Sean Parker Sean Parker is co-founder and president of Plaxo, Inc. (www.plaxo.com), which offers products that assure a simple and secure way to keep contact information up-to-date. In their first 7 months of operation, Plaxo exceeded one million registered users in over 200 countries. Previously, Sean was co-founder of Napster, Inc., which became the fastest growing and most popular online service in history. While at Napster, Sean created the business plan as well as the flagship product, but also helped to grow Napster's user base to over 25 million registered users in just over one year and raise more than $16 million in venture financing. Sean sits on a number of technical advisory boards and is a sought-after speaker on the topic of Peer-to-Peer Computing.

Viral Marketing

There are two kinds of viral products: inherently viral and word-of-mouth viral. One of the preconditions for a product to be inherently viral is that you have to be able to see it in action, so you know exactly what the thing does the moment you get an e-mail.

Plaxo is inherently viral. I use it to synchronize my address book or update my address book and the recipient of the Plaxo message sees the product in action. They immediately know what it did for their friend and what it could do for them. Hotmail is another great example. Just the very act of using it leads other people to learn about Hotmail. (Read Steve Jurvetson's paper on viral marketing at http://drapervc.com/files/viralmarketing.html for background on the growth of Hotmail.)

Word-of-mouth viral is different altogether. An example of that would be Friendster (http://www.friendster.com), the big online dating and profile site. With Friendster, the day-to-day use of it doesn't lend Friendster to spread to more people. You have to invite people into the application. The invitation aspect, much like Instant Messaging, is secondary to the functionality of the application, meaning when I go onto Friendster and invite one of my friends, they don't see it in action. They get an invitation to join. It's word-of-mouth viral.

When you have a word-of-mouth viral product, you are much more dependent upon the psychology of people to encourage trial and adoption. In an inherently viral product like Plaxo and Hotmail, the viral stuff is the core of the application and naturally fuels the growth.

Ultimately, the viral effect has to do with your cost of user acquisition but has little to do with the value of what's being acquired.

Network Effect
Network effect has to do with the value of the network that's being built. The product or service becomes more valuable as more people use it, and that fuels growth. Napster, for example, wasn't viral at all, in fact, it had no viral elements. It was clearly a network effect product. Conversely, Hotmail has strong viral effects but very weak network effects because you can pile as many people as you want into one web-based e-mail system but it doesn't make that e-mail system any more valuable. It is basically linearly more valuable and not exponentially more valuable.

The Holy Grail would be to build an application that is both viral and has a strong network effect.

[Click here to read more of Sean's discussion of Viral Marketing.]