, and their social "influence."

"We are thrilled to partner with InTrade to bring this exciting new iPhone application to market and complement the Viral Loop Facebook application," said Elizabeth Brown, co-founder of Studioe9, a leading Web design and social marketing firm. "All of this springs from Adam L. Penenberg's new book, Viral Loop: From Facebook to Twitter, How Today's Smartest Businesses Grow Themselves (Hyperion, Oct. 2009)."

The Viral Loop Facebook application, which functions as a proof of concept for Penenberg's book, has been downloaded more than 8,000 times since its release four weeks ago, its user base growing by the hundreds every day.

"Offering an iPhone App extends the reach of Intrade and prediction markets generally to a larger audience. This will increase the engagement, excitement and the information quality for the benefit of all. Therefore we are delighted with this overdue development and to be working with Viral Loop," said John Delaney, CEO of InTrade.

About Studioe9: Studioe9 is a digital studio that focuses on connecting clients to emerging communities and new technologies to enable them. Studioe9 creates Web sites, online video, mobile applications, social media, casual games and more. Clients have included Little Pim, Air America Radio, Office Depot, Sony-Ericsson, Cingular, Cornell University, and many others.

About Adam L. Penenberg: Adam L. Penenberg is a contributing writer to Fast Company magazine and a professor at the Arthur L. Carter Journalism Institute at New York University. His work has appeared in The New York Times, Forbes, The Economist, Mother Jones, Slate, Wired, and in many other publications. He was portrayed by actor Steve Zahn in the movie "Shattered Glass," which told the story of Penenberg's outing of serial fabulist Stephen Glass of The New Republic. Viral Loop is his third book.

About InTrade: InTrade allows members to transact in the most innovative, transparent and exciting way on political, financial, current and similar event futures, with Intrade members trading directly with one other. InTrade has provided data to CNBC, CNN, FOX, WSJ, FT, New York Times, 7 Federal Reserve Districts, more than 50 major universities and graduate schools in the US, the ECB, Cato, Bank of Japan, Bank of England, presidential candidates and major and boutique Wall Street firms. InTrade's prediction market is a manifestation of the wisdom of the crowds, and its crowd-sourced predictions have been shown time and again to be accurate. "InTrade makes more accurate predictions than I have ever come across," remarked John Stossel, former correspondent for ABC's 20/20.

Press inquiries:

For Viral Loop, contact Elizabeth Brown of Studioe9 (elizabeth@studioe9.com)

For InTrade, contact John Delaney, john.delaney@intrade.com, http://www.intrade.com/, http://www.johndelaney.com/

01:47 pm | 0 recommendations | 4 comments

Flickr Co-Founder Caterina Fake on the Value of Viral Loops [Exclusive Q&A]

This interview was conducted during research for my book, Viral Loop. You can read an excerpt here at Fast Company, or find out what your friends are really worth by installing the Viral Loop widget.

In 2002, Caterina Fake (her real name) was developing a video game with her husband, Stewart Butterfield, when they decided to drop photos into instant messaging--akin to adding pictures to conversations, they thought. The idea blossomed into Flickr, which launched in February 2004. Initially it didn't proliferate. But once they added "tagging" it exploded--it was well-timed to make the most of the growing popularity of digital cameras and the ever-expanding blogosphere. Bloggers used Flickr as a photo repository and others gravitated to it so they could share pictures. The site that began as an afterthought to Fake's and Butterfield's multiplayer game matured into the fifth most popular site on the Internet, generating revenue by charging a fee to heavy users who wanted a place to store their multitudes of photos. A year after launch, the formerly debt-ridden couple sold Flickr to Yahoo for $40 million. Fake's latest venture is Hunch, a service that combines artificial intelligence with Web 2.0.

Penenberg: Fake is real, right?

Fake: Yes. I can't tell you how many times I've booked an air ticket only to get to the airport and find out they killed my ticket because it goes into the system and the program tosses a ticket that says "fake" on it. Twice I've gone to the counter for a KLM flight through Northwest and have been rejected. They say, "You don't have a ticket." I give them a confirmation and after some investigation I learn my ticket has been cancelled because the system deleted it. For a while I couldn't join Facebook because of my last name. During the registration process I was asked for my real name and when I wrote "Fake" it rejected me. Finally a friend working for Facebook took care of me.

Penenberg: There's both a good and bad side to virality. Products with viral hooks that are so strong they coerce people to sign up--in order to achieve a huge initial viral rush--are obviously bad. Not only do they alienate users, they don't lead to a sustainable business. On the good side, you have organic growth, which comes as a natural byproduct of something that spreads simply because people like it--eBay, Hot or Not, and Flickr. I can't think of an antonym for it.

Fake: How about brute force growth?

Penenberg: That's good. Maybe we should trademark the term.

Fake: You could also advertise your way to growth.

Penenberg: Of course, but that's not what you did with Flickr. Tell me how it all came about.

Fake: My background isn't in social software, it's in online community, social networks, personal publishing, blogging, self-expression on the Web. I got on the Internet in the 1980s, and the magic moment for me arose from my being a literature geek, especially Dante and Shakespeare. This was back in the day when you could have fruitful conversations in chat rooms and everyone who was online was at a university. They were all power users; everyone knew how to operate their machinery. One day I had a fascinating conversation with a Borges scholar in Denmark. My initial experiences in the things that made me love the Internet were primarily social--connecting to other people, and people that you wouldn't otherwise be able to find, like Dante and Borges scholars. By the 1990s I was blogging--this was before there was blogging software, and they didn't even call it blogging. It was an online diary or notebook. At the time a personal Web log was seen as weird or creepy. It seemed like a fringe activity--kind of weird and strangely self-absorbed and very odd. And people didn't have photographs of themselves. There was no such thing as a profile online, it didn't exist.

Penenberg: When and why did the shift happen?

Fake: I think it happened with Friendster. While there were earlier social networks like Six Degrees, which was circa 1998, Friendster hit at a time when digital cameras were becoming ubiquitous and so was broadband. Suddenly it was possible to post photos, and that helped people create online identities.

Penenberg: Then it comes down to ease-of-use and accessible technology fostering a push into the online realm?

Fake: The act of self-presentation by regular people was now possible. Earlier you actually had to know how to use the tools, to be able to write HTML, to understand FTP to upload stuff to the Internet, and to have a server somewhere. With Friendster, people discovered that they love to present themselves in the most favorable light. This tells us something about them. They put pictures of themselves, friends, and family up, and described who they were and the bands they listened to. In essence, Friendster was an identity establishment exercise. Friendster was basically making available to everybody that experience I had with the Danish Borges scholar. That sense of "wow," that manna-from-heaven feeling when you find something or someone or some person you lost touch with, like your old classmate. Or you discover somebody else who feels the same way you do, say, if you're the lonely gay teenager in Indiana. All those people looking for connection, that perennial human desire. It's just insatiable.

Penenberg: Humans have a built-in desire to connect. That's what language is all about. What's the point of being able to speak if you can't speak to anybody? Online is just an extension of this need we have. Before you started Flickr, you and your husband Stewart were working on a game.

Fake: We got married on June 2, 2002, in Victoria, B.C., and started the game two weeks later. I was a freelance Web designer, and Inner Hole Research, where I was working, had just shut down. I had been involved in this startup that had been spun out of there and which was doomed from the start. It was social software, a collaborative storytelling tool where you could post images and characters. You moved these characters around and created captions that looked like a cartoon filmstrip to tell stories. It was really cool--but it was doomed from the start. The technology was not up to par; we were building it in Flash but it wasn't sophisticated enough to handle this kind of collaboration. The premise of it, though, the collaborative storytelling, was a great idea.

Penenberg: It might have been hard to come up with a revenue model...

Fake: That, too.

Penenberg: What made you move from that to a video game?

Fake: Game Never Ending came out of an earlier game called NeoPets, a children's game that adults also played. It was a series of mini-games where you accrue points and can acquire objects--houses and all kinds of stuff. These things are taken for granted now, but at the time nobody was doing it. Game Never Ending emerged from this because we saw that it was an incredible context for social interactions. The growth of NeoPets was hampered because children need a protected space. But a game built for adults, where communication could come more freely, would mean the social interactions would be much more fruitful. My background had nothing to do with games, but the social aspects of this became immediately apparent to me. I also liked to play games on the Internet and socialize online. We created this as a social game, as a context for social interactions.

Penenberg: But you weren't able to attract venture capital funding.

Fake: No, we weren't. We went everywhere, but in 2002 it was nearly impossible to raise money and nobody understood what the hell we were doing. They would ask, "Is it shrink-wrapped? Can I buy it at Wal-Mart?" They didn't get the concept of an online multiplayer game.

Penenberg: Can you boil down the essence of the game to a few sentences?

Fake: Starting with a large map, you could explore the terrain and find objects and create things. It wasn't a first person shooter. It was more like World of Warcraft. It was social, fun. To give you an example, you could find a wombat whistle and blow it, and all these baby wombats would cuddle up against you. You could find elements of things and put them together. You could find venture capital, hype the Web, and put it all together to create a new economy and then go into a crowded room and deploy your new economy--and then everybody would go broke and you would get rich. You could cheer people up, too. There was a kind of magic sparkle powder, so if you went into a crowded room and sprinkled it on everyone, their mood would lift. There were all sorts of metrics...

Penenberg: Sounds like a stoner's dream. How did Flickr rise out of this?

Fake: We were unable to raise any money so we collected about $250,000 from friends and family and bootstrapped the whole thing. No one had gotten paid in six months except the employee with three kids. We were out of cash, frankly, and what happened was the backend development was about six months behind front-end development. We were finding ourselves about to go out of business. It was pretty clear that's where we were headed. We were broke.

Penenberg: I sense a eureka moment coming any second now.

Fake: Stewart had this idea that we could take what we had learned and develop it. A big part of the game was instant messaging, so we could take the instant messaging part of it and develop a client that we could drop photographs into. In essence it would be like adding photos to a conversation.

Penenberg: It would be as innovative a concept as inserting hyperlinks into online chat room conversations, a concept that came some years earlier and which beautifully illustrated the interconnectivity of the Web.

Fake: We built an IM client in Flash that you could drag and drop photos into a window. We thought it was pretty neat. Nobody could do that at the time. But it wasn't a successful product. It wasn't destined to be a standalone product. It was a feature. Another problem was that people were on different IM platforms--some were on AIM, others on MSN.

Penenberg: Which meant that users were balkanized. A person on AOL's messaging platform couldn't communicate with those on a competing one.

Fake: So we started it in December 2003, launched the IM client in 2004, and it just fizzled. It was kind of sucky; as a business it just didn't work. It was simply a cool feature for AIM. What was interesting, however, was that we had a permissions structure for photographs to be shown and shared. We had a profile page, which I don't think has changed much since the outset.

While there were photo share sites like Ophoto, Shutterfly, and SnapFish, they took their metaphor from prior technology. They were designed to be reminiscent of pre-digital photo albums. But Flickr was designed the way it was because it arose from digital technology--in the same way jellyfish are designed the way they are because they live in water. In contrast, Shutterfly and the others foisted themselves on the Web. They didn't adapt to the technology.

Penenberg: But it took tagging for Flickr to truly take off, right? Because without it you wouldn't have been able to organize photos online.

Fake: Yes. Joshua Schachter, the founder of Delicious, created the concept of tagging sometime in 2004. It grew out of his using bookmarks to organize Web sites. But tagging, I think, is best used in photographs. The problem it confronts is that the photograph has become delaminated from its delivery mechanism. In other words, you have a hard drive crammed with digital files, but dot jpeg-named files are meaningless unless you have a context in which they can propagate and other people can add information. By being able to crowd-source information on photos it becomes a democratic way of organizing information, where anyone can add works and comment on them.

The decision to make all the photos public versus private was motivated by the fact that conversations are where metadata happens.

Penenberg: What does that mean?

Fake: Say you search for "Caterina smiling." If our search is working properly, this picture or another photo of me smiling would come up. That comes not only from the tagging, but from what we call the conversation around the photo. The tags, title, description, comments--all of that stuff.

Penenberg: How did Flickr grow virally?

Fake: Stewart and I got into this argument in the early days of Flickr, before we could offer paid accounts. We had not set up any merchant accounts, not even a PayPal merchant account--nothing. He said we should let people join for a certain amount of time. I said, since these are early adopters, one of these people is going to be the mayor of Flickr--you never know. Georgina (George) Oates, an early employee of Flickr, and I greeted everyone who came into the instant messaging conversations or posted on the site. We said, "Oh you know, I notice you're into Norwegian Metal and I noticed you live in Pittsburgh--here's another person from Pittsburgh. Communities take on the kind of character of a party at the outset and you need to be a good host.

Penenberg: There's nothing you built in to be viral?

Fake: That's not true. We did that, and it was a huge part of building an online community. If you come to a party and nobody offers you a drink, you leave to go to a happening party somewhere else. You need to care, to work being the host. You don't do that forever, but Stewart said we should let everyone in. I thought we should make it so that if people invited five friends, we'd give them three months free. We didn't charge at the time but we didn't hide the fact that we intended to charge at some point. If it was always free, no one would invite their five friends. But if it's free for a limited time or because we hadn't set up a PayPal system, it's valuable enough for each user to invite some people.

Penenberg: In essence, you incentivized the invitation process. Do you remember how quickly Flickr grew?

Fake: For the first few months Flickr was growing 75% to 100% month over month, mostly because it was small enough. That eventually leveled off to 30% to 50% month over month growth. My "wow!" moment in terms of watching the growth was when I found this enormous group of people from the UK that I didn't know. That was two or three weeks in. They were all connected to one other. Let me show you this graph from April 2005--it's all the people who were connected.

The Flickrverse, a graphic that depicts the relationships between Flickr's first 2,367 people (created by GustavoG).

Penenberg: What was making Flickr grow like this?

Fake: It was a confluence of stuff: bandwidth, tagging, and a very social medium--photographs.

Penenberg: It also grew in tandem with the exploding blogosphere. As the number of blogs grew, the number of bloggers needing a place to store photos grew with it. This is the quintessential "organic growth" that took place because people liked the product. And the more people used it, the more others got exposed to Flickr. You're exposing people who click on the blog to Flickr, and there's tagging on Flickr--so with all the tragedies, people could take pictures and check photos. If I had a family album, I could put it on Flickr and my family could check it out. You have several viral loops going on, but they're soft loops. Were you shocked at the growth? You had a revenue scheme, right?

Fake: Yeah, there were paid accounts based on storage limits. You could store 200 images for free. It's important to have free accounts because it's social, but for a fee you could store more, crop photos, and get stats.

Penenberg: You must have been racking up serious bandwidth costs.

Fake: Not really.

Penenberg: Was scaling an issue?

Fake: Yes and no. We didn't have a Friendster situation where we suffered a lot of downtime. Flickr was a well-engineered application--it was very stable. We had to decide if we were going to attract venture capital or go for acquisition.

Penenberg: Were you profitable when Yahoo bought you?

Fake: We were probably at about break-even.

Penenberg: Do you feel like you sold out early?

Fake: Well, looking at it now, it looks like Flickr could be a billion-dollar company, but who knew that down the road? At the time Blogger had just sold to Google. In the context of 2004, Flickr was remarkable, but who was to know?

Penenberg: Are you sorry?

Fake: Well, you could sit around and cry but if you throw a rock in Silicon Valley you find somebody that could have been a contender. My life is not so bad; in fact, my life is pretty good. I think it's a waste of time to sit around and think of what could have been.

Penenberg: Certainly, besides a nice chunk of change, Flickr has brought you a level of fame.

Fake: I design Web sites, its not like I'm Angelina Jolie. I think you need to tune that stuff out, otherwise you're never going to be able to build stuff, be an entrepreneur, take risks, fail. That's part of entrepreneurialism, being able to launch a stupid IM client. The hardest part about Flickr being successful is wanting to do it again. I think there's a benefit to being one of six people that no one knew. No VCs would return our calls and we were broke and bootstrapping it and operating under the radar so we could focus on the most important things: the product, the users, what we were building. There's all this noise, the tech-crunch, which you have to tune out if you want to build good product. None of that stuff is additive; it all takes away from building a product. You try a lot of things and you don't know what the hell you're doing. If you're actually inventing something you shouldn't know what you're doing.

Penenberg: Being an entrepreneur is never easy, is it?

Fake: Its tough. Flickr was a product that was the right product at the right time done in the right way, and those three things are really hard to nail.

[Photo by Joi Ito]

09:40 am | 0 recommendations | 15 comments

Viral Loop: Jason Calacanis Q&A From the Top of the Leader Board

Changes at the Top: Not only are the number of Viral Loop app users doubling, so are their values.

Serial entrepreneur Jason Calacanis, founder of human-powered search engine Mahalo, is a social media power user. He has a lot of friends--more than 5,000 of them on Facebook alone. (The average Facebook user has about 120 friends). So it's little surprise that once he downloaded the Viral Loop widget he jumped to the top of the leader board.

I got to know Calacanis a few years back when I wrote a profile of him for Fast Company. He agreed to talk about how he taps social media to extend his brand, publicize his companies and keep him abreast of the latest happenings in tech.

PENENBERG: What social networks do you use and what are their respective advantages?

CALACANIS: Ninety-percent of what I do is on Twitter because it's the most lightweight and quickest. I also get the highest click-through-rate on Twitter (1 to 2% will click on a link, for example, sending 500 to 3,000 folks to a story). I syndicate my Twitter activity to Facebook, but I get very little traffic from it. Whenever I go to a city I try and host an "Open Dim Sum," which I promote to my Twitter, Facebook and email lists. My email list gets 60% of the RSVPs, 30% from Twitter and maybe 10% via Facebook. I find very few folks are watching their Facebook feed, some are watching their Twitter feed and all of them are watching their email box. So, while social networks are nice, email is still the killer application.

PENENBERG: Do you ever feel too connected and want to run over your iPhone or Blackberry with your car?

CALACANIS: The only time I felt a little too exposed was for a week then I started life-streaming for a couple of hours a day on Qik and Ustream. It became very much like the film "We Live in Public." I started to feel the need to feed the audience... which basically made me into low quality, cheap fast food. I prefer to be a high-end steak.... and that comes in the form of my email newsletter ("Jason's List," with 17,000 subscribers), "This Week in Startups" (my weekly podcast) and TechCrunch50 (my yearly conference with Mike Arrington). I'm feel better when I'm being consumed in my finest form.... no soylent green wafers.

PENENBERG: There are viral characteristics to Mahalo. Can you pinpoint a few of them?

CALACANIS: We pull in questions from Twitter via our @answers and @questions accounts. Just put either of those words at the end of your question and your question will be added to Mahalo Answers and you never have to visit our site (or create an account!). It's fairly magical to Tweet a question and have quality answers just start flowing in.

PENENBERG: You're a former journalist. What's the "big takeaway" from all this?

CALCANIS: Social media, like blogs, are truth-seeking technologies. In fact, the Internet itself is the greatest truth-generating device ever created. Everything in our lives gets put into the Internet, mashed up, manipulated and eventually spit back out as the truth. It's easy to lie and deceive on the Internet, but it's impossible to hold back the truth. Wikileaks documents, Scientology videos on Gawker, the Smoking Gun mug shots, Engadget's secret sources within big consumer electronics companies and TMZ's legions of waiters and security guards sending them SMS tips on the latest celebrity overdose are all components of this never ending truth processing system. The truth shall make you free, and the Internet is the truth.

The Viral Loop app is spreading. I know this because:

a.) Studioe9, the design firm that created it, tells me so: Thousands of Facebook users have sampled our widget, and the installed base is growing every day.

b.) The leader board, which ranks the top 20 Viral Loop app users by value (shown above), has undergone a drastic shift. Yesterday, the top value was $290, with several users clustered in the $220 to $260 range. Today a value of $290 wouldn't get you listed on the board. In fact, the 20th-ranked Viral Loop value, belonging to Travis Farral, registers $422.40. That's 50% higher than yesterday's champ.

The leading Viral Loop app user has 3x as much value to Facebook as yesterday's leader. Going down the list, I am struck by another encouraging sign: I don't know anyone on the list. Because I was an early adopter of the widget, and invited my Facebook friends to sample it, it wasn't surprising that some of them made it on to the leader board. For instance, #2 on the list was James Hong, co-founder of Hot or Not, with a value of $279. Hong is a social guy, online and off-. On Facebook he has 1,227 friends. Now he doesn't even make the grade.

Here's another observation. Hernan Nadal, #1 on our list, may be an avid Facebook user with thousands of friends, but it seems he keeps his profile private. The most social person using the Viral Loop app also goes out of his way to protect his privacy.

Sure Facebook is viral, but perhaps the most potent viral landscape right now is Twitter.

Last night I was in a digital daze, bouncing back and forth from the Viral Loop widget, Facebook newsfeed, and Twitter, when I came across a tweet from Fast Company: "Nine Scientifically Proven Ways to Get Retweeted" http://su.pr/7DJYG0. It pointed to a post by Dan Macsai, who profiled Hubspot viral marketing scientist Dan Zarrella, author of the upcoming release The Social Media Marketing Book. Zarrella had sifted through roughly 5 million tweets and 40 million retweets, seeking common characteristics in those that went viral, and those that didn't.

The currency of Twitter is retweeting. It's how you gauge the impact of a post. As a monk might ask: If a tweet hits the transom and nobody spreads it, did it ever happen? So like most Twitterati, I'm always looking for ways to retweet my reach. And Zarrella's conclusions were fascinating. For example, certain words like "please," "you," "help," "retweet" all lent themselves to retweeting. Expressions such as "haha" and "lol," or energy-sapping terms like "tired," and "bored," didn't. Writing in clear English promoted virality. Jargon and abbreviations squelched it. Time of day appears to have an impact, as does the kind of URL shortener you use. And you know what really snuffs out retweeting? The poor, hapless semicolon, which Macsai likened to "Satan."

Of course I had to retweet this information. Within two minutes someone following me retweeted my retweet. That someone was journalism professor Jay Rosen, my colleague from NYU, and Jay has more than 26,000 followers. Then the retweets came fast and furious, with whomever was following Jay (and happened to be on Twitter last night) encountering his retweet of my retweet of Fast Company's tweet.

Other retweeters emerged: Digital ad guru Steve Rubel transmitted the meme to his 30,000 followers. Writers Steve Silberman of Wired (1,254 followers), freelancer Heidi Moore (1,437 followers) and Mark Glaser of PBS MediaShift (5,908 followers), and dozens of others disseminated the post.

Within the hour my original retweet had been retweeted had hit hundreds of thousands of users, and by the next morning--with my @penenberg username long stripped out of it by then--reaching perhaps a million. Of course, the irony is it took a post about how to get retweeted that got me retweeted. (Hey, Fast Company: I'll bill you later for the marketing/promotion.)

It's the power of virality. And, as I explore in my book, Viral Loop (read an excerpt here), when a business can design a product that users will spread for them, you can grow a company like never before.

Feel guilty whiling away hours on Facebook? Now you can tell yourself it's worth something---to Facebook.

If Facebook counted 3 million users instead of 300 million, it wouldn't have its stratospheric valuation. The truth is, users have value. But how much is each person worth to Facebook?

It's a question worth asking, because viral companies like Facebook, MySpace, and Twitter derive their value from their users. That's because unlike conventional audience members, users of social networks tend to be committed participants and contributors. In this user-generated world where some companies achieve billion-dollar valuations in a few short years, users themselves develop proprietary cravings. Do they own the photos they share, their tweets, their relationships? From one perspective their interactions (leaving comments, sharing photos, spreading links and information, chat and messaging, etc.) create value for the Facebooks of the world. It also works the other way. As Mark Zuckeberg put it in a recent interview, "The value that people get is tied to how much information everyone is sharing."

That's where the Viral Loop widget comes in. Inspired by my book of the same name, it tells you what you are worth--in dollars--to Facebook, based on your level of activity, the activity level of your friends, your influence, all of this combined with Facebook's current valuation. What's more, the app can also tell you what your friends are worth.

This real-time leaderboard shows the most valuable players in the viral loop game. I'll be updating this page with research findings as the app spreads.

What are your friends worth?

Read an excerpt: Viral Loop: From Facebook to Twitter, How Today's Smartest Businesses Grow Themselves.

09:52 am | 0 recommendations | 1 comment

Exclusive Interview: Facebook's Mark Zuckerberg on the Value of Viral Loops

This interview was conducted during research for my book, Viral Loop. You can read an excerpt here at Fast Company, or find out what your friends are really worth by installing the Viral Loop widget.

While still a teenager Mark Zuckerberg coded and launched Facebook--a digital version of the traditional college facebook--in his Harvard dorm room in February 2004. Within weeks virtually the entire campus had signed up. He and his roommates, Chris Hughes and Dustin Moscowitz, then ported the social networking site to other Ivy League campuses, and the rest, as they say, is history. Today Facebook continues to grow at a frantic rate, with hundreds of millions of users across the globe.

Penenberg: How did you get into coding? What was your experience with it from a young age?

Zuckerberg: Well I got my first computer in the 6th grade or so. As soon as I got it, I was interested in finding out how it worked and how the programs worked and then figuring out how to write programs at just deeper and deeper levels within the system.

Penenberg: Did you take things apart and put them back?

Zuckerberg: I did that more with software than with hardware. You hear these stories about people who take apart their radio and put it back. Or just learn a lot from taking it apart. But I wasn't as into that stuff as I was just into how computer programs work..

Penenberg: Did you teach yourself coding or what?

Zuckerberg: Yea, I mean I bought a book. Kinda messed around myself. Asked a lot of people questions.

Penenberg: When you first created Facebook, were you surprised that it took off so fast on campus?

Zuckerberg: Yea. I wasn't expecting that it would grow as quickly as it did. We had to keep building new infrastructure to deal with the scale that it was operating at.

Penenberg: What was driving you?

Zuckerberg: There are a few other things that I built when I was at Harvard that were kind of smaller versions of Facebook. One such program was this program called Match. People could enter the different courses that they were taking, and see what other courses would be correlated with the courses they are taking. And over my time at Harvard I built programs like that. On a small scale.

Penenberg: When you opened Facebook to other Ivy League schools and you saw the same kind of growth were you surprised at that?

Zuckerberg: There were a couple of things going on. One was that we had a sense of the type of dynamics we were tapping into were pretty universal and could apply in all places. The thing that was surprising was that our implementation, specifically, was so efficient at doing it. We didn't realize the magnitude of what we were onto with our version. After launching at Harvard, a bunch of schools wrote to us and asked if we could launch it at those schools. The first 3 schools we launched at after Harvard, were Yale, Stanford and Columbia and we selected them because they all had some kind of other school community Web site which almost everyone was using. We wanted to make sure that we had an implementation that was so efficient that even though everyone already had something they were using, they would just switch and start using ours. After we launched at those three and that happened within the first couple of weeks and there was a widespread switch from whatever the local one was to Facebook, then we knew that it would be something that could expand really far. So we launched at about 25 more schools that semester and it just picked up really quickly because there was no local community thing at those schools.

Penenberg: Did you notice powerlaw curve. How early was it that you saw that the rate of user acceptance was like that?

Zuckerberg: It was pretty quick. I remember we had these graphs up on our wall about how each school is adopting. They were normal S curves. The bigger the school, the longer it took to get into full inflection. At schools like Cornell, that were a bit bigger, it took about a couple of weeks before it really started taking off. But the nature of it was that in these schools everyone was on it.

Penenberg: Were you aware of the network effects and viral growth from the very beginning?

Zuckerberg: Yeah. I think the concept of network effects is pretty intuitive in something like this. Its basically that the value that people get is tied to how much information everyone is sharing.

Penenberg: How early was the invitation system phased into the program?

Zuckerberg: The ability for people to easily import their contacts from an email program, is I think what you're talking about, was added in late 2006.

Penenberg: Does growth continue at the same rate?

Zuckerberg: At first, we focused on getting everyone at a specific college to sign up. I think that now the growth curve that we have is very similar to that, except instead of colleges we have countries. Where there are some countries like Canada where almost 40 percent of Internet users are on Facebook, its still growing but its not growing at that exponential rate because too many people are using it. Then there's a lot of countries that are just starting off now that we are translating into other languages. So the growth rate question is a more complex question. Last year we saw growth rates of 3 percent a week for almost the whole year. And I mean is the aggregate user base growing by 3 percent everyday? No, it's really a combination of markets that are more saturated with other new markets that are just starting to grow exponentially.

Penenberg: How were you able to scale without a lot of major dramas, whereas other sites have had tremendous problems scaling?

Zuckerberg: I think there were a few phases that were really important. The first was early on we weren't structured as a company, and we didn't have a lot of money, and we were running ads to make money to buy more servers to launch at more schools. But because we knew we were going to be constrained, we built into the system that not everyone at the system could sign on at once, so in a lot of ways we had slowed down our growth. But the flipside of that was that as we were growing, we were able to not fall over.

Penenberg: Marketing to one's social graph offers a number of huge advantages. Why is that?

Zuckerberg: I think the basic idea here is that there is a phenomenon in peoples' interaction. The message that you get, in a lot of ways, is actually less important than who you get it from. If you get it from someone that you trust a lot more then you'll really listen to it. Whereas if you get it from someone you don't trust you might actually believe the opposite of what they said because you don't trust them. I think that's the basis of the value that people get on the site. I go to someone's profile and see that they like this band. That means more to me than if I just saw a billboard for that band. We figured that in the really organic way to make money and sustain the company, that these interests would be aligned.

What are your friends worth?

[Photo By Jason McElweenie]