Viral Distribution’s Coming of Age

Viral distribution is the hot new thing that’s creating waves on the Internet. Everyone is talking about sneezers -- people who are great at spreading ideas using word-of-mouth -- and viral loops, the mechanisms for viral distribution. Although the concept of referral marketing is not new, viral distribution offers today’s brand marketers a powerful way to reach millions of online consumers.

Good old multi-level marketing concepts that have been around forever -- from the Ponzi pyramid scheme during the 1920s to chain letters -- are considered viral distribution. Today’s viral distribution falls into two categories: social advertising, where the goal is to spread a message; and social commerce, where the goal is to generate a purchase. So, is the viral distribution hype just another example of our obligation to come up with new Web 2.0 buzzwords for old concepts? Yes and no. Yes, because the fundamental concepts are the same. No, because the Internet’s magnitude makes viral distribution’s impact significantly greater. And that is a very big deal.

Viral distribution occurs when consumers become distribution channels for brand marketers. The Internet has allowed millions of people to aggregate in communities, like MySpace and Facebook , and form ad hoc networks. Millions of consumers equal millions of potential distribution channels. Each of these channels (people) is directly identifiable, targetable, measurable and trusted by their friends or “connections” in some relevant context; e.g., Greg is the geek who knows about computers or Tom, Amy, and Alan all like anime art and talk about it with each other.

Viral distribution may be both the biggest opportunity and the biggest threat that brands have seen in a decade. The most sophisticated brands today work with thousands of distribution channels. To operate social advertising and social commerce at Internet scale, brand marketers need to consider dealing with a higher number of channels. While they may have a clue how to do it, they certainly don’t have the tools to do it effectively. The first few businesses that develop the capability to truly leverage their brands through hundreds of thousands of individuals, not just on MySpace and Facebook but on the Internet as a whole, will have a formidable advantage.

It won’t be easy for brands marketers to manipulate the “laws” that govern consumer behavior. One thing is for certain: The majority of attempts will fail. There will also be all the usual signs of an industry coming of age: privacy violations, questions over bias, spam, and fraud. The issues will inevitably get contentious. As an example, consider MoveOn’s campaign against Facebook or Google (Nasdaq: GOOG)’s action against pay-per-post bloggers. MoveOn is pushing for Facebook’s Beacon to become an opt-in, as opposed to opt-out, service to better protect consumer privacy. Google is punishing pay-per-post bloggers in their rankings, presumably on the assumption that their content is biased. In the end, the forces of market evolution will prevail. Much experimentation will be required to discover what works and what doesn’t -- but that’s what’s great about the Internet. Technology is cheap. Users are aplenty. Everything is measurable down to the last click.

As a venture capitalist, I see fresh ideas in the social advertising and social commerce space and investment dollars going towards them. For example, at Polaris Venture Partners alone, we have partnered with several startups that are on the leading edge of this transformation: from Allurent, enabling e-commerce 2.0, to Heavy, creating new approaches to advertising, and Wordpress, empowering the blogosphere.

In the future we should expect to see some form of viral distribution integrated in every aspect of content and commerce with many billions of dollars of brand-spend tied to it. Don’t be surprised when, five years from now, your hip teenager makes more pocket money from selling her distribution services to brands than from the allowance you give her.

— Simeon Simeonov, technology partner at Polaris Venture Partners . He blogs at simeons.wordpress.com.