The company calculates that each person signed up for a Ning group is worth, on average, 2 people, compounded daily: On day two, that individual brings in 4 group members and on day three, 8; within a week, she has brought in 128 people.
Which is how Ning has been able to grow at a daily average of more than .4% and add 500 new groups a day, doubling roughly every 137 days. "It's the power of compounding, predictable growth rates," Bianchini says.
In the early days, not everyone knew what to make of Ning. The company spent three years building out the site's underlying platform; a year into that process, it released a couple dozen social applications in order to begin testing and refining what they had made.
Those applications, which Bianchini readily admits were "very simple," led Michael Arrington to post an entry on his TechCrunch blog entitled "Ning RIP?": "The reality of Ning is that it has lost whatever coolness it had, no one uses it, and Ning is going to have a very hard time getting people's attention."
But Arrington did an about-face 18 months later, after the company attracted 100,000 online groups in about six months and some $44 million in capital, mostly from Legg Mason and T. Rowe Price. "Everyone wants a social network of their own, and Ning is here to give them one," Arrington wrote. "The company sure has come a long way since I pronounced it dead in early 2006. Sometimes I like it when I'm wrong."
You might wonder how something as profound, powerful, and potentially profitable as a viral loop has remained under the radar for so long.
Andrew Chen, a blogger and former advertising executive who worked with MySpace, Hi5, and other social sites, has a simple answer: This critical insight "is worth a lot of money," and the few people who understand it "are all doing their own companies."
No accident that venture funds are gravitating to companies with a viral loop baked into their business plans -- inspired, no doubt, by the success of Peter Thiel, whose $500,000 investment in Facebook is now worth roughly $750 million on paper.
Andreessen himself has seeded 10 of them, including Digg. Sequoia Capital's Roelof Botha, an early YouTube backer, actively pursues viral-loop companies. And Fred Wilson, managing partner at Union Square Ventures, jokes that he's considered changing his firm's name to "Viral Ventures," since almost two-thirds of the $20 million his firm invested last year went to viral- loop companies such as Twitter.
Chen calls a viral loop the "most advanced direct-marketing strategy being developed in the world right now." And make no mistake: Viral expansion loops are about marketing, just not in the traditional sense. "Nothing can be truly viral unless it is good," Wilson allows.
"You can create a crappy application, build viral hooks in it, but if it's bad, then nobody will follow the viral channel, and the company will go out of business." But if you create something people really want, need, or merely enjoy, then your customers will grow your business for you. Users, just by using a product, are, in essence, offering a testimonial. "When your currency is ideas, people become emotionally attached," Ning's Bianchini says. "Then you become a public utility like Blogger, YouTube, or Facebook."
One former ad exec calls viral loops the "most advanced direct-marketing strategy being developed in the world right now."
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.
Image: Ning co-founder and CEO Gina Bianichi. | Photograph: Art Streiber/FastCompany.com
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