Chamath Palihapitiya had screwed up. It was November 2007, and the executive in charge of Facebook's platform and monetisation had a full-blown crisis on his hands. Days earlier, he'd overseen the launch of what Facebook called "a completely new way of advertising online": an ad network known as Beacon that would post the commercial activities of Facebook users to their news feeds when on 44 third-party websites, unless they actively opted out.
Palihapitiya, a rising star who'd run AOL's instant-messaging division and founded MyMusicChannel, had underestimated the resistance to Beacon: from furious users such as Sean Lane, whose wife learned of a surprise gift through a wall post that stated, "Sean Lane bought 14k White Gold 1/5ct Diamond Eternity Flower Ring from overstock.com", and who subsequently led a class action against Facebook; and from the 50,000 signatories in ten days to a MoveOn.org petition against the programme headed: "Facebook, stop invading my privacy!" "We were sitting in the third floor of 156 University Avenue [in Palo Alto], and TV trucks with cranes were bearing down on us, and people outside protesting," Palihapitiya, now 37, recalls. "I was so naïve with the press -- trying to explain cross-site Javascript toThe New York Timesis generally a bad idea. The episode had a really chilling effect on people's perceptions of Facebook." Mark Zuckerberg finally agreed to roll Beacon back. "We've made a lot of mistakes building this feature, but we've made even more with how we've handled them," Zuckerberg wrote on the Facebook blog. "We did a bad job with this release, and I apologise."
Palihapitiya had been at the company for less than a year. "I had a lot of guilt," he says now. "I felt I had to undo a bunch of damage that I'd caused. So in 2008, I said, OK, we need to grow again. I remember sitting in my bedroom, talking [on the phone] to Zuck and Sheryl [Sandberg], saying, 'Let's create a growth team.'
The six-month plan would be to build credibility by proving and disproving the things that people think are anecdotally right, and make it fact-based. And that would probably give us another six months before we all got fired."
For other businesses, viral growth has come from classic referral strategies. Dropbox -- which in May announced 300 million users, up from 200 million last November -- initially experimented with paid Google ads when it launched publicly in September 2008.
This, founder Drew Houston quickly discovered, was costing $233-388 (£139-228) per acquisition, for a product that cost $99 (£60).
Instead, he prioritised a referral programme that offered 2GB of free storage to new users, plus bonus storage to any existing user who shared the link. But even before the public launch, Houston had obsessively tracked what did and didn't generate interest. An early three-minute video explaining the service, narrated by Houston and packed with geek in-jokes, boosted the beta waiting list from 5,000 to 75,000 people overnight when posted on Hacker Newsin April 2007, he later said. "We did lots of tactical things, such as our referral programme, shared folders, and other aspects of the product that helped it spread," Houston tells Wired. "Those tactics can amplify something -- but the most important thing is to have a product that people really love to begin with. Dropbox solves a problem -- file synchronisation -- that you didn't realise you had, and it actually works. That may not sound that high a bar, but you only hear a couple of times a year, 'Oh my god, I've only had this thing for a week and now I can't live without it.' That sort of epiphany is something you want to share. And we had this currency called space, like points, so we inadvertently gamified the whole process of spreading Dropbox." You can earn extra storage by logging in through Facebook or Twitter; likewise, by giving product feedback.
Constant iteration of the landing page through testing has also optimised the sign-ups. "We focus on two categories," says Houston. "First, split testing and optimisation; we have a business operations team, a monetisation team, an analytics team, a data science team. That's one bucket. The one we focus more on, the bigger lever, is the new ways of sharing. People are tempted to bolt on a referral programme like ours and just expect a product to take off. But they underestimate the degree to which it goes back to building something people love."
In the early days at LinkedIn, testing, measurement and product iteration became an almost religious obsession. Josh Elman, now a partner at Greylock Partners but formerly a product manager at LinkedIn, Facebook and Twitter, recalls repeated testing of the invitation wording: "When we had the phrase in the default invitation that joining 'will make both of our networks bigger...', the likelihood that someone who'd signed up would invite more people to sign up was higher." Growth was boosted by making it easy for members to import their email contacts; engagement was boosted by installing a progress bar that encouraged fuller completion of profiles. "It's not just looking at the data, but getting to the core principles of why [you want to engage]," Elman says. "The real trick is using data to let you get to these deep psychological insights, and building features or products around that. In the early days on LinkedIn, you signed in, got a 'welcome to this product, go and invite more people'. But where was the value? So we changed it to, 'Hey, welcome to LinkedIn, here's a bunch of people from the same company who are already here. Now who else will you invite?' I call it the double viral loop -- by causing ten colleagues to get a notification that said, 'Hi, Wired colleagues, David has just joined LinkedIn and asked you to connect with him,' they now come back to connect. At that moment, LinkedIn says, 'Hi, David's colleague John, who else do you know that you'd like to invite?' At that moment it's more likely that John will invite more people than simply getting David to invite people in the first place."
And the launch of the LinkedIn jobs site, in 2004-5? "Everyone thought LinkedIn was trying to do revenue. You know the real reason? People were afraid to sign up and upload their profile, as they felt we were a jobs site. But by creating a separate jobs site on LinkedIn, we could convince you to go to LinkedIn and it wouldn't look like you were looking for a job. It's all psychology."
However, a growth-hacking backlash is emerging. Earlier this year, digital marketing consultant Muhammad Saleem published a much-discussed article titled "Growth Hacking Is Bull". Dropbox's strategy was simply traditional referral marketing, Saleem argued;
Airbnb's Craigslist strategy was simple cross-posting. "Not only is growth hacking a meaningless phrase used to rebrand online marketing by the people who've spent the better part of their careers maligning online marketing," he argued, "but it is harmful to your company. Growth hacking perpetuates this myth that you can achieve hockey-stick growth by using short-term 'hacks'."
What's new, Josh Elman argues, is the application of an engineering mindset to product marketing. "Growth hacking is spending time engineering how your product gets out into the world.
Nest, SmartThings and WhatsApp are building incredible technology and products. The big shift is what happens when we take the creative brilliance of design and engineering and apply it to how we get that product into people's hands."
Chamath Palihapitiya is more hesitant. "I hate the term 'growth hacker'. There are a lot of snake-oil salesmen in this field," he says. "Let's not create some wizard-behind-the-curtains thing about this concept called growth hacking. It existed well before me. It's called product and marketing."
What does have scalable value, Palihapitiya says, is "the deeper psychological understanding of product and behaviour". Since leaving Facebook in summer 2011, he has taken his approach to The Social+Capital Partnership, a Palo Alto-based fund that defines itself as "a growth practice". After making an investment, he will send in a growth team -- "abstracted Navy Seals", ranging from physicists to machine-learning experts -- to sit with the company for a month, extracting data to frame how they should think about their product. "The framework works for any business," he says. "I own a chain of restaurants and I've deployed one of my guys to go in there and fix it. They're measuring costs, how long customers stay, changing the menu. Per-ticket price is up 35 per cent in one restaurant."
What advice does Palihapitiya have for entrepreneurs reading Wired? "Users are only ever in three states -- they've never heard about it; they've tried it; and they use it. What you're managing is state change. So the framework is, what causes these changes?
The answer should be rooted more in preference, choice and psychology than in some quantitative thing. "So with Wired, there are people who've never heard of it, people who may read it, people who read it and may stop. Look at the psychological things they thought they were going to get from you -- validation, community, intellectual stimulation, that stuff.
When you figure out why people stay with the magazine -- the community, the association that's happening -- you should be saying, shit, we should be organising this stuff offline too."
This methodology could become truly powerful, he adds, in re-assessing large traditional businesses. "If I ever chose to raise a much larger private-equity-style fund and buy businesses, this framework could be really valuable," he says. "The problem is, those businesses are so deathly boring. I have no interest in them.
I'd rather build the future than fix the past."
David Rowan is editor of WIRED. He wrote about Tony Fadell in 07.14
This article was originally published by WIRED UK
