The Virality Handbook For Marketplace Founders

Marketplace 10 min read, September 30, 2020

As marketplace investors, we often see founders confusing network effects with the concept of virality - or erroneously thinking that when something is viral, it is or has a network effect. We, too, have struggled with navigating the (at times, thin) line between network effects and virality.

While these two can often go hand-in-hand - and both can be important drivers of marketplace growth - it’s important to realize that network effects and virality are different concepts, with different playbooks and objectives. Let’s get into it.

I’ve dug through our own resource database and patched together some of my favorite pieces on the topic to present to you: the virality handbook for marketplace founders.

We’ll shortly go into the 1. the differences between network effects and virality, then deep dive into 2. the different types of virality, and 3. how you can build virality into your product. Lastly, we’ll throw everything away and focus on 4. the one metric that matters at the end of the day. Ready?


💥 1. Virality ≠ Network Effects.

Let’s get straight to the definitions. Bear with me through this short but theoretical bit, and I promise we’ll get to the juicy parts soon there after.

🗣️ Virality is a phenomenon where the more people use your product or service, the more they spread the message about it.

You have virality when information can be shared rapidly and widely from one user to another, or when the rate of adoption increases with adoption. The product grows faster as more users adopt it (to a certain limit) (Versionone). (P.s Virality can also be referred to as ‘viral effects’).

💎 Network effects are a phenomenon when a platform becomes more valuable as more users join it.

As such, network effects are a way to create lasting competitive advantage and offer more value to users. It has even been said that network effects are “the #1 way to create defensibility in the digital world” (Nfx).

The takeaway? As Sangeet Choudary, published expert on platform dynamics, puts it simply: “A viral effect is a growth tool that brings external users back to the platform. Whereas a network effect increases the value on the platform.” They are two separate concepts with different objectives and playbooks (Nfx).

(For the purpose of this article, we will focus on virality, rather than network effects. It’s important to note that there are various types of network effects. For a great overview, check out the NFX manual that explains 13 different types of network effects.)


**A note on marketplace virality**

As VersionOne critically points out, “not all network effect products are viral, and not all viral products have network effects.” Products such as games or news outlets can be highly viral without network effects (for example, one more person subscribing to the NYT does materially increase the value of NYT to you as a reader). Marketplaces are the other end of the spectrum.

Marketplaces can often have strong network effects but low virality. It’s ever more important to focus on network effects, as they are critical to growing a thriving platform. Read more in the VersionOne Marketplace guide here or different marketplace growth tactics here. That being said, virality is not just for B2C SaaS, Marketplaces - both B2C and B2B - can benefit from virality as well. Read on to see how.


👯 2. Not All Virality Is the Same.

Now that we’ve distinguished viral effects from network effects, let's zoom in to dissect the different layers and types of virality.

One of my favorite resources on this is from Josh Elman, a long-time member of the Greylock team. I recommend checking out Elman’s complete take on the 5 types of virality. For your sake, I will outline the different types of virality and highlight the key takeaways below:

  1. Word-of-Mouth virality: When the product is so good, people can’t help but tell others about it (think about what you’ve recommended to a friend recently - what makes it stand out?)
  2. Incentivized word-of-mouth virality: Not as clean or pure as word-of-mouth, but effective (ex: paid referrals)
  3. Demonstration virality: When the nature of a product is such that, simply by using it, people are showing it off (ex: early Uber days)
  4. Infectious virality: When a product is designed in a way that people will work to get other people using it because it will make it better for both of them (ex: social networks, communication networks)
  5. Outbreak virality: Some things just spread because they’re fun to share, or because they’ve got a lot of popular momentum and people want to look cool by sharing them (ex: Pokemon Go)

The takeaway? Virality is not a one size fits all situation; there are different types of virality that suit different products. We’ll go into the different ways to create these types of virality next, but as we go on, think about what makes sense for your company... what mechanism fits naturally into your product.


🛠️ 3. How to Build Virality Into Your Product.

At this point, I’m sure you’re ready for the good stuff - “How do I make my product go viral?” Without further ado, let’s dive into the different mechanisms to create that virality. Here I’ll bring in the insights of Gabor Cselle, entrepreneur-turned-partner at Google’s internal incubator, Area 120. He identifies 9 different virality mechanisms, seen below:

Note: these mechanisms are mainly towards consumer products.

I encourage you to check out the extended piece, but for those in a time crunch, I’ll condense the framework below. While credits go to Cselle, I’ve highlighted some more contemporary examples.

The different virality mechanisms

  1. Two-Sided Reward: Create an incentive for a user to invite their friends, and for their friends to accept the invite. Important: both sides needed! (ex: Onefit / Urban Sports Club, Dropbox, Airbnb).
  2. Appeal to Vanity: Appeal to users’ sense of vanity and competitiveness to encourage them to spend more time using your product and invite others into it. Show metrics as drivers. (ex: social followers, Snapchat streaks)
  3. Collaboration: Apps for collaboration/communication are inherently viral (ex: Invite Buttons, Notion). This verges into network effects.
  4. Embeds: Allow others to embed your product into their website for exposure. Customers become models of the product (ex: Airtable, Youtube).
  5. Social Artifacts: If your product creates uniquely interesting content, encourage users to share automatically/manually on social networks. Leverage click through acquisition. (ex: Instagram, Runkeeper)
  6. Messaging Artifacts: Product with content/URL’s shared via messaging that provide rich information experience (ex: Lyft “send ETA”)
  7. Signatures: If your product sends messages of some kind, attach a promotional signature to messages that link back to the product. (ex: “Sent via Superhuman”, “Powered by ...”, Mailchimp)
  8. First Message: When your product offers a different type of messaging and encourages users to invite their friends to join them on the new messaging platform (ex: Airbnb / Airplane notifications via SMS)
  9. Highly Visible Hardware: Hardware that is exposed to potential customers (ex: Sexy-POS systems like Sum-up or Square, Ring). All in all, not too relevant for our marketplace readers out there.

More mechanisms...

Another take on virality tactics is infamous blogger Niel Patel’s Recipe of Viral Features, which maps out the tricks and tactics used by successful companies in the past. While there is a lot of overlap between Cselle, Patel introduces two new concepts that caught my eye:

  • Exclusivity: Basic rules of supply and demand come to play here. Often, when access is limited, demand is high. Similar to “Appeal to Vanity”, the in-crowd is incentivized to show that they’re, well, “in.” (ex: Superhuman waiting list, Clubhouse, InnerCircle). OR Exclusivity can also be used differently, such as to ensure high-quality users at the beginning (ex: Social network Quibb only lets in 34% applicants). Here, exclusivity helps to make a more valuable product and makes users feel like they’re a part of building something.
  • Fun-Factor: Similar to the artifacts section, build in special or fun features for users (especially product ambassadors) to engender loyalty and more advocacy.

Marketplace specific mechanisms

As we discussed earlier, marketplaces can have low virality due to their nature. While marketplace users often have intrinsic motivation to bring on customers, adding incentives can help create a more viral effect. While mechanisms like two-sided reward and vanity are clearly relevant, some of these mechanisms (and even types of virality) can feel more suited for consumer SaaS. Here, the right incentive mechanism highly depends on the type of marketplace. Juho Makkonen from the Marketplace Academy brings up another tactic to create virality specific to marketplaces:

Marketing tools: In many cases, an online marketplace may be the first time a professional provider gets an online presence. In these situations, educating providers on how to market their offering outside your marketplace is a solid strategy... In an ideal senario, your providers become your marketing team. (ex: Etsy creating a “seller handbook”, content marketing on “how to do marketing”

Tip: think about how you can combine marketing tools with social artifacts.

To conclude this section, there are various mechanisms to create viral effects. The overarching theme of the different mechanisms is: all of them encourage existing users to advocate for your product. This, in turn, generates awareness with their networks.

But, remember... awareness is not everything.


🙅‍♀️ 4. Beyond Virality: The One Metric That Matters at the End of the Day...

Have you ever heard the saying, “you can bring a horse to water, but you can’t make it drink”? While a bit of a stretch, the saying introduces the limits of virality well. That is, while all of the mechanisms and types of virality discussed can help to get new eyes or new sign-ups, they don’t necessarily lead to actual users. Andrew Chen puts it nicely, “you can hack your way to new users... but you can't hack your into true engagement.”

The moral of the story is: virality has its limits. It does not matter how many people are talking about your tool, what matters at the end of the day is how many people are using it - “not downloading it, not clicking on it, not trying it for a day. Actually using it” (Elman).

Your viral techniques all need to be aligned toward the goal of increasing the number of actual users (Elman). Acquisition in the form of virality - or the viral coefficient - is mere vanity next to concepts like customer happiness, stickiness, monetization, and later on, churn, repeat orders/retention, and even, resurrection. In the race to be trending on Twitter or #1 on Product Hunt, don’t forget what really matters.


👉 TL;DR

Network effects are not viral effects. Virality = growth tactic to get new users for free. Network effects = creating defensibility and lasting competitive advantage. They have totally different objectives and playbooks (Nfx).

Virality comes in different forms - which is best depends on your product/model. There are different ways to create it.

Keep your priorities straight. Virality is vanity, true engagement and product value is what ultimately matters.


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