Understanding Viral Products in SaaS

Introduction

Viral Features in Software as a Service (SaaS) have now become a science rather than an art form, flukes, or accidents. They are an important tool in the product marketing arsenal and are deeply rooted in the context and functionality of the product. Virality has caught the fascination of investors, founders, designers, executives, etc. watching applications spread like wildfire, capturing the imagination and engagement of users globally.

When products are designed to sell themselves and virality is executed optimally, it can lead to the holy grail of marketing outcomes i.e., a $0 Customer Acquisition Cost (CAC).

However, understand that not all virality is created equal, multiple strategic and operational considerations inform the product and its viral features. It may also take multiple tweaks and experiments before a product can go viral within a certain customer segment.

Types of Virality

Virality in SaaS products is multifaceted, encompassing various strategies and mechanisms that drive user acquisition and product growth. Understanding these types is important for any SaaS business aiming to leverage virality effectively. Let us examine a few different types of virality

Network Effects

Network effects occur when the value of a product or service increases as more people use it. This virality is potent in SaaS platforms where user collaboration or interaction is a core feature. For example, social media platforms become more valuable as more of your friends join, encouraging you to invite others. Similarly, a collaborative tool like project management software becomes more indispensable as more team members use it, creating a natural incentive for users to bring their entire team on board. However, they can drain a lot of capital when products have high standalone value for their ICP (Ideal Customer Profile).

Value Virality

Value virality is driven by the inherent value a product offers to its users. This virality is often seen in SaaS products that solve a significant problem or improve an existing solution so dramatically that users naturally want to share their positive experiences with others. For example, a SaaS product like Dropbox significantly simplifies a complex, time-consuming file-sharing process by sending a link and users can experience virality as satisfied users share their files with non-users, leading to organic growth.

Exposure Virality

Exposure virality occurs when a product gains visibility through its use. This is common in SaaS products that include a branding element in their output, such as a watermark or a signature line. For example, an email marketing tool that includes a "Sent using iPhone" tag in every email sent through its platform exposes the product to a wider audience, creating potential for viral growth.

Word of Mouth

Word of mouth is one of the oldest and most effective forms of virality. In SaaS, this happens when users share their positive experiences with peers, either in person or through social media and other digital channels. The credibility of personal recommendations, especially from trusted sources, can significantly influence the adoption of a SaaS product. A user's genuine endorsement, sharing how a particular tool or service has made their life easier, can be more persuasive than traditional marketing efforts.

Invites and Referrals

Many SaaS products incorporate invite and referral systems to encourage existing users to bring new users into the fold. These systems often offer incentives, such as more features, extended trial periods, or discounts, for both the referrer and the referee. This method not only helps in acquiring new users but also reinforces the loyalty of existing users. Box, for example, successfully used this strategy by offering extra storage space for both parties involved in a successful referral.

Native Shareability

Some SaaS products are designed with features that naturally encourage sharing. This could be through collaborative features, easy export and import options, or integrations with other commonly used platforms. For example, a document editing tool that allows for easy sharing and collaborative editing can experience virality as users invite others to collaborate on documents.

Content Virality

Content virality is a strategy where the content created within or for a SaaS product becomes the driver for virality. This could be through user-generated content that gains popularity or through high-quality, branded content that users want to share. For example, a SaaS tool that helps create engaging infographics might see virality as the infographics created with the tool are shared across different platforms.

Embedded Virality

Embedded virality occurs when a product is designed so its use naturally involves other potential users. For example, a scheduling tool that requires input from multiple users for meeting times inherently encourages those users to engage with the tool, potentially leading to new sign-ups.

Gamification and Behavioral Incentives

Incorporating elements of gamification, such as points, badges, and leaderboards, can encourage users to engage more deeply with a SaaS product and share their achievements or status. This virality taps into the psychological parts of competition and achievement, encouraging users to spread the word as they climb up the ranks or earn rewards.

Integration Virality

This virality occurs when a SaaS product integrates seamlessly with other popular platforms, thus gaining exposure to the users of those platforms. For example, a new CRM tool that offers deep integration with a popular email service can experience virality as users of the email service discover and start using the CRM tool for added convenience.

Key Product Considerations

Not every viral feature works for every product, every context, or across user lifecycles. For example, customizations are more capital-intensive than implementing standard viral features. Let us examine a few considerations.

User Lifecycle

For new products, strategies like Word of Mouth and Content Virality are both easy to implement and effective for initial user acquisition. Conversely, establishing Network Effects is more challenging at this stage but essential for products dependent on user interaction. As the product matures, Integration and Exposure Virality become feasible options to maintain growth momentum. However, mature products face a tougher challenge in implementing Value Virality and Native Shareability, which, despite their complexity, are important for sustained long-term growth.

Customization vs. Standardization

Some viral features like gamification might require more customization to fit the specific context of the product, but others like exposure virality can be more standardized.

Direct vs. Indirect Impact

Some features directly affect user acquisition (like referrals), while others might indirectly contribute to growth by enhancing user engagement or satisfaction, which leads to virality.

Design and Execution of Viral Features

The design and execution of viral features require multiple considerations e.g., strategic, operational, financial, and technical. Virality must be designed, executed, and measured through several factors mentioned below.

Strategic Considerations

Viral features are a nuanced vector of product growth, and the User Involvement vs. Impact Potential matrix emerges as a crucial tool. It delineates the relationship between the degree of user engagement needed and the potential growth impact of various virality types. At one end, we find Referrals and Invites, demanding high user involvement but offering the reward of significant growth. In contrast, Network Effects and Embedded Virality represent a less demanding path for users, yet they hold the power to elevate a product's growth substantially. On a different spectrum, Gamification and Behavioral Incentives, despite requiring active user participation, might not yield as high an impact as the strategies. Last, Exposure Virality stands out for its minimal user effort requirement, but this ease comes at the cost of potentially lower growth impact. This matrix serves as a strategic guide, helping to align virality tactics with user engagement levels and growth goals.

Tactical Considerations

To operationalize virality, the concept of the Viral Coefficient (VC) emerges as a pivotal metric, offering profound insights into user-driven growth. This metric essentially measures the rate at which a product or service gains new users through the referrals of existing users, serving as an important growth Key Performance Indicator (KPI). The VC is also called the K-factor in various bodies of knowledge.

The formula for calculating the VC is straightforward yet powerful:

VC = R (average number of referrals per customer) × CR (average conversion rate of these referrals).

To break this down, R is determined by dividing the total number of referrals by the total number of existing customers. For example, if a SaaS product has 100 customers and they collectively make 200 referrals, R would be 2.

CR is calculated by dividing the total number of referrals that convert into paying customers by the total number of referrals. For example, if out of 200 referrals, 40 become paying customers, the CR would be 0.2 (40/200).

Combining these figures gives us the VC. For example, with R as 2 and CR as 0.2, the VC would be 0.4 (2 × 0.2). This means that each existing customer is adding, on average, 0.4 new customers to the product. A VC greater than 1 is a hallmark of a truly viral product, suggesting exponential user growth. To amplify a product's virality, strategies should focus on enhancing both the referral rate and the conversion rate, thus boosting the VC, and driving sustainable growth.

Conclusion

The science of virality blends strategic insight with tactical execution. SaaS virality is not a one-size-fits-all solution; it requires a nuanced understanding of various types and their applicability across different stages of a product's lifecycle. The tactical part of virality, particularly the calculation and optimization of the Viral Coefficient (VC >1) through referrals and conversion. Mastering the art and science of virality is more than just a marketing strategy; it's a fundamental cornerstone for sustainable success in the competitive world of SaaS.