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Before the technology-laden Nasdaq stock index plummeted in March, startups couldn't spend fast enough on TV, radio, and print ads. But since dot-com share prices have fallen to earth over the past six months, ad-spending power also has fallen sharply. Many companies have cut back on traditional ad campaigns. Take Ebrick.com. Last November, the online-shopping portal advertised in Delta Sky magazine and a few other publications. But the ads were expensive and ineffective, says Ebrick co-founder and Chairman Scot Fishman.
In the current environment, "capital is less accessible," says Michele Slack, senior analyst for Jupiter Communications, an online-research firm. "Companies have to be more careful about how they spend their dollars." Survivors of the stock market carnage "are looking at their budgets and weeding out the bad ideas," Fishman says.
What to do? Ebrick.com turned to "viral marketing" to get the word out. For several months now, it has been offering special deals and discounts to its shoppers, encouraging them to forward the deals to their family and friends. The result: An increase in traffic much higher than that prompted by the magazine ads, Fishman says. While Ebrick.com doesn't have the breakdown on how many users came to the site due to the company's viral-marketing efforts, the site experienced its all-time high traffic when it was relaunched (with added viral-marketing capabilities) in July. That month, the site had 492,000 unique users, according to the company. It soon plans to start offering "viral sweepstakes," where contestants' chances of winning increase if they get their friends to sign up for the game as well.
BAR TAB. Ebrick.com isn't alone. This dirt-cheap method of promotion, in which online customers pass company information along to their friends, is experiencing something of a boomlet again. And in an era when dot-coms are scrambling for cash, many say it deserves a second look.
Viral marketing "started out as a business-to-consumer tool for mass marketing products" such as music, books, and software, says Kim Brooks, Internet-marketing consultant at Bardo-Brooks Marketing, based in Kirkland, Wash. Then its use spread out into other fields. About 80% of the 35 companies polled in the 1999 Jupiter Executive Survey reported using viral marketing as their prime tool for reaching out to consumers. This strategy is reported to be the most effective way of drawing Web users to sites: More than 90% of consumers said they told at least one other person about a Web site when the original recommendation came from a friend, according to Jupiter.
AllAdvantage.com, founded by four Stanford University alumni in March, 1999, pays its customers 53 cents an hour for a maximum of 15 hours a month for installing a special view bar on their computer desktop screen that can be used to search the Web. Whenever customers use the Web-browsing bar, AllAdvantage builds up its online consumer behavior database. And users who get their pals to sign up for the program get paid small bonuses for their bar use, too. That can be multiplied out to four tiers of friends. AllAdvantage didn't have the money for a traditional campaign, says company CEO and co-founder James Jorgensen. But so far, the viral strategy is paying off. The company now boasts 600 employees and more than 2 million active users.
MASH NOTES. Many businesses -- including those that can afford traditional media -- say their services are attractive enough that they don't need to offer customers a paycheck to pass along the benefits to friends and family. Personalized news site Lifeminders.com spent $60 million in online advertising, such as banners, this year, says CEO Steve Chapin. But now, 25% of the site's member acquisitions come through friends forwarding the site's content, he says.
Likewise, computer-related advice portal Computer.com gets much of its user boost from its newsletter, which members are asked to forward to friends and family, says President and co-founder Michael Ford. The company spent $2.7 million on three Super Bowl ads last year but will likely not be in the game this year due to its limited marketing budget. "It's expensive, and we did it already," Ford reasons. "We like viral marketing because it works."
The challenge with viral marketing is to make the product creative or attractive enough for users to want to bother spreading it around. Games and jokes come in handy. Passthison.com -- a site with 6.7 million unique visitors in July, according to Media Metrix Inc. -- relies on games and electronic greeting cards to lure users. Visitors can send a cute red heart to their love objects after handing over their sweetie's e-mail address -- as well as other marketing information.
INOCULATED. Reach Online Inc., which designed a viral-marketing campaign for Sony Music in Taiwan, came up with sweepstakes encouraging users to spread the word about a client. Everyone taking part in the sweepstakes gets a small prize, such as a coupon or discount, and gets a bigger chance of winning by signing friends up for the sweepstakes, too, explains Lou Tseng, the company's president and founder. "It has become much easier for marketers to get big fast," says John Deighton, a marketing expert at Harvard Business School. "If you use viral marketing and the other players don't, you're going to get to the critical mass faster than they do."
But while viral marketing can give a business that badly needed extra push, it's hardly the end-all of Net promotion. "Everyone involved in Internet marketing has thought about it, not everybody has decided to use it," Deighton says. For starters, viral marketing works with only a limited number of products. For the method to succeed, companies should benefit if their network gets expanded. Services that depend on a huge network of users, such as e-mail services, benefit the most.
And even if a product is perfectly suited, the method can backfire. "Like any other tool, it works really well for a while," says Mohanbir Sawhney, a marketing expert at Northwestern University's Kellogg School of Management. Then, "people become inoculated" and marketers have to move on. "All of this stuff starts to look like spam [unrequested, junk e-mail]," he says. AllAdvantage, for example, hired an antispam specialist and has a team that deals with suspected cases of user spam and fraud, says Jorgensen. The company kicked out more than 1,000 users for sending marketing messages about the company not just to family and friends but also to entire lists of e-mail addresses posted on community Web sites. "We go after them, and we cancel their accounts," Jorgensen says.
MICROBIAL SPREAD. Still, viral marketing works if these challenges can be overcome, say many experts and execs. They cite Hotmail, the most successful viral-marketing campaign ever. The free e-mail service spent a mere $50,000 on traditional marketing and still became the world's leading e-mail provider almost overnight, with 75 million users.
In fact, Hotmail's founding fathers came up with the term. "It struck us that it was like a virus," says Steve Jurvetson, now a partner in California-based venture capitalist Draper Fisher Jurvetson. His wife is a doctor, and Jurvetson consulted her medical textbooks. He learned that a sneeze released 2 million particles. Companies have had the bug ever since. With cash tight and a dot-com shakeout in the offing, many are e-sneezing up a storm.
By Olga Kharif in Washington Edited by Beth Belton
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Copyright 2000, Bloomberg L.P.
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