Distribution has become unprecedented. The rate at which consumers are adopting technology is unparalleled in history- and accelerating. And by adopting, I mean purchasing.
Consider this; it took over 45 years for 50% of US households to have a telephone, 15 years to have a cell phone, 10 years to get the Internet, 2 years to get the iPhone/iPod Touch, and 1.5 for the iPad. Today that’s 60 million units sold!
Moving to software, the adoption rates are ridiculous: Twitter went from zero to 500 million users in six years, Facebook from zero to almost a billion in eight. But Cityville, a silly game within Facebook, went from zero to 100 million users in an astounding 41 days.
Internet businesses- and face it, all businesses today are Internet businesses- are in the remarkable position of being able to achieve parabolic growth through harnessing marketing channels which I call the distribution firehoses of the Internet. Tom Friedman proclaims, “The world today is hyperconnected”; today there's two billion people on the Internet, that's two billion people online, networked and accessible through technology. Distribution firehoses are channels that allow you to reach these two billion potential customers more or less instantly.
The bleeding edge today is Growth Hacking and Data Science, and it’s where analytics, statistics, computer science and marketing meet. Growth hacking quintessentially looks for platforms that provide one to many relationships (read: one to millions), and develops smart ways to harness them quickly.
Tech companies are literally hiring rocket scientists to exploit these channels and acquire customers quickly before they get crowded and the advantage fades as they get costly or restricted. My Growth team at Freelancer.com includes a PhD in Quantum Physics, a valedictorian in Mechatronics, computer scientists, statisticians and machine learning experts. The Harvard Business Review calls Data Science “The Sexiest Job of the 21st Century”.
If you want hypergrowth, conventional marketing won't get you there, because traditional marketing methods involves absolute, linear growth and not relative, exponential growth. If I buy billboards on a freeway somewhere, the number of users that might sign up to my service or buy something from my website will just be a bump, depending how many billboards I buy, where they are, how long they show and what the creative looks like. But if I figure out a trick to get you you to refer all your friends, and your friends to tell their friends, and so on- you can see the growth is not just a rapid exponential, but it's also relative to the size of my userbase. These techniques get even more powerful the more users you have, and grow exponentially without a corresponding exponential increase in cost base. This is why Peter Thiel said recently, “You should have zero advertising spend. If your growth isn’t viral, it’s fake.”
Marketeers always knew that “word of mouth” was incredibly powerful, but being mathematical neanderthals living in the Paper Age they were never able to quantify it, or figure out how to amplify it.
This is why I have a VP Growth, but no VP Marketing.
Virtually all of the massive consumer Internet companies you hear about today tapped into a distribution firehose to get ridiculous growth and big so fast; there's simply no other way it can be done so quickly.
Google is the original distribution firehose of the Internet. What do the two billion people on the Internet do all day? Type random things into Google and click on the links that get spewed back. Figure out how to rank highly for a large basket of keywords and you can get a ridiculous amount of traffic for almost negligible cost. One company hired 13,000 freelancers to churn out quality content ranging from “How to tie a bow tie” to “How to lay carpet” for a network of websites which contained Google ads next to each article. Fast forward five years and in 2011 Demand Media went public in with $325m in revenue. So egregious was this business model (In 2011, Google generated $11 billion in “Ad Network” revenue, about 30% of which came from the likes of Demand Media), that it was forced to change it’s algorithm in a series of ensuing “Panda” updates.
Facebook is another distribution firehose; every few months Zuckerberg opens up a new feature and turns Facebook into a viral swamp for a short time allowing those that get in quick to grow at an astounding pace. Years ago it started with “You’ve been bitten by a Zombie!” apps spamming the hell out of your friends. The latest incarnation is the “Open Graph” API which allowed apps from Viddy, SocialCam and The Guardian to grow at stupendous rates. Viddy gained 17 million new users in 7 days by spamming your feed with videos that your friends are watching. Of course, to watch you also had to install the app, which in turn also spammed your friend’s feeds. You can see how this can grow exponentially if everyone has hundreds of friends. The bonanza lasted for about 7 weeks before Facebook disconnected posting to the feed.
However, the best exploiter of the Facebook firehose has been Zynga, the publisher of sucky flash games like Cityville. The company uses the psychology of “gamification” (an engagement amplifier) to drive the one to many amplification through using Facebook as a distribution firehose for their “social games”. How does it work? In order to get anywhere in Zynga game, you need to constantly pester your friends (ironically making them them about the least “social” games I’ve ever played). Facebook, of course, is the platform of choice for distributing to friends, making it an ideal fit (Zynga probably also did a fair bit for Facebook's growth). Zynga's business model? Around 98% of people don’t pay a cent, but 2% for some reason decide that buying a virtual cow or barnyard in one of these games is good value. The three and a half year old company (at the time) went public last year with revenues of $1.16 billion. Yes, billion with a B. It’s certainly got me scratching my head. Go figure.
The Apple AppStore is a distribution firehose for mobile with over 30 billion apps downloaded. Three students from the University of Helsinki got in quick and managed to cement their game at the top of the Games leaderboard early, resulting in over a billion downloads. In 2011 their company, Rovio, generated 75 million euros in revenue from Angry Birds, a game which involves flicking little cartoon birds at buildings. Today the AppStore is crowded; with over 700,000 apps it’s tough for new entrants to even get a look in.
Groupon got to $1.6 billion in revenue in 2.5 years on the back of growth hacking email to get users to spam their address books. It also went public last year, on a valuation of $12 billion. Pinterest is now trying to do a similar sort of thing on the web, and gets more traffic than ESPN, CNN and AOL. Paypal was a primitive early example of using this technique, where you got $10 in your account if you referred a friend. Although it was pretty successful for Paypal, it wasn't as refined as today's techniques, because it got quite expensive pretty fast. However, it still allowed them to sell to eBay for $1.5 billion in four years.
Airbnb built a billion dollar company in four years on the back of smart integration (and rumoured spamming) of Craigslist. App.net looks like they're trying to do it with Hacker News.
There’s plenty more distribution firehoses that people have yet to figure out fully; Twitter (followers & search), Reddit (readers), Amazon (buyers), Kickstarter (financiers), YouTube (watchers) and my company, Freelancer (workers).
These firehoses are also only going to get better and better for at least a decade to come. Remember, 66% of the world’s population still isn’t on the Internet. By 2020, the number of people online will grow from 2 to 5 billion. That’s 5 billion customers. Imagine if someone actually harnessed these firehoses to do something useful.
Thanks to Matt Barrie
Chief Executive at Freelancer.com
For this article