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Viral Marketing
Why spend millions on advertising when Netizens are willing to do all the work for free?
For the rest of the November 1999 issue of CRM magazine please click here
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Three years ago, an unknown company named Javasoft had this idea: It would offer free e-mail to people as a way to attract advertisers. But the company also wanted to save money. So instead of spending millions on marketing, it would just put a little ad at the bottom of every e-mail message automatically, whether the sender wanted it there or not.

"It was absolute hubris," former board member Steve Jurvetson says. But Javasoft, which branded its service Hotmail and has since been bought by Microsoft, now has 40 million users-more users than California has people. It has more members than there are babies born in the United states every year. It is the biggest e-mail provider in Sweden. All of this success is thanks to a technique now called viral marketing.

Back in Hotmail's earlier days, the term viral marketing meant involuntary advertising, like Hotmail's little ads. But now people are using it to describe any selling that uses word of mouth instead of ad dollars. The concept may not be new, but the term is, and the Net industry loves it. In fact, it's starting to use viral techniques to not only advertise products, but even distribute them. After all: Why spend millions when Netizens, apparently, are willing to do all the work for free? And with a smile?

No analyst can say how fast viral marketing is growing, only that it's the buzz phrase of 1999, or at least, close on the heels of favorites "MP3" and "SDMI." "At every conference I get roped into, there is usually someone talking about it," says Lisa Voldeng, editor and publisher of Digital Mogul, an executive journal that follows the digital trade. "In boardrooms across America, in a thousand meetings, there are probably a thousand people talking about doing viral marketing."

Curious about how much this online tongue wagging is saving corporate America? Think in 10-digit figures.

"Hotmail signed up 12 million users with a total marketing budget of $50,000," says Jurvetson. "AOL and E-Trade, who try to sign up new accounts, spend $100 to $300 per customer acquisition, so it would have cost them $1.2 billion to sign up those same 12 million people."

And the trend has yet to peak, experts say. "It is in its infancy," says David Kasabian, president and creative director of DRK, a Boston high-tech ad boutique. "As long as everyone is talking about it, not a lot of people are doing it; it is when people are no longer talking about it that it will become mainstream."

still, viral marketing has shown its wild side. When a company called Alladvantage.com announced it would offer money for referrals to its site, consumers jumped onto newsgroups, begging strangers to join their "referral tree." "People would post a message and sign up 10,000 people," says online marketing analyst Jim Nail. "They had to amend the terms of this deal a couple of weeks ago and cut in half the credit you would get; they were not prepared for the impact of it."

Jurvetson probably wasn't thinking of such curses when his firm coined the term "viral marketing" three years ago. The idea was that, like a virus, people would transmit an idea, slashing a company's ad budget in the process, and not even know it. Now people are slinging the term around-correctly and otherwise-like celebrity names at a Malibu pool party. "There are people who are using it and don't know what they are talking about," says Jurvetson.

But where there's money to be saved, there are companies willing to go to for it, whatever it is. Take Third Voice. The company offers a Web browser plug-in that lets surfers post electronic notes on top of favorite Web pages. Friends who also have the plug-in can read the notes and comment, all via www.thirdvoice.com. The friends must click on a link to be able to see the notes. The link automatically installs the plug-in in their computers, too. Whether the friends are savvy enough to know that is another question. Either way, it's viral. "Some people who have it don't even realize they have it," says Jurvetson.

Then there's www.seeUthere.com, which helps party planners send and receive invitations and RSVPs electronically. The messages include automated ads about SeeUthere. That's considered classic viral marketing.

But coming soon: Phase II, distribution. Corporations are expected to use Netizens to spread products via e-mail, saving still more millions.

The most anticipated cargo: digital music. Not MP3 music, which has spread for years on the online piracy scene. Viral distribution is expected to rise with the next wave of digital-music technology, which will be encrypted against MP3-style piracy. The technology is being designed by the music-industry-backed Secure Digital Music Initiative, or SDMI.

Here's the way Kasabian expects it to work: A Net surfer logs onto a music Web site and is invited to download a free song from a famous artist. After, say, six listenings, the encryption inside the song file triggers a message to the surfer: Your free listening period is up. If you'd like to pay, click here. "Once you buy it, the rights actually come over the line and unlock it," Kasabian says. Or a "guilt screen"-industry-speak for a recurring reminder box-keeps emerging until the surfer pays or deletes the file. Or the file is coded to relay regular live messages about other music that's for sale. But in the meantime, the surfer has passed along copies of the song to 30, or 100, or 1,000 online buddies. And the industry hasn't paid a dime in distribution costs. "That is going to be big-time next year," says Kasabian. "The standards are just coming into play."

Consumers don't seem to mind. After all, Hotmail product manager Laura Normal says, Net surfers see viral marketing as a way to get something for nothing. "If the only payment they have to make is to have a small tagline embedded and to see banner ads in their inboxes, they will say they are getting a good value."


Notable Quotable

"We are going to do fewer things very well."
Microsoft President Steve Ballmer, as quoted in USA Today

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To contact the editors, please email editor@destinationCRM.com
Every month, CRM magazine covers the customer relationship management industry and beyond. To subscribe, please visit http://www.destinationCRM.com/subscribe/.
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