Learning, and Profiting, from Online Friendships

Companies are working fast to figure out how to make money from the wealth of data they're beginning to have about our online friendships

By Stephen Baker

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A question: If you have 347 followers on the Twitter microblogging service, what are the chances that they'll click on the same online ad you clicked on last night? Advertisers are dying to know. Or, say you and a colleague exchange e-mails on a Saturday night. Can managers assume that you have a tight working relationship? Researchers at IBM and Massachusetts Institute of Technology are investigating.

Friendships aren't what they used to be. We now have tools, from e-mail to social networks, to keep in touch with people who a decade ago would have drifted into distant memories. Practically every hand we shake and every business card we exchange can lead to an invitation, sometimes within minutes, for a "friendship" on LinkedIn or Facebook. And unless we sever them, these ties could linger for the rest of our lives.

What do these relationships say about us and the people in our networks? Companies armed with rich new data and powerful computers are beginning to explore these questions. They're finding that digital friendships speak volumes about us as consumers and workers, and decoding the data can lead to profitable insights. Calculating the value of these relationships has become a defining challenge for businesses and individuals.

Marketers are leading the way. They're finding that if our friends buy something, there's a better-than-average chance we'll buy it, too. It's a simple insight but one that could lead to targeted messaging in an age of growing media clutter.

The second arena for study is inside companies. Businesses such as Hewlett-Packard and IBM (IBM) are researching employees' relationships with an eye to quickening the flow of knowledge and the generation of ideas within their ranks. One team at IBM Research, studying anonymous data of Big Blue's consultants, concluded that employees who forged tighter e-mail connections with their boss brought in on average $588 more in monthly revenue. This is early-stage research, but the goal is to distill patterns of successful communication and replicate valuable links throughout the company.

For most of us, the business value of networked friends is tied to a third area, personal opportunity. In addition to companionship, friends online represent a turbocharged Rolodex for entrepreneurs and job seekers inside and outside companies. These collections of contacts expand social horizons, keeping us in touch with more people who can provide ideas, answers, business leads, and even legal advice. Those who master these connections stand to win a big edge: the connections and brainpower of a large team.

"A NEW UNDERSTANDING"

An immense new laboratory of human relations is taking shape. Millions of us are playing, working, flirting, and socializing online—and producing oceans of data. Duncan J. Watts, a Columbia University sociologist now on leave and heading a research unit at Yahoo!, marvels at the change. "When I started network research 12 years ago, we had virtually no data," he says. Now he and his team can study the network behavior of 295 million e-mailers and legions of the 200 million Facebook users. For social scientists, Watts says, this flood of data could be as transformative as Galileo's telescope was for the physical sciences: "It gives us a new understanding of our world and ourselves."

But managing hundreds or even thousands of relationships is a thorny challenge. Which friends go where? A couple of months ago, Fred Wilson, a venture capitalist in New York, decided to reduce the 360 people on his Facebook crowd into a circle of intimates. He kept the 56 he could see inviting to a wedding or bar mitzvah. The rest? "I nuked them," he says.

Others find value in a sizable following. Earlier this year, Jason Calacanis, founder of the search engine Mahalo, offered to pay Twitter $250,000 to put his account on a recommended list for the service's users. He says he was "half joking" but believes the investment would have paid off.

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