Seth Godin blogged on the difference between word of mouth and viral marketing, and since the misuse of the term "viral marketing" has bugged me for a long time, I think it's worth commenting on. While I know Seth can talk for an hour (or write a whole book) about viral marketing, I think he shortchanged the explanation in his post. The basic difference, as Seth explains, is that word of mouth decays and viral marketing compounds. This isn't exactly right, I humbly submit, because both word of mouth and viral marketing can involve compounding, and they both can and will eventually decay. The difference is in the method of transmission of the idea and the source of the energy used to propogate it.
So here's my take on it, perhaps influenced by my distant pre-med past. A virus is characterized by the ability to get a cell to make copies of the virus instead of itself, by injecting a genetic package into the cell. Thus the cell becomes the energy source for creating new viruses. (Unlike other types of cells which use their internal energy to reproduce.) Once a whole bunch of new viruses have been created, they bust out and infect new cells, compounding the growth and spread of the virus. Hence the term "viral marketing" for something that creates this compounding effect by getting "infected" people to reproduce something that in turn infects others.
Too often, however, the term is applied to phenomena that are simply really good word of mouth. Someone tells you to visit a great website with hysterical pictures on it, and you do, and you like it, and you tell 5 friends to visit that website. They tell 5 friends, and so on, and pretty soon the website has a $15 billion valuation. But there's no viral marketing going on in that example. Just good word of mouth. The interaction between infected "cell" and a new host doesn't involve the transmission of the virus itself from one to the other.
On the other hand, if I visit that website and there's this app that helps me make a really funny picture, and I click a button that says "send this image to 5 friends" and I do, and in that email my friends see the image and after laughing their asses off notice that below the image it says "Jeff made this image on ROTFLMAO.com, and you can too!" and they not only forward the email I sent them to 5 more friends, but visit the site, make their own images and forward those to 5 friends, you've got a real viral marketing engine going there.
The difference, to me at least, is that in the first example the thing that you're trying to increase isn't transmitted to others. They just hear about it, and have to go see for themselves before becoming "infected" by the brilliant website. In the viral example, the act of telling the friends about it "infects" them. Some of the infected ones will successfully reproduce the virus and infect others.
Why does this difference matter? Well, like Seth says, good word of mouth is great, but tends to dissipate as it gets further from the source of energy, the person that had the original experience. Eventually the experience has lost too much energy to inspire anyone to pass it on. "My friend's cousin's girlfriend's sister's niece's babysitter saw this great website" Yeah, whatever.
A real viral campaign carries the original, infecting experience to each person it touches. Everyone gets hit with the *original* level of energy, and the likelihood that the virus will be passed on doesn't change as it spreads further from the original source.
There's nothing wrong with good word of mouth, it just ain't a virus.