Ning's Infinite Ambition

By: Adam L. PenenbergFri Apr 11, 2008 at 11:46 AM

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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What's more, these viral networks spawn entire economies when they are stacked atop one another. PayPal came into being because buyers and sellers on eBay needed a way to complete transactions online, since most sellers without traditional storefronts couldn't process credit cards. YouTube took off by piggybacking on the success of MySpace, becoming the go-to site for video posters and watchers alike. Google's Gadget Ads was spun off as a mini viral network to serve ads on the tens of thousands of widgets created for Facebook, MySpace, and others.

This stackability will only increase as the walls between social networks and Web sites crumble, hastened by the creation of "OpenSocial," which provides a common programming standard so that applications can run across multiple Web sites. Ning is a member, along with Google, LinkedIn, and others; the coalition has taken the Facebook platform concept and applied it to the entire Web, meaning that a widget that works on one site will work on all the others. Think of it as the cyber equivalent of introducing standard railroad gauge during the industrial revolution, which helped spur America's economic development coast to coast.

Only Ning, Andreessen declares, benefits from a "double viral loop," which spreads two ways, because every network creator is a user and any user can become a network creator. Say someone sets up an Angelina Jolie net with 10 members, which grows as each person draws in others. Then an adoption site breaks off, a Jon Voight hate group rises up, and a Brad Pitt love club forms. Meanwhile, a Lara Croft nostalgia net launches, spawning a legion of soft-core cyberporn spin-offs. Soon you have 2, 3, 10 networks -- all expanding simultaneously. Meanwhile, the original group is attracting even more users. Ning swells like a river fed from an ever-growing number of tributaries.

Once this phantasmagorical growth kicks in, you can actually predict its rate with astonishing accuracy -- something Ning has been doing since the beginning. (Viral loops expand according to what's known as a Power Law Curve, which, for reasons no one can explain seem to accurately describe a dizzying array of natural and unnatural phenomena, from the size of planets to national income distribution to online commerce.) But another implication of viral expansion is that once a company attracts a certain number of users, it becomes all but unstoppable. After PayPal blossomed as an online transaction power, eBay launched a competing service -- and failed miserably (and eventually bought PayPal instead). To combat YouTube, Google and Yahoo launched rival sites, neither of which went anywhere. LinkedIn and Twitter have likewise become unassailable by aggregating huge pools of users. In only one instance, Friendster, has a company fallen apart after achieving this kind of reach, and it was largely done in by technical failures -- network meltdowns and outages -- that drove users into the embrace of MySpace and Facebook.

However, as NYU professor Economides reminds us, "being big doesn't necessarily mean you will make a profit." Just ask Twitter, LinkedIn, MySpace, Facebook, or Flickr: They may have huge paper valuations, but none has a revenue model embedded in its core business. That's where Ning is different. Ning isn't trying to create one gargantuan audience. (Indeed, nearly a third of its networks don't take off, but this mortality doesn't cost the company a cent, unlike unsold blenders at a Wal-Mart.) Instead, Ning wants to foster millions of little networks with narrow channels, each delivering the kind of targeted advertising that Google rode to vast riches. Because in this new phase of Webonomics, it's not just the eyeballs, stupid, as it was before the dotcom crash. It's the kind of eyeballs you collect and how you can slice, dice, and model them.

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

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

From Issue 125 | May 2008

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Recent Comments | 49 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 | 49 Total

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