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Piggybacking Mechanics: Whatsapp, Instagram And Network Effect Marketing

Welcome to the age of the zero-dollar marketing startup. WhatsApp, and earlier Instagram, have officially become a permanent part of startup lore for having built multi-billion dollar businesses without (reportedly) spending a dime on marketing.

Meanwhile, Airbnb has grown from a hipster community of mattress-renters to the world’s largest provider of accommodations without spending even a fraction of what traditional hotel chains spend in marketing.

Marketing is dead! Or that’s what many would have you believe. A great product sells itself, of course! Fire the marketing team!

Well… not quite!

The fastest growing networks on the internet – Airbnb, Instagram, Facebook, YouTube, Snapchat – may not have spent much on marketing, but they all have one thing in common: Each of these networks piggybacked on top of another pre-existing network.

Facebook and Bebo grew on top of the network embedded in our email. Many networks, including Instagram, grew on top of Facebook itself. For a while, Airbnb grew on top of Craigslist, while Snapchat and WhatsApp have leveraged the mobile phone’s organic network, the phone book, to create networks native to mobile,

If you’re building a social network, marketplace or platform and you haven’t considered piggybacking on a network, you need to think again.

Much so-called ‘growth hacking’ relies on testing of cause-and-effect and optimization of funnel conversions. But in the early days of a network or a marketplace, startups are faced with a radically different problem. Why will users come on board when there’s no one else there? Why will producers set up shop in a marketplace that is not yet frequented by consumers and vice versa?

The classic chicken and egg problem cannot be solved by pulling in users and optimizing conversions. Before network effects set in, users will neither get activated nor will they get engaged.

Set a network to catch a network

To grow a network, you need to think like a network. To get enough users on board to create network effects, you need to piggyback upon another network. Piggybacking on a thriving network works wonderfully as long as your platform is complementary to that network and delivers additional value to the users there.

As far as growth strategies go, there are few strategies that are more scalable and sustainable as engines of growth.

Paypal got almost all its traction by piggybacking on eBay and offering a much superior payment method than the painful check-over-mail. It solved the pain points around payment on eBay providing instant payments without the hassle of credit cards and assuming much of the risk of online fraud.

Soon enough, Paypal was the predominant mode of payments on eBay and rode its growth to become synonymous with online payments.

But not all piggybacking stories end happily ever after. Apps that have leveraged Facebook to grow aggressively, have found their business jeopardized with a change in Facebook’s news feed algorithm. Startups that tried to emulate Airbnb and siphon users away from Craigslist were sent cease and desist letters. Even Paypal was banned on eBay for a while before the marketplace had to accede to the wishes of the users.

So what does it take to successfully piggyback a network?

The Biology of Piggybacking

Successfully piggybacking a network is more complex than simply choosing a network and executing an API integration. A startup looking to piggyback on an underlying network needs to understand the nature of its relationship with that network.

Borrowing analogies from biological systems, there are three types of relationships between your startup (the Guest) and the underlying network (the Host).

The Happy Clownfish

In certain cases, a partnership model may be initiated by the Host i.e. the underlying network.

Much like how colorful clownfish (Guest) inhabit sea anemones (Hosts) whereby each party gains protection from their respective predators, both networks benefit from each other.

For example, Facebook’s partnership with Spotify, following its launch of frictionless sharing, is designed in a way that both Facebook and Spotify benefit.

Facebook needed greater engagement among users and Spotify needed listeners, even though the implementation of frictionless sharing has much that can be improved. Earlier, Zynga, Slide and RockYou benefited from a similar relationship with Facebook, piggybacking on Facebook for growth by providing value to Facebook users, while improving user engagement and retention on Facebook.

The Hitchhiking Remora

Not all networks may initiate partnerships the way Facebook did. In fact, most don’t.

In such cases, it is the prerogative of the guest (your startup) to be backward compatible with the host, much like a remora attaching itself onto a shark and feeding off it, you need to figure out a way to embed your functionality in the host network.

YouTube gained early traction by piggybacking on MySpace. Engagement on MySpace was built around musicians who needed a way to showcase their talent. At the time, online video was broken. YouTube fixed that with its flash-based one-click video experience and MySpace users finally had an answer to their problems.

Flickr solved the pain of sharing pictures in the blogosphere. Every blogger putting up a picture on his blog helped showcase the service to others. Flickr rapidly grew to become the fifth most visited website on the internet by the time Yahoo lapped it up.

As these examples demonstrate, these relationships start without an explicit partnership. The Guest makes a conscious decision to make its functionality and content embeddable in the Host network. If such embedding solves a key user pain point, the users start embedding Guest functionality into the Host network, driving adoption. The chicken and egg problem is solved as more users on the Host get exposed to this functionality and migrate to start using the Guest’s functionality.

The Bloodsucking Parasite

Finally, some networks may actively discourage any form of guest-host relationship. In these cases, the startup needs to reverse-engineer an integration with the host. Such piggybacking is generally non-consensual.

Airbnb reverse-engineered a de facto ‘integration’ with Craigslist and offered users on Craigslist, an alternate, more convenient and safer destination for their interactions. Airbnb stole the network interactions away from Craigslist and was promptly blocked by the Host as soon as it realized what was afoot.

Skype, Viber and WhatsApp have similar relationships with carriers where they piggyback the connections created by the carriers (via the user’s phone book) to provide an alternate communication channel.

Viber rode this success to a $900M acquisition recently,and WhatsApp was acquired by Facebook for $19 billion in cash and stock.

Sidenote: It is interesting to note Skype, Viber, and WhatsApp are able to arbitrage users because of a lack of effective carrier data discrimination. That is to say, carriers are well aware of WhatsApp allowing users an end-around onerous SMS fees, but feel powerless – at this point in time – to raise network data rates to make it unprofitable for WhatsApp, forcing users back to SMS.

How To Succeed With Piggybacking

While piggybacking may seem attractive, startups need to be aware of the relationship they have with the host network and pursue strategies accordingly.

More importantly, not all piggybacking is successful. The stories above suffer from survivorship bias and are useful only when understood in the context of the factors that dictated their success and spelt failure for other startups that tried similar strategies.

In general, everyone wins in The Happy Clownfish scenario.

But in most Hitchhiking Remora relationships, the Host controls the relationship with the piggybacking Guest. This is specifically the case whenever the Host launches an open-access API upon which startups build off that to access the Host’s network. While remora may add value by plucking parasites, fickle sharks have been known to bait-and-switch and devour orbiting remoras.

The Bloodsucking Parasite relationship is a lot easier to anticipate and is always antagonistic. In most cases, it triggers an instant immune system response, which, translating to business, amounts to legal action.

The only long-term sustainable network-piggybacking, then, is the Happy Clownfish. Both the clownfish and the sea anemone need each other. Their respective physiologies are a clue. A clownfish will never grow poisonous tentacles to sting potential predators and a sea anemone will never grow fins to swim.

To be a clownfish in a sea anemone, your network needs to provide high-contrast, high-value-add differentiation with significant barriers to entry, otherwise you risk coming across like one of thousands of commoditized remoras. Facebook doesn’t want to build its own music library and Spotify isn’t interested in connecting the world outside of music.

There are three factors that determine success with piggybacking:

1. If the host explicitly calls for piggybackers, be the first to the party

When Facebook opened its platform to external developers, Zynga jumped on board and gained rapid adoption. Many startups that followed failed to get such adoption because users had become more sophisticated to the viral invites by that time and Facebook, as well, started dampening the spread of these invites subsequently.

Being the first to the party helps to get users deeply engaged before they get sophisticated and start ignoring messages from other services that follow.

Be the first clownfish to get to your sea anemone.

2. If you can build for backward compatibility, ensure you add value to the underlying platform

YouTube solved a problem for MySpace bands. Flickr solved a problem for bloggers. Paypal solved multiple pain points for buyers and sellers on eBay. Be the useful remora that eats the little parasites on the shark.

3. Be the first to reverse-engineer before the host wises up

When stealing traction parasitically, it pays to be the first to discover the chink in the armor of host network. Airbnb gained traction before Craigslist wisened up. But every startup that has tried that strategy subsequently has failed to replicate the same success and has instead been caught in a legal quagmire.

Being first to piggyback a host network is the most important determiner of success. There is typically a time window while these strategies work. And almost always, first-to-the-party wins. When the host wants you to piggyback, there’s a window while it will be effective. When the host doesn’t want it, there’s a window before which the host wises up. In either case, being first helps.

The story of many of today’s large social networks and marketplaces follows similar trajectories. Bringing in users through linear funnel hacking tactics often prove counter-productive. Finding a new network and piggybacking it helps gain traction among enough users simultaneously and build network effects.

So the next time you hear about a startup boasting a zero dollar marketing budget and putting it all on building a great product, think again! Piggybacking is the new marketing for the age of the network effect.

Note: This article  first appeared on TheNextWeb. This article was co-authored with Patrick Vlaskovits, the NY Times BestSelling Author of The Lean Entrepreneur.

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On that age old debate, Bootstrapping Vs Venture Capital

“The best way to do something ‘lean’ is to gather a tight group of people, give them very little money, and very little time.” – Bob Klein, chief engineer of the Grumman F-14 program.

I first came upon this quote on Paul Graham’s website, and it always intrigued me, the small detail about the money – it could be little or a lot, but money is a factor, and a very important factor at that.

Bob Klein’s F-14 program is now legendary in aviation history; the Tomcat was one of the airplanes I was familiar with even in the Indian Air Force circles of the 90’s. Designed to fulfill duties both as a air superiority fighter as well as a naval interceptor, the F-14 Tomcat was easily one of the greatest airplanes ever built then, and Bob Klein did it, as he said, by keeping it fast and cheap.

Bootstrapping or Venture Capital

So is that the blueprint to build something amazing and meaningful? To just sit down, tighten your belt and do it, what we call bootstrapping, or is embracing the stability of venture capital a better way?

It’s an important question in the context of the product startup, and I believe there’s no right and wrong answer to it.

Last week, in a conversation with iSPIRT’s co-founder Sharad Sharma, this topic came up and proceeded to lay claim our entire discussion. When these days a bootstrapped startup is seen as something of an aberration, and scale is seen as validation, Sharad maintained that there’s no formula here; both these paths can lead to success, if followed with caution and perseverance.

Quoting Sharad –

“When you are building something that hinges on a market prediction, that so and so market will be worth so and so in 2025, and you want to be there to fill that gap, then VC funding for the idea and for you is probably the way to go. But if you have no such idea or bet on the future for what you are building; it’s much more experimental (which is ok, that’s how innovation happens), then bootstrapping might make better sense, even if just for the sake of flexibility and more control.”

I could find no reason to disagree.

The Zoho Example

The success of Zoho, the poster child for the bootstrapped product startup, is now quite well known. And all of it with not a penny in external funding. The company is growing, has always been growing, and has just announced a bold move to make one of its flagship products completely free. These are big decisions, made strategically and with a much larger gameplan. Zoho has always stood for something, and its clear, unmuddled decision making has been one of its strengths through the years.

Would Zoho have been able to make such decisions if a member of its board was an investor? Perhaps, but not very likely.

Which I think is significant. What ails the ecosystem these days is a ‘go big or go home’ attitude that typically results in an organization and a product that scales far ahead of its time, resulting in chaos and sometimes even graver problems. Zoho didn’t fall into that trap, it took its own time, and now stands tall as an organization.

Sometimes VC money, though a huge competitive advantage, can come with its own baggage, and the pressure of having to execute something extraordinary all the time can weigh down on doing what actually needs to be done.

But sometimes that baggage is exactly what you want.

The Zomato Story

When Deepinder Goyal started Zomato off, he certainly would not have known that the product he was building, a restaurant review and recommendations site that is today used in 40 cities across the world, would change the entire landscape of eating out. He would have had a vision, but of course he could never have knows what exact shape his business was taking. But he knew he had something; he raised funding. Venture capital stood him up as he expanded hard and fast and cool. It was great to watch.

Would Zomato have been able to scale the way it did without venture capital? The answer is an emphatic no. The awesomeness of the Zomato model rested on its ability to execute, and they did it magnificently well; waiting was something Zomato could not have afforded anyway.

In this case, the VC prerogative to execute fast and hard tied in perfectly with what Zomato itself wanted to do. What resulted is Zomato’s incredible success as a platform, a lovely example of using funding to take an idea big.

“There is no formula”

Again, though, Sharad put in a word of caution – it all depends. This may be a good rule of thumb but there is no formula. Product startups are all different from each other, and what works for one is not at all guaranteed to work for another.

And this is when it struck me that there’s a third category here as well, the perfect example of which is that darling of the younger generation, Instagram.

The Instagram Model

Instagram started out as Burbn, a location sharing app with the option of taking a photo thrown in, but then pivoted to the unbelievably successful photo sharing app we know. And they were funded from the beginning by Andreessen Horowitz and Baseline Ventures.

So here’s a venture funded company, which was trying to build something purely ‘social’ and ‘viral’ in parlance, and the VC’s let them experiment to an extent as to change the focus of the product itself. This is the third kind, the company which adds the no-commitments freedom of bootstrapping to the competitive advantage of venture capital, and becomes a sort of hybrid, absorbing the good in both approaches and ridding itself of the bad.

An important point here is that Instagram never really had a monetization plan in the first place (other companies like this include Tumblr, Twitter, Foursquare, and so on). Positioned for acquisition because of the exponential increase in their user base, they could tread this middle ground with the confidence of knife edged focus.

WhatsApp also did something similar. When Jan Koum and Brian Acton started working full time on WhatsApp, they already had $250000 in funding from friends, which meant that they had the freedom to innovate and at the same time had the stability of capital.

The Last Word

In 1986, Tony Scott’s Top Gun hit the silver screen, in which a young man called Tom Cruise flew a F-14 Tomcat to box office glory and superstardom. The immediate aftermath was that the US Armed Forces were overwhelmed with young people wanting to sign up for service, so much so that the US Navy opened recruitment desks outside cinema halls.

The Tomcat became the symbol of a generation, the high of the air and the allure of uniform combining to give an era its own narrative. And it was exhilarating.

It was a small team that built it. With the entire might of Grumman (later Northrop Grumman) behind them, Bob Klein could have done it in any way he wanted, but he and his team chose the best way for the specific thing they wanted to do, and executed.

And that’s exactly what we can learn from them – that there’s no ‘one size fits all’ answer to this question, and the ecosystem should encourage bootstrapping as as much of a viable pathway to growth as venture capital.

As for the startup, it should choose wisely.