IQ Interactive Special Report: Viral Marketing

Viral marketing used to happen by accident. Now marketers are looking for ways to infect consumers with their messages via the Web. You can spend $10,000 or $1 million on a marketing campaign, but in the end, the best ads are the ones that transcend their main purpose and become entertainment. Anheuser-Busch's recent Budweiser "Wassup" campaign is one example. Although the ads originally launched on TV, the campaign gained momentum on the Web with lightning speed. Within a month of its online debut, many users had downloaded the ad from the Web site and sent it, or myriad variations, to friends and business associates, say analysts. This phenomenon--the purest form of viral marketing--is an advertising medium that many hope to capitalize on. Unfortunately not everyone will succeed at duplicating the pure viral marketing experience, leading many companies to go at it from an artificial means. Over the last six months, e-mail marketing has exploded due to a low cost barrier and relatively high response rates, says Michelle Slack, a senior analyst with Jupiter Communications. The category is expected to grow from $164 million last year to $7.3 billion by 2005. At the same time, per-user e-mail volume will explode by a factor of 40, according to a report issued by Jupiter last month. In 2005, 268 billion commercial e-mails will go out, a significant increase over the 3 billion messages sent in 1999. Companies are already cashing in on viral campaigns. Visit 10 commercial sites on the Web and you're sure to find links to tell-a-friend-type promotions. Open an e-mail and you may find a text-based promotion or banner ad embedded in the message. Entertainment and e-commerce industries are two of the most successful categories gaining ground by using viral marketing, says Jupiter's Slack. But there is also a downside to viral marketing. A highly-charged anti-spam sentiment has emerged over the past 12 months, forcing several companies to pull viral marketing efforts all together. Going forward, marketers will need to demonstrate caution. With more e-mails making their way into consumers' inboxes, the chance that commercial e-mail--even opt-in marketing--will be viewed as spam also increases. There are other issues aside from consumer perception. The most common viral marketing delivery method--HTML e-mail--can pose a technical problem. Marketers who use this type of e-mail as a delivery vehicle are often shut out. America Online, which is the nation's largest Internet Service Provider, has 22 million users, but its proprietary e-mail program doesn't support HTML-based e-mails. The challenge then is to create a marketing campaign that balances content with caution. Retailers and advertisers need to learn how to incent people without incensing them. Recognizing that not everyone can capture this balance, today there are at least five companies that specialize in viral marketing, and if the research is correct, that number is sure to grow, says Jupiter's Slack. Epidemic.com Kelly Wanser, Epidemic.com's chief executive officer, says she doesn't think that what her company does is truly viral, even though its billed as a viral marketing service. Epidemic.com attaches to consumers' outgoing personal e-mails. If the recipient of an ad clicks on it or buys something after clicking through, the e-mail's sender gets a piece of any resulting profits. In order to thwart spamming, Epidemic.com doesn't base its incentives on the number of eyes that are looking at a message. Instead, they base payments directly on traffic and sell-through, says Wanser. And, since Epidemic.com can track the source of a message, it can not only see how far its ads are going, but exactly where they originated from in the event of a problem. The consumer-driven process is fairly simple. After downloading a small software component, consumers select their favorite ads or allow Epidemic.com to do it for them. Since every member of the program discloses personal demographic information, it's easy for the company to target ads, giving advertisers such as Dell Computer, Hanes, 1-800 Flowers.com, and Omaha Steaks a highly motivated audience. There's even a feel-good component to the program. Consumers can donate their earnings to charity or raise money for a specific group. To date, Epidemic.com's program is succeeding. At the end of the first quarter, the company posted 10,000 ad impressions per month and was signing up new members at a fast clip. Members are also reaping the rewards, with the average monthly pay-out hovering at $20. Members who recruit other members get a piece of their earnings, too. "Our business model is working because we're not focused on getting people to give us their e-mail addresses," says Wanser. "We're expanding the reach of a banner ad and providing a service to consumers, too." Favemail Like Epidemic.com, Favemail is looking to brand consumer e-mail. Consumers can download a small plug-in or, if their e-mail doesn't support HTML, sign up for a free Web-based e-mail account. Then, they can select an ad or banner from 165 "faves" available on the site. If they like more than one ad, users can create an album of ads that they can run on a rotational basis. They can also turn ads off completely, giving users a comfort level that is often missing in viral promotions. Favemail doesn't limit users to revenue-generating ads. The company will also let them create and attach their own ads. There's even a photo cropping tool so users can attach personal photographs to their messages. Those members who choose ads make a profit when friends and associates click on them and complete e-commerce transactions. Favemail gives its users 50 percent of any profit, but that percentage may climb to as much as 70 percent as its user base grows, says Hani Elnaggar, vice president of products and services. While the lure of cold, hard cash is definitely driving customers to the site, not everyone is in it for the money. Today, only 20 to 40 percent of all users attach revenue-generating ads, says Elnaggar. These non-earning ads, which are often generated by organizations, are used to publicize a favorite sports team or show off a personal Web site. "This is really more about getting people to change the way they think about e-mail advertising," he says. On the business side, advertisers that want to embed their own messages into corporate e-mails can sign up for a partner account. This provides additional tracking and reporting components. Customers can publicize their products and services without necessarily selling anything. "Right now, this isn't necessarily about making money. It's about building brand awareness," says Elnaggar. Gazooba.com In November, Gazooba.com introduced its Recommend a Site service so Web surfers could evangelize sites and get paid for it. Today, just eight months after the launch, the service has evolved. Gazooba.com is still covering all the viral marketing bases but has shifted its focus from consumers to businesses. Instead of waiting for consumers to sign up on the Gazooba.com Web site, the company is handing off the responsibility to potential advertisers. For example, the company is currently working with a sports site that gets plenty of visitors but few registrations. "We help the site tell its visitors, 'If you tell your friends to register, we'll give you a T-shirt.' Our software makes it happen seamlessly," says Andy Raskin, Gazooba.com's chief executive officer. The sports site, along with a major long distance carrier, is using a variation of the Tell-a-Friend program, but now the onus is on them to make sure users don't spam, a common problem for some e-mail marketers. In addition to this program, the company also offers permission-based viral e-mail campaign technology to advertisers, says Raskin. One of the things that sets Gazooba.com's offer apart, says Raskin, is its reporting functionality. "We can analyze a customer's data and see what the top 10 things people send to their friends are. We can see who are the top spreaders of the word," says Raskin. "When you know that, it's easier to design a program that works." L90 It's difficult to be all things to all advertisers, but that's exactly what L90 is trying to do. The company offers viral marketing, opt-in reward programs and direct marketing. L90 is also looking to garner traditional advertising business by selling banner ads and access to more than 10 million opt-in e-mail addresses as well as offering ad development services. "We let advertisers test out their marketing involvement. They can spread their advertising dollars around to different programs to see which work best for their particular needs," says Matt Spiegel, L90's direct marketing specialist. On the viral side, L90's L90Link program is a program that puts small promotional ads directly on to client Web sites. When the customer clicks on the ad, which can be anything from a free product offer to a percentage off a purchase, they receive the reward. They can score additional benefits by getting their friends to accept the offer, too. E-mail messages, which sometimes contain audio and video, are sent out with a promotional link to bring recipients to the site. Ever mindful of spam, L90 controls the entire viral process, monitoring and limiting the number of e-mails that are sent by one person. Today, the company's program is far ahead of traditional promotional banner ads, which have a clickthrough of about one-half of 1 percent. A whopping 8 percent of the people who fill out the company's online forms will actually use the service. "Viral marketing can show people how well a campaign is doing," says Spiegel. "No matter what program an advertiser uses, they should be able to see real-time reporting, like they can with ours, and make adjustments appropriately." Prosper Business Development Gary Drenik, the president of Prosper Business Development knows good word-of-mouth is the best form of advertising, but it is often the most difficult to achieve. He also knows that if you start out with an ad base of 30 million people, it's not too difficult to create good buzz. Prosper originally made a name for itself providing marketing services to telecommunications and media industries. Today, Drenik's company, via a partnership with PennMedia, is taking its contacts and combining them with e-mail newsletters, merging content, community and advertising. PennMedia creates and maintains more than 700 newsletters, which will be branded so they appear to be coming directly from their sponsors. In addition, the newsletters will be customized with local content, making them appealing to readers looking for news and information that hits home. Local ads can also be embedded for additional local flavor. Since content is targeted, many subscribers often pass on the messages to friends and family. The company is targeting the same traditional media players that is has always worked with including radio, TV and cable operators. The program lets the companies embed their messages into the newsletters. The combination of lifestyle-oriented content and PennMedia's huge user base may help struggling local stations boost viewer and listener retention and, more importantly, visibility. "We can really offer advertisers something special," says Drenik. "After all, even Who Wants to Be a Millionaire doesn't deliver 30 million people to advertisers," he says. Although all of the services say their clickthrough and success rates are high, analysts have no way of knowing how well viral marketing is doing on an aggregate basis. This is especially true in cases where companies are creating their own viral campaigns. For every "Wassup" campaign, there may be 100 others that don't fare as well. Even the incentive-driven offerings may hit speed bumps down the road as viral marketers compete directly for funding with other forms of advertising, says Jupiter's Slack. In the end, the companies that succeed may fall into specific categories that tend to do better with viral marketing, she says. The entertainment industry does well, as do companies that already have well-known brands. "Marketers should keep in mind that viral marketing is a great idea, but you should always be thinking, 'Can I make this work if it feels to artificial?' You'll always hear about success stories," says Slack. "The best campaigns are going to be the ones that you don't have to promise your users anything." n Karen J. Bannan is a freelance writer who writes about e-commerce, technology and the Internet for Business Week Online, The New York Times and Internet World. Spreading the Word When it comes to getting the word out, e-mail is the killer app. Viral marketing, which is a term that is often used interchangeably with e-mail marketing, is succeeding because consumers are becoming the medium by which advertisers get their word out. Since the messenger is familiar to the recipient, consumers are more likely to trust the message. Health and lifestyle Web site Asimba.com found this out first hand. Last September, the company had 30,000 members and scant marketing funds. They needed to get their message out and register new users without spending a lot of cash. Banking on the popularity of viral marketing, Asimba.com posted a prominent link on its site for a Friends and Fleece viral e-mail program--a take-off on MCI's Friends and Family campaign. Users could earn points towards a free fleece vest by referring friends. Once 10 of their referrals registered on the site, the fleece was theirs. The link paid off. Today, Asimba.com boasts more than 500,000 users, says Adam Roth, the company's vice president of marketing. "One of the nice things about this referral program is that we knew people weren't going to be referring other people who they didn't feel comfortable telling about us," says Roth. The viral route also saved the company quite a bit in marketing costs. Roth estimates Asimba.com paid $3 per user acquisition versus the $300 that the company would've paid by going the TV ad route that many dot-com companies seem fond of. Free Internet Service Provider Bluelight.com also went the viral route. Surprisingly, the company didn't offer free gifts or incentives, yet even today they are still getting plenty of pass-along, says Dave Karraker, the company's director of marketing. Bluelight.com, which is a Kmart company, posted a simple tell-a-friend link on its Web site. That link translated into the second-largest source of new subscribers, says Karraker. "People are passing on our message because they think it's such a good deal they want their friends to know about it. If our service wasn't free, it probably wouldn't work as well," he says. Jupiter Communication's Slack agrees. Users will only pass on a message that benefits them or their friends. Those programs that adhere to this adage are likely to succeed. Even if they follow it to the letter, there will be some that are unsuccessful with viral marketing. For example, this spring, home furnishings retailer Ikea was forced to pull a viral promotion from its site a mere 24 hours after it was posted. The problem? The offer, which gave visitors gift certificates as a reward for publicizing via e-mail the company's latest store opening, was misused. Even though Ikea limited the amount of pass-alongs to 10, some visitors spammed strangers who in turn complained to the company. Again and again, retailers are learning that people don't like spam. "It's very important for anyone who is doing viral marketing to make clear to their users that any use of spam is unacceptable," says John Mozenia, co-founder and vice president of the Coalition Against Unsolicited Commercial Email (CAUCE), a grass-roots anti-spam organization. "In concept, it's a fairly good way of doing things." --KJ

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IQ Interactive Special Report: Viral Marketing - It's Catching

Karen J. Bannan

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Karen J. Bannan