Monday, October 18, 2010

Viral Loop



It has been a while since I finished reading Viral Loop by Adam Penenberg - which traces the story of Internet companies right from Netscape to Facebook and Twitter.

The book is sinking in slowly. Being in the .com business it was exciting and scary to read the history of various startups.

The book covers the journey of the following startups.

Netscape
Hotmail
Ebay
Paypal
Amazon
Hot or not
MySpace
Flickr
Bebo
Ning
Twitter
Facebook

And there is a recurring pattern in all of them

1. The founder is invariably a developer


All these are essentially Web applications - and having the founder-developer part of the nucleus is ideal . Things change at the speed of light - and the founder being at the helm can immediately sense the course corrections that are needed - and correct them himself - instead of having outsourced the core work, or giving instructions to a team of techies and waiting for them to create magic.

3 Cheers to Developers - we are the makers of the world!

Free Tip Warning :) :  If you are a developer and evaluating whether to take a Project Management position - turn it down if you have startup aspirations - instead  focus on becoming a better developer - some day you can run your own startup.

2. Scaling


Finding the right idea is not enough; finding customers to come to your site is not enough - the site has to scale. This is the single biggest problem faced by all of the above startups. This is a good problem to have - and you should be happy when scaling pains hit you.

It is a tough decision. Should you spend enough resources and build a complex architecture that can scale  VS build your product as fast as possible and handle scaling when the time comes.  Honestly I do not know the answer. There are pros and cons for both.

The universal answer "Depends" is, as always, the right answer :)

3. Viral co-efficient


And they have formed a mathematical equation to explain the Viral phenomenon - why some ideas spread like wild fire. The magic is in the viral co-efficient. As long as it is above a certain number the idea will succeed. This is what Malcolm Gladwell calls it as the Tipping Point.

The book is full of interesting anecdotes. Ebay bought Bill Point and tried to kill Paypal ( which refused to be bought out by Ebay ). In order to promote Bill Point, Ebay made its banner big, had a easy sign up process. Whereas for Paypal - Ebay had a 2 step signup - and made Paypal's banner smaller and towards the bottom of the page. The community revolted and brought back Paypal.

Once an idea catches up - the community will make sure it stays on the right track.

On the downside - this book glorifies Ning. Perhaps it was written before the downward spiral started for Ning.

Ning had rounds of funding ( Mr.Sharad Sharma joked in one of his speeches that Ning has got more funding than what it took Chandrayaan to be sent to the moon  ) - and still Ning is struggling. They recently turned off their free communities and made the entire site a paid one. As an idea Ning is great - but as a business model - they could not sustain. It will be interesting to watch if Ning can turn things around.

We are exactly in the middle of a huge flux. So many questions are yet to  be answered :

What is a successful business model for a Web product?
Is Freemium the right model?
Is Banner Ad-Revenue sustainable in the long run?
Is 37 signals / DHH philosophy the right one for a Web Startup?

Perhaps a few years down the lane we will know better. Till then let us keep guessing and keep updating our status and tweeting inane things!