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While it is fun to throw about theories about what works and what doesn’t in viral marketing, the fact is that there is precious little public analysis about online behavior in the face of social economic incentives.

The most detailed analysis I’ve been able to find is “The Dynamics of Viral Marketing“, which looked at real data from an e-commerce site that provided a simple incentive–recommend what you’ve bought and you + the first person who buys off your recommendation get 10% off.

We present an analysis of a person-to-person recommendation network, consisting of 4 million people who made 16 million recommendations on half a
million products. We observe the propagation of recommendations and the cascade sizes, which we explain by a simple stochastic model. We analyze how user behavior varies within user communities defined by a recommendation network. Product purchases follow a ’long tail’ where a significant share of purchases belongs to rarely sold items. We establish how the recommendation network grows over time and how effective it is from the viewpoint of the sender and receiver of the recommendations. While on average recommendations are not very effective at inducing purchases and do not spread very far, we present a
model that successfully identifies communities, product and pricing categories for which viral marketing seems to be very effective.

The great thing about the analysis is that the data set extends to three major categories (books, CDs, DVDs and videos) with lots of buyers over two years. The researchers draw some interesting conclusions, including the observation that “purchases that resulted from recommendations are just a drop in the bucket of sales that occur through the website”.

Reading the analysis it becomes clear that the etailer did a poor job of setting up a successful social incentive system and of providing the tools to let consumers take advantage of it. For example:

• By not imposing limits on the number of recommendations that could be sent out they allowed some people to become spammers, which negatively affected conversion for the recipients, even as far as other senders were concerned. No surprise here–by analogy, email spam has reduced the effectiveness of email as a marketing medium for everyone.
• By having a one-size-fits-all incentive system, the etailer did not take advantage of the fact that the dynamics of viral distribution vary by product category and price range. Imagine picking a simple marketing strategy and putting it in place for two years without change and without any A/B testing. No, that’s not how things should be done.
• The etailer provided no tools to help viral spreading beyond the ability to email people with a recommendation. No profiles, recommendation lists, interest groups, checkout notifications, recommendation-based cross-selling, etc.

To make effective use millions of distribution channels, e-commerce sites need to think systematically about social commerce. They need a strategy first. Then they need to realize that implementing a successful social commerce system will require investment not unlike that required to build any major part of their site.