Sidebar: Four Laws of Viral Marketing

Back in 1997, Steve Jurvetson wrote a white paper that laid out the basics of viral marketing. Here, supplemented by interviews with Fast Company, is his primer.

1. That's what friends are for.

Network-effects companies have to be great at signing up new customers. But truly great network-effects companies also know how to keep the customers they have. The way to do that is to create products that are so easy to understand and so compelling to use that people enlist their friends. "For products to shine, customers have to inherently want to share them with their friends," says Jurvetson. "If people sign up their friends, a company doesn't just grow like hell, it tends to keep its customers too."

2. The freer it is, the faster it spreads.

Sooner or later, business comes down to money. But with network-effects companies, later is better. "If a service tries blatantly to monetize its subscriber base in every way imaginable, new users will be reluctant to spread the word," Jurvetson argues. "That's why, in the early days, many of these services are free -- and light on revenue generation."

3. Cafés beat subway stations.

The big difference between a café and a subway station is that people seek out reasons to spend time in the former -- and try to pass through the latter as quickly as possible. One of the best indicators of an Internet site's value is customer loyalty: How long do people stay? How often do they return? "Are you a subway station, with banner ads flying by commuters who are just trying to get to their destination?" asks Jurvetson. "Or are you a café, where customers mingle and feel like they belong?"

4. Size does matter.

In a world of network effects, the bigger you are, the harder it is for you to be dislodged. "By the time a virus spreads to the point of being an epidemic," says Jurvetson, "its growth curve relative to a new entrant is daunting." By the time Hotmail appeared on anyone's radar screen, it was adding a million customers a month. Not only were its efficiencies improving, in terms of server utilization and bandwidth pricing, but it was also grabbing the lion's share of business and financial partnerships.

Sidebar: Internet Capitalism

Scott Reamer doesn't just follow stocks; he takes stock of the logic by which the digital economy works. He believes that four new rules define competition in the 21st century.

The first is increasing returns. Reamer looks for them in every consumer-based Internet company that he follows: "From a stock-market perspective, a company that grows its customer base at a 'normal' rate -- 10% or 15% a year -- is impressive. But a company that grows its customers by 15% or 25% a quarter -- 100% a year -- is clearly a more valuable entity. A company that grows its customer base by 100% a year, and then figures out how to make each of those customers more profitable -- well, that's even more valuable than the other two. That's why these Internet valuations are tough to understand. The market has never before seen anything like this."

Reamer's second principle is that the Internet represents the democratization of media, commerce, and communication. "Consumers basically do three things with their leisure time," he says. "They consume media, they engage in commerce, and they communicate with people. The Internet democratizes those activities by reducing the importance of time, place, and form."

The third principle is that the Net reorganizes industry-value chains. Amazon.com is, of course, the most famous example. "Amazon.com changed the whole industry-value chain," Reamer says. "You can look across the economy and see plenty of similar opportunities. In some cases, there will be radical changes to how industries work; in other cases, there will be subtle changes, but there will be changes."

Reamer's final organizing principle about the Internet: Time is money. "We all know that in our professional and personal lives, time is the only commodity worth anything anymore," he says. Consumers will pay you to save them time. The Internet saves people time. It's a hyperconvenient medium. Companies that explicitly save people time are going to make money."