By Tanya Rosenblat
In 2009, the military’s Defense Advanced Research Projects Agency (DARPA) conducted a competition to find 10 moored red balloons at 10 secret locations within the continental United States. A team from MIT won the $40,000 prize by using an ingenious social marketing campaign: participants could sign up on the team’s website and refer friends. These friends, in return, could refer others and so on. Whoever found a balloon and submitted the location to the team’s website would receive $2,000 if the team won. If that finder had been referred by someone, the referrer would get $1,000. The referrer’s referrer would get $500 and so on. It turns out that the payout for any balloon was always less than $4,000 and therefore the prize money was sufficient to pay everyone (hint: $2,000+$1,000+$500+… is a geometric series).
The winning team used a technique which is closely related to social or “multi-level” marketing incentives. For example, Dropbox offers users some extra storage space for referring their friends. Vonage and other phone providers offer a free month of service for every successful referral. Google’s Gmail service was by invitation only from 2004 until 2007 when it was opened to the general public. Every referred Gmail user received a small number of invitations to invite friends. Google used the same strategy for many other new services such as Google Voice in 2009 and the Google Glass explorer program in 2013.