The network(ing) effect

To paraphrase Metcalfe’s law, the value of a network is proportional to the number of connections, squared (n²). Which is why valuations on social media platforms like Facebook and networking services like LinkedIn are mainly calculated on the number of users and subscribers, based on the volume of transactions and a notional value of each member engagement that can be sold to advertisers and other third parties. But as a user, these networks are largely two-dimensional – you are either “connected” to someone (or not), or you “like” something (or not? – Facebook does not support “dislike”). Whereas, in the real world, our relationships and connections are more multi-faceted, and our preferences are more nuanced than binary.

I was recently reminded of the 1990’s dinner party game, Six Degrees of Kevin Bacon, and the notion that we are all connected to each other by no more than six degrees of separation. At a networking event last month, I was talking to a senior executive from a major bank, whom I had just met. Within 5 minutes, we realised we had a number of mutual connections. In fact, when I looked at LinkedIn, I discovered we had more than 20 “1st degree” relationships in common, most of them deep network connections I have maintained over many years. And although LinkedIn was helpful in confirming the “proximity” of our business and personal networks, it was only by meeting in person that these links would have been identified.

Similarly, at lunch last week, a business associate I’ve known for several years’ mentioned names of two people he had been working with this year, in completely separate contexts and in unrelated situations. Turns out that I knew both of them personally. Again, LinkedIn may have been able to “confirm” these relationships, but the “value” was in already being connected.

So, this may suggest that the true network value of Facebook and LinkedIn is overstated, because:

a) the number of potential network connections far outweighs the number of actual connections

b) the limitation of binary classification of relationships does not allow for the depth and complexity inherent in our networks of relationships

c) neither platform allows users to build contextual connections (apart from basic linear profile information).

In the end, the quality of relationships wins out over the number of connections. As Kevin Bacon so aptly put it:

If social media and networking platforms measure success only by the number of “likes” and “followers”, then they devalue the importance of building deeper connections and sustainable network relationships.

Next week: Token Issuance Programs – the new structured finance?