Think Big. Move Fast.

Viral marketing has evolved from word of mouth to a much more scientific endeavor in the online world. Based on my previous posts and some additional thinking about the subject I’ve defined seven mechanisms that companies have used to successfully “go viral” in the past.

1) Communication. Same side positive network effects have driven virality for companies like AIM, Skype, Facebook, MySpace and even Fax Machines. Since you can’t communicate with others who have the tool until you get it, virality works very well. (I’ve listed Facebook and MySpace as communications tools and not self expression communities because I believe it is the Wall/Comments that drives a lot of the virality and high PVs of these sites)

2) Email invitations. Make it easy for your users to invite all of their friends. Make it hard for them not to. Tagged, Hi5 and Flixster (LSVP portfollio company) do this extremely well.

3) Widgetopia. Reid Hoffman refers to this as “invading a community”. Rockyou (a LSVP Portfolio company), Slide, Photobucket, Snapvine and others have done a great job here. Increased penetration in an existing community makes it more likely that a new user will see one of your widgets and want to get something similar. Increasing returns to scale means that the big get bigger faster.

4) Platforms. Cross side positive network effects as Jeremy posted about a couple of weeks ago can also create virality as groups on both sides of the platform flock to the greatest numbers of the other group. Ebay is the best example of this.

5) User Generated Authority. User generated content can result in high levels of traffic from organic search. This can result in more user generated content and the virtuous cycle continues. Wikipedia and Yelp are probably the best examples of this. We’ve been seeing similar behaviour at a smaller scale at Stylehive (a LSVP Portfolio company)

6) Everyone’s favorite topic. Quiz based content that tells the user about themselves (and often compares them to other people) has worked to drive virality in the past. Tickle, Quizilla, Classmates, Friend Reunited/Genes Reunited all saw big growth by getting users to input some data and gave them information about themselves (whether it be an IQ test, which sort of Superhero you are, or contact info on old friends).

7) Pay me. There have been several businesses that successfully grew by paying both new and inviting users. The economics can make this more difficult for media models than commerce models. However, it can drive a lot of new adoption, and did for AllAdvantage and Paypal.

Just about every site that has gone truly viral has employed at least one of these tactics, and sometimes several. I don’t have a detailed understanding of Netvibe‘s growth at this point and it doesn’t appear to fit into any of these categories. If you can think of companies that don’t fit these models, or other approaches that have also worked, please note them in comments!

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There is lots of coverage today of the acquisition of Insider Pages by CitySearch. My first job in the internet industry was at CitySearch, in 1996, and some of the lessons I learned about how difficult it can be to build an online local media company have been seared into my brain.

In 1999 CitySearch bought Microsoft’s struggling Sidewalk cityguide business so this is not the first time that it has acquired a competitor. CitySearch is the dominant online cityguide business today, but it hasn’t all been beer and skittles along the way. Although quite profitable now, some have quoted that over $200m was invested into CitySearch before it ever turned cash flow positive.

There are two reasons that the online cityguide business is difficult.

The first is that the cost of building fresh, high quality local content is quite high, especially if it is done by professional editors. The new generation of online cityguides (Yelp, Insider Pages, Judy’s Book as well as CitySearch itself, Google, Yahoo and Ask, have all been addressing this problem by turning to user generated content over the last couple of years. While some models (Yelp in particular through its use of social networking incentive mechanisms) seem to be better tuned for producing high quality user reviews at volume and at low cost, this problem seems to be solvable.

The second problem is the cost of sales problem. This is a harder problem. An outside sales force tends to be too expensive a channel to use to sell online local advertising given average price points and churn rates. (It can work for high end advertisers, and for cross selling to local advertisers who already advertise in another medium).

The self service model that works so well in search advertising is harder to implement in local advertising. Unlike in search, there is often no clear link between advertising and transaction in the local space. Despite your best efforts of tracking, the vast majority of local offline transactions can’t be tracked back to a marketing source (whether online or offline). This makes self service CPC models difficult to implement for local merchants. (There has been some innovation on cost per call models and lead gen models in this space). Furthermore, many local merchants don’t have the time, nor the inclination, to actively manage their marketing budget. They prefer a predictable flat monthly fee. This also works against the mindset of many self service models.

This leaves inside sales (telemarketing). Most local online companies have settled on this model. The key challenge in local ad sales is always “getting to the decision maker”. The owner of a local business is often very busy, and talking to sales people on the phone is not high on their list of priorities. This is a viable sales channel, but it isn’t easy. Companies that have an advantage in their ability to get to the decision maker will find the most success in selling to local merchants. This is not about the value proposition of variable costs vs. fixed costs – you need to get to the decision maker to even be able to make that distinction! As this problem hasn’t changed much in the past 10 years, this isn’t about better sales training or tactics, but usually requires some fundamental shift in the marketing/sales message.

Insider Pages has healthy consumer traffic (2m UU/mth according to Comscore), a strong management team and reasonable review density across the verticals that it focused on (mostly services). Although I have no Insider Pages Insider Information, I suspect that it ran into trouble on the cost of sales problem. CitySearch can likely help with this issue given its scale and experience in the space.

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As a venture capitalist, I’m interested in investing in companies that could be big one day, that could get to at least $50m in revenue.

Here are three ways to get to $50m in revenue as an online media business; indulge me in some math:

1. Be a site with a broad reach (say general social networking, communications, news). At large scale, without a great deal of targeting possible, a startup’s “run of site” or “run of network” advertising might be able to get to the $1 RPM range (Revenue per thousand impressions, including CPM, CPC, and CPA models). To get to $50m in revenue you would need 50 billion pageviews in a year, or just over 4 billion per month. According to Comscore, Bebo had the 10th most Pageviews in the US in Janurary 1007, with 3.4bn, so you would need to be bigger than that.

2. Be a site with demographic targeting (say a Latino portal, or a sports site (targeted at men) or a social network targeted at baby boomers). Although in TV and in magazines, demographic targeting can generate double digit CPMs, online at scale, RPMs tend to be in the low single digit range. Lets assume a $5 RPM. To get to $50m in revenue you would need 10 billion pageviews in a year, or just over 800 million per month. According to Comscore, Microsoft had the 22nd most Pageviews in the US in January 2007, with 792 million, so you would need to be bigger than that. [Microsoft isn't a demographically targeted site - i just use it as a comparison point for overall traffic size.]

3. Be a site with endemic advertising opportunities (say a site about movies that movie studios will want to advertise on, or a site about cars that auto manufacturers will want to advertise on, or a site about travel that hotels and airlines and online travel agencies will want to advertise on). If you have a highly targeted audience that is interested in buying a specific product, you can command RPM’s well into the double digits. Lets assume a $20 RPM. To get to $50m in revenue you would need 2.5 billion pageviews in a year, or just over 200 million per month. According to Comscore, Adelphia.com had the 125th most Pageviews in the US in January 2007, with 198 million, so you would need to be bigger than that. [Adelphia isn't an endemically targeted site - i just use it as a comparison point for overall traffic size.]

Admittedly, all these Comscore #s are US only, and all businesses will have international traffic as well, but the principle still holds.

Which do you think is easiest?

UPDATE: If you liked this post you will likely like my prior post on why new forms of advertising are hard

UPDATE II: To all new visitors, if you like what you read, subscribe to the Lightspeed Venture Partners blog RSS feed. Its at the bottom of the Right Hand Side column. We post 2-3 times per week on topics including consumer internet, web 2.0, lead gen, ecommerce, startups and venture capital.

UPDATE III: I’ve posted more on the difficulties in building a media business to $50m in revenues here.

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I recently heard about a company that has been in “Stealth mode” for four years. That is certainly on the extreme range, but I’ve noticed an increasing number of companies in stealth mode, as can be seen by seaching on …

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Through Mashable, found a link to an excellent article at Adweek that talks about why the value of a pageview at web 1.0 companies like Yahoo! are higher than the value of pageviews at social network companies like Myspace…

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I’ve seen a few startups recently that are relying on launching a new form of advertising as their business model. These can include product placements, sponsorships of various flavors, new forms of local advertising, interactive out-of-home advertising, and lots of …

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There was a TechCrunch post today regarding a new search service from Healthline called Symptom Search which attempts to provide an information service suggesting common illnesses related to symptoms that a user is experiencing.

Symptom Search is a great idea. …

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Great post from Dana Boyd about the new digital gifts that Facebook released recently. After ranting randomly about rampant commercialism, she gets to the good stuff; analyzing gift giving dynamics (self worth, scarcity, levels of value, reciprocity, importance of timing) …

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I’ve been thinking a bit about the many different flavors of user generated content models; wikis, blogs, discussion boards, etc, and trying to come up with some sort of framework about what works best for which purpose. It seems that …

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New York Magazine has a great article in its current edition where it attempts to understand the psyche of the users of social networks, especially the younger users. Although as investors and entrepreneurs, we do our best to get into …

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