Ning's Infinite Ambition

By: Adam L. PenenbergMay 1, 2008

Brain Trust: Ning chairman Marc Andreessen (he built Netscape back in the day), with Bianchini, at the company's HQ in Palo Alto. | photgraph by Art Streiber

It isn't just a site where users can build their own social networks -- Ning is a model of how to create a perpetual growth machine.

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Mass audiences on that scale obviously carry the potential for serious money. At the very least, if your strategy is to get big and get bought, you can auction off yourself (and your millions of users) to the highest bidder -- and let the next guy worry about wringing revenue from your audience. This was the chosen route for MySpace (bought by News Corp. for $580 million) and YouTube (Google, $1.65 billion), as well as PayPal and Skype (eBay, $1.5 billion and $2.6 billion, respectively). Or you can try monetizing those bodies yourself: Lehman, in its latest report, predicts that the domestic online-ad market will grow 23.6% in 2008, to $26.2 billion. Ning's "billions" of predicted page views would leave it poised to claim a nice slice of that revenue.

Viral expansion loops have long existed in the offline world. Tupperware parties, in which each attendee was a potential salesperson, are a classic example. Amway's multilevel marketing strategy to sell personal-care products, jewelry, and household goods is another. And what are chain letters and pyramid schemes but viral loops with nefarious intent?

But viral loops are better suited to the frictionless environment of the Internet, where a message or idea can carry essentially forever. Andreessen himself created what is widely perceived as the first online viral loop when he and Eric Bina of the National Center for Supercomputing Applications unleashed the Mosaic browser, the precursor to Netscape Navigator, in April 1993. They shared it with 12 beta users, which blossomed to 100 users, then to 1,000, 10,000, and reaching 1 million in the first 12 months. There was no feature in the browser to make it spread, but its mere existence influenced people to create Web pages. That in turn gave incentive to others to get online, which acted as a catalyst for others to create more Web pages, and so on.

There are three categories of viral expansion loops -- let's call them "viral loops," "viral networks," and "double viral loops," the last a hybrid of the first two. To create a simple viral loop is relatively straightforward. In 1996, Hotmail placed a link in the body of every message, offering the recipient the ability to set up his own Webmail account, and within 30 months went from zero to 30 million members. YouTube deployed a viral mechanism by allowing anyone to embed a video link in his blog or MySpace page: The more who saw it, the more links were embedded, and soon, millions of users were funneled directly to YouTube. Also in this category are scads of widget makers creating the digital bling disseminated on Facebook, MySpace, and elsewhere -- the infamous "hatching egg," glitzy slide-show creation tools distributed by Slide and RockYou, the online Scrabble game Scrabulous, horoscopes, calendars, and so forth. These widgets are so contagious that Slide alone was able to raise $50 million in venture capital from Fidelity Investments and T. Rowe Price, giving it a $500 million valuation.

But it's on a viral network that scale and power really snowball. A destination such as Facebook grows via invitations, with each "friend" reaching out to her own set of contacts, which in turn do the same. More than half of the undergraduate population at Harvard joined within a month of Facebook's 2004 launch; four years later, it has 67 million active users. And at its current 3% weekly expansion rate, it will have 200 million users by the end of the year, equal to the population of the fifth-largest nation on earth.

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

Nicholas Economides, a professor of economics at New York University's Stern School of Business, characterizes this as "a network effect." "The more connections you have, the more nodes, the more people, the more valuable it will be," he says. Andreessen points out that "eventually, everyone tends to be on such a network, the way that everyone has a telephone and everyone has an email address, because the value to being on it is so huge as a result of everyone else being on it." The bigger a viral network gets, the faster it grows. Some of the biggest names on the Internet were built on this model. EBay went from online garage sale to megasite because sellers attracted buyers who attracted more sellers and buyers. Google pursued a similar strategy: Under every set of ads it serves up sits a link to its AdSense program, which encourages more Web-site owners to join (and in Google's case, joining pays cash, which amplifies the viral network effect).

From Issue 125 | May 2008

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Recent Comments | 56 Total

April 19, 2008 at 1:00am by Jeremy Gavin

This was one of the better articles I have read in FastCompany in a while. Very nice how they focused on a business model rather than just the Ning company. It sent me online researching 3 topics.

Ning's Infinite Ambition

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Recent Comments | 56 Total

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