Just recently, I’ve been thinking more and more about the power of referrals as applied on to Internet businesses.
Think about Digg.com. I “digg” an news article, so I hit the “digg” button and it gets tossed onto the Digg.com list. Because I “digg” it, I am essentially referring it those who subscribe to the Digg feed of news articles. In aggregation with the crowd’s opinions, as well as with some newly discovered editorial color on top of it, my referral could get sent to the those who like the Digg referral style of consuming news, as a way of uncovering interesting news.
On NYTimes.com, I just learned that they consider the number of times a story is emailed a better measure of popularity than just the number of clicks to read a story. If you think about it, calculating most popular based on clicks can have a self-fulfilling prophecy aspect to it; those on the most popular list are seen by more users who click on them more, and those stories inevitably stay on the most popular lists longer than they should. But, if you think the number of times a story is emailed, then you realize that if someone were to think this story is great, then they’re going to refer it to friends. It’s an added metric on top of how many times the story is read and helps fine tune out of self-fulfilling prophecies.
A new site I was just introduced to works on the same referral principle: downfly.com. It is a simple application which allows you to post a link on the site and it gets “passed” to your social network. Every now and then, I’ll get an email from the system that sends me links that get passed to me. As I use it more, I find it to be entertaining, a great way to discover new sites, and I also get to see what people in my network are thinking about and consider important enough to pass down their social network chain. But as I become a “passer” of links, I can’t help but think about what I’m passing and why and the ramifications of passing. I want to pass good links, not junk. I don’t want to waste peoples’ time by passing stupid links. I think about the value they’re going to get and make sure they get some from whatever site/link I’m passing them. I also can’t help but think about what they think of me as they’re receiving my link passes. That would be something interesting to implement is a feedback system that allows people to easily comment or feedback on the stuff they’re getting, as a mechanism to see if I’m doing a good job or not.
I see this referral aspect also in my advising/investing business. I see part of my job eventually is to help my early stage companies raise funding. I also see part of my job is to utilize my network to bring them valuable business partnership opportunities. But I told myself long ago that I need to build trust in my referrals to these folks. Investors don’t want to keep seeing junk from you; they’ll never take your call if you keep wasting their time with lame businesses. Potential business partners don’t want to see junk either. I think deeply about whether there is true value in a partnership with someone before I introduce them. I don’t want to make frivolous introductions, again because I want to continue building trust in my network that when I refer somebody to them, that I’m not doing that randomly, and that 10 times out of 10 it will be something they should look at.
Look at the effects of referral:
1. You the referrer have a desire to bring value to the receivers of the referrals. This altruistic notion forms the basis of the positive effects and power of referrals.
2. You think heavily on what could be interesting or valuable to them, so you’re careful at referring things to them. Thus, you as a referrer need to get to know your receivers at some level to know what could be interesting to them. If you don’t know them well, your referrals could have a negative effect on you as the referrer as your referrals could be perceived as random or junk. They may ask you to stop. Refer effectively by getting to know your receivers.
3. Successful or valuable referring can have positive effects on your reputation. It builds trust in your receivers of the referrals that you are giving them something valuable. It also builds trust in the thing you’re referring, like a website, or business opportunity, or news story. It was checked out by the referrer, whom you trust, and thus you have a tendency to trust it more too.
4. If they like your referrals, you may get value back, in the form of good referrals or otherwise. If there is some measure of how good a referrer you are, like a ratings system, you can gain in reputation in a visible way. That rating is value to referrer, as is other things.
5. Referrals can be a better measure of popularity and “this is valuable or good” based on all of the above, and helps remove self-fulfilling prophecy effects of other forms of popularity measures.
6. You refer poorly, or annoyingly, and people will shut you off. Trust is lost, and thus reputation is lowered. And also they will lose trust in the thing you refer. As an entrepreneur, make sure you get referred by someone who is trustworthy as a referrer, and not somebody who has low or potentially low trust amongst the people you’re trying to get referred to. This can be very hard to determine who is trustworthy as a referrer and who is not, so tread carefully.
7. The system which enables referring effectively can use this as a viral marketing tool to gain more customers or users.
As I think on the effects of referral, I am going to try to employ it more often in thinking on product strategy with my companies.

Today, the headlines wrote that Miss Nevada in the Miss America competition would be replaced by another, on the revealing of exposed breast pictures and other ‘deemed inappropriate’ acts several years ago as a teenager. Apparently, a friend had taken those shots and then posted them on the Internet. Consequently, they were discovered and Miss Nevada was disqualified and the honor given to the next in line. She is realizing firsthand the dangers of actions which happened years ago coupled with the openness of the Web.
The Internet has become a place for free expression but fraught with unexpected consequences for those we express without restraint or forethought. We are in a transitional generation learning with trial by fire (or error) and missteps on what the Internet can do and what dangers it can represent.
Prior to the Internet, our society’s private information was very much protected by the lack of technology and by physical barriers. We never had to worry about people seeing our pictures because they just sat in old shoe boxes or albums and nobody could see them except those whom you wanted to. Our personal information was our own; what we did in our bedrooms, closets, and homes never had webcams focused on them or digital phone cams to send to others.
With the emergence of sharing tools in technology and on the Internet, it was now possible to take all that information and put it out there, often times simply because someone asked for it, or because we thought it would be funny….for the moment. Somehow in our naviete we thought that we could put it out there, it would do its thing, making someone laugh, or be just a passing comment on a post or instant message, and then we forgot about it, thinking it be lost in the masses of information on the Web.
The Web sometimes loses things, but most of the time it does not disappear. Search engines make finding things easier. We all get googled now before we meet people just to see what we can learn about them before we meet them. Information is archived on sites because every page a site has means more page loads for ads to be shown on. It doesn’t make sense for Web companies to blow old information away. Text gets saved and copied, and re-pasted or quoted somewhere else. Pictures and videos are saved and re-posted. Even if you think your picture is deleted in one place, someone else may have saved it for their own use and it may re-emerge.
So now it’s not our own naviete but the responsibility of others both close to you and not. Even if you don’t post something, someone else could. Embarassing pictures taken at an office party get posted to your favorite blog; your drunken actions at a frat party re-emerge to make you lose a job offer years later. The news is filled with instances where everyone is getting googled and embarassing information surfaces about that person that pre-Internet would never have been found, like to the detriment of Miss Nevada.
Openness is good and to the extent we can find out more about the people around us is probably positive in the long run. But for us, in the transitional generation, we have not done well enough in teaching our youth or ourselves about the dangers of posting text, pictures, and video on to the Net and the future ramifications of doing so. We need to do better in knowing that we need to think more carefully before we act impetuously in hitting the enter key. And that sometimes, our actions not only affect ourselves but others as well.
My hope is that our educational resources will add materials about the positive and negative aspects of posting to the Internet as soon as possible to their curricula. And for us, who are out there with our school days behind us, I hope that we can just pause a moment before we hit that enter key and think on whether sending that file or post is really the right thing to do, even if it is funny in the moment.

It started way back in the middle of the Internet boom years. I got onto eBay and started bidding on toasters (I collect antique toasters…!) As I bought and sold stuff, I collected positive ratings for my transaction behavior. As my positive ratings grew, I became more obsessed with responding quickly and often about my transactions. If I was buying, I would send payment as soon as possible or notify the seller that I had a delay. Likewise for selling, I would make sure I respond quickly and let the buyer know exactly when to expect the item. My rating was my reputation on eBay and it became one of the most important things I would build on the Internet, which was a trust rating that I cherished and allowed me to do things on eBay with other members that untrusted, poorly rated members would not.
Around the same time, Who Wants to Be a Millionaire? became one of the hottest TV shows. But something that ABC did that not many knew about was the fact that you could play real time along with the show and compete against others also playing via the Internet. I also started playing along with the show and the designers of the Web game did some really great things like allow you to accumulate points upon answering questions successfully and in a timely fashion (more points for faster answering). Players with the most points were put up on a leaderboard which you strived for. It was amazing how many points some people had accumulated. It made you really try to get to the top of the leaderboard and feel….famous for being the best. And the world knew you were the best because the leaderboard was visible to all.
Fast forward to 2004 where I discovered that HotOrNot.com had put up the ability to send virtual flowers to people you liked and wanted to meet via its meeting service. But they did something clever. If you received virtual flowers, they would appear next to your picture. It gave you a sense of superiority; I’ve got 10 roses! How many do you have? It made you feel great about yourself and showed the world that others thought you were hot enough to send flowers to.
And now, as a frequent contributor to Yelp, I find myself racing to be the first reviewer of a restaurant. When you are, you get a little icon that states you are a first reviewer and then on your profile, it shows how many first reviews you’ve made. Then, I started writing witty reviews instead of boring ones. Because readers can rate reviews on the basis of Useful (big deal) or Cool (yeah!) or Funny (even better!). For some reason, I sought to write better reviews in an attempt to get more Cool and Funny ratings! It’s easy to write a Useful review, but not many can entertain or be noted for being “cool”.
Fame and competition go hand in hand on the Internet. It’s one of the best techniques for getting users continually engaged on your website. You hook them in by making them feel like they are the best at something, and let others know about it. If others can say your cool or the best, that’s even better because now you have validation from the crowd. How much validation do we get in real life, even from the people we know and love? Often times – ZIP. But on the Internet, the millions of surfers can come by and tag you as cool, or see that you’re the best at something.
Then since you know the crowd is watching, it makes you want to participate more, and it pushes you more to do better at whatever you’re participating in. It draws you in and the reward is fame and notoriety whereas in the real world you may not have that chance.
It’s easy to reward people with money. But it’s costly and you need money first before you can give it away. When the reward is not money, sometimes it’s more powerful at encouraging and reinforcing user engagement. I would argue that it is even more long lasting because if it’s some contest you’re in and you win, that’s where it usually ends. There is no more beyond that. With a well crafted fame and competition scheme, you can engage users for a much longer time and at much lower cost.
Working with my startups on developing fame and competition systems tailored for their services is something I think about all the time.