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The Technology of the Year SOCIAL NETWORK APPLICATIONS There's valuable information locked up inside your web of relationships. Who holds the key? The answer is now just a few keystrokes away.
By David Pescovitz

(Business 2.0) – In the beginning, there was the Oracle of Bacon. A playful website created by grad students at the University of Virginia in 1996, the site showed how Kevin Bacon's relationships with other actors placed him at the center of the Hollywood universe. Then came a doomed dotcom-era startup called SixDegrees. Launched in 1997, the site invited users to incorporate friends, family, and business contacts into an online community to help members find jobs and pals.

What started as a bit of Net-induced whimsy is rapidly spawning some of the most interesting business software on the planet. Call them social network applications--computer programs that analyze networks of people, their contacts, and even their ideas. The programs do everything from helping salespeople generate leads to ferreting out connections among criminals to matching people in sprawling corporations with other folks in-house who are working on similar projects. Social networking applies the power of the network to one of the most fundamental problems in all of business: finding the person who has the critical information you need, right when you need it. That's why Business 2.0 has selected social networks as our Technology of the Year for 2003.

Michael Cleland, a vice president at management consultancy Cap Gemini Ernst & Young in Silicon Valley, has already experienced the technology's potential. Cleland wanted to find an informal contact inside a large semiconductor company to learn more about the chip firm's consulting needs. Phone calls and e-mail queries turned up nothing, so Cleland tapped into Spoke Connect, a social networking system developed by Palo Alto-based Spoke Software. Founded in 2002, Spoke recently attracted $9.2 million in venture funding, and the company's roster of pilot clients also includes consulting firms EDS and A.T. Kearney.

Spoke works by indexing a firm's e-mail archives, address books, buddy lists, and calendars to build a map of the company's human network. The software also conducts Web searches to compile profiles about business prospects; these mini-biographies are augmented with quotes from online articles to provide background on a potential customer's interests or mind-set.

The software revealed that one of Cleland's close colleagues was friendly with a manager inside the semiconductor firm. A golf date was arranged, and Cleland got the information he needed. "Without the software, I would never have known about that connection inside the company," he says. Indeed, Spoke says its pilot clients are seeing a 20 percent increase in the number of leads that salespeople can pursue.

New York-based Visible Path notes that its social network tool shortens sales cycles by 27 percent and fattens deals by 10 percent. Its software also mines contact lists and customer-relationship management apps, and evaluates the strength of each relationship by considering factors such as how many e-mails were sent to a target, the ratio of responses, and response time.

Social network analysis first entered popular consciousness in 1967. That's when Harvard psychologist Stanley Milgram asked a group of volunteers to forward letters via acquaintances to a stockbroker who was identified only by his name, job, and general location. Milgram's "it's a small world after all" conclusion was that instead of taking dozens of hops, as expected, a typical letter reached its destination in just six steps--giving rise to the now-famous "six degrees" theory of social connection.

Since then, network analysis techniques have developed in tandem with the evolution of computing power. Graph theory--mathematics that represent objects by vertices and links--made it possible to assign quantitative values to social networks that represent how people interact. More recent advances assess the intimacy of connections using statistical theory that considers specific behavior patterns within a group. Today social network analysts study interactions as complex and varied as viral epidemics, terrorist organizations, and pathways to success in the corporate jungle. The Internet has democratized the field, putting the tools of social network analysis into the hands of, well, anyone who knows someone.

San Francisco-based Friendster, which recently received a reported $13 million in first-round VC funding, is a social networking site for young adults that's basically about social networking for its own sake. Friendster members--2 million have signed up since the site launched in March--create personal profiles and publicly identify friends who also use the service. They can then browse the profiles of friends, and friends of friends, up to four degrees away.

Other social networking sites are also in the works. Former PayPal exec Reid Hoffman has launched a service called LinkedIn that uses referral networks to connect employers with job seekers. Two other startups, Ryze and ZeroDegrees, help busy businesspeople expand their professional networks. Also in beta is Tribe.net, an effort to meld social networking technology with job listings and community bulletin boards.

Other firms are using social networking for crime prevention and security. Operating on the assumption that birds of a feather tend to flock together, Las Vegas-based Systems Research & Development works with casinos like MGM Grand and Bellagio to identify employees and customers who have "nonobvious relationships" with known criminals or con artists. The CIA has been so impressed by SRD's software that the agency's venture capital arm, In-Q-Tel, invested an undisclosed amount in the firm in 2002. Eventually, social networking technology may play a role in homeland security--say, by helping immigration officials assess the potential threat posed by travelers arriving from overseas.

Yet such possibilities also highlight the Achilles' heel of social networking technology: privacy. The intensive data mining and background snooping required to develop an accurate picture of social networks is likely to make many citizens (and employees) uneasy--as evidenced by the recent flap over JetBlue's disclosure of passenger information to a government software contractor. The desire to exploit social networks will inevitably conflict with the desire simply to be left alone. But in the end, the potential value of all that social capital will likely prove too tempting to resist. As it turns out, the old cliche--"It's not what you know, but who you know"--is truer than anyone ever realized. --DAVID PESCOVITZ