Marketers Tapping into Social Networks

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

Data about behavior among online friends can be deceptive, says Danah Boyd Shawn G. Henry
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.

He figures the recommendation would have steered 5 million to 15 million new followers his way within two years and that many would have made their way to his company's Web site. "If 10% click on a link [to Mahalo] once a month," he writes in an e-mail, "you have about 1 million visits a year. ... I'd pay 5 cents for a follower." Lots of businesses, he says, could benefit from such followings. An airline such as JetBlue could offer discounts to the first 1,000 people who respond and "never [have] another empty seat."

While Calacanis tries to build crowds, advertisers are more interested in understanding individuals. Decoding friendship, many believe, could be the key to getting consumers' attention. Historically, this wasn't so hard. Information was in short supply, and by comparison, time was cheap. Not long ago millions waited through entire newscasts just to learn who won a game or what tomorrow's weather would be. This was ideal for advertisers: They had a captive audience.

Now we're swimming in information. We can call up nearly every bit of news, music, and entertainment we want on demand. In fact, there's so much of it that we need filters to block the boring or irrelevant stuff and help us find the bits we need or desire. This has created what many call the "Attention Economy." Says Bernardo A. Huberman, director of the Information Dynamics Laboratory at Hewlett-Packard: "The value of most information has collapsed to zero. The only scarce resource is attention." So how do we figure out where to direct it?

The easiest way is to get tips from friends. They're our trusted sources. At least a few of them know us better than any algorithm ever could. Little surprise, then, that the companies most eager to command our attention are studying which friends we listen to. Online friendship is a hot focus for Facebook, Google, and Yahoo. They joust to hire leading sociologists, anthropologists, and microeconomists from MIT, Harvard, and Berkeley. Microsoft just established a research division focused on social sciences in Cambridge, Mass.

Statistically, friends tend to behave alike. A couple of years ago researchers at Yahoo found that if someone clicked on an online ad, the people on his or her instant chat buddy list, when served the same ad, were three to four times more likely than average to click on it. It makes sense. Friends share interests.

But it raised lots of questions. Which types of friends have the most meaningful correlations with each other? People have always confided in a small circle of intimates, often only two or three. They've also had wider circles of experts for specific advice, whether on cars or cooking. Then there's a broader circle of acquaintances whose opinions count far less but who can still generate buzz about a new restaurant or senatorial candidate. By studying patterns of interactions on networks—often scrutinizing us only as anonymous bits of data—researchers are working to predict which friends we trust and which we pay attention to in each area of our lives. The data can be hard to interpret, says danah boyd, a Berkeley PhD who just signed on at Microsoft Research. (She changed her name to lower case). "You may e-mail your mother less frequently than a colleague, but it's not that she's trusted less."

In an office above Palo Alto's University Avenue, a lean 32-year-old PhD from MIT's Media Lab pores over the data connecting millions of dots. Cameron A. Marlow, a research scientist at Facebook, has perhaps the greatest lab in history for studying friendship. He can study social media communications including wall posts, shared photos, pokes, and friend requests among 200 million people.

IGNORING THE ADS
For all its popularity, Facebook has yet to prove itself as an advertising platform. Visitors, it seems, focus on their friends and pay scant attention to ads. Few click on them, and advertisers pay pennies for page views. Consequently, Facebook, with its estimated revenue of $300 million this year, brings in scarcely a dime a month per member.

The hope is that if Marlow and his team manage to track the paths of influence among its communities, the company might be able to offer more effective and lucrative advertisements and promotions.

An early step is to separate each user's friends into clusters. Marlow pulls out a chart illustrating the social network of one of his colleagues, Alex Smith. It shows different groups of dots and their connecting links. One big and busy group represents fellow workers at Facebook. Others are high school friends, family, in-laws, frat brothers. Understanding these types of relationships could provide valuable context.

Marlow's team recently carried out a study to determine how close we are to our friends online. They looked at how often people clicked on their friends' news or photos, how often they communicated, and if the communications traveled in both directions. Studying this data, they determined that an average Facebook user with 500 friends actively follows the news on only 40 of them, communicates with 20, and keeps in close touch with about 10. Those with smaller networks follow even fewer. What can this teach advertisers? People don't pay much attention to most of their online friends. By focusing campaigns on people who interact with each other, they'll likely get better results.

It's an inexact science, to be sure. But that's not stopping a host of startups from hitching friendship analysis to advertising and media campaigns. A New York company, 33Across, has partnerships with social networks, instant chat providers, and makers of online applications known as widgets. Each of these partners tags users with bits of tracking code known as cookies. These let 33Across stitch together friendship profiles of tens of millions of people, says CEO Eric Wheeler. The people remain nameless numbers, but the company knows which ones are connected to which, how strong the connection is, and how many others are in their circles. Working with packaged goods companies, 33Across has focused on thousands of people who have bought a product online, sprinkling ads for the same item along the online pathways of millions of their friends.

FRIENDSHIP DATA
In an industry where the majority of ads go unclicked, even a small boost can make a big difference. One San Francisco advertising company, Rapleaf, carried out a friend-based campaign for a credit-card company that wanted to sell bank products to existing customers. Tailoring offers based on friends' responses helped lift the average click rate from 0.9% to 2.7%. Although 97.3% of the people surfed past the ads, the click rate still tripled.

Rapleaf, which has harvested data from blogs, online forums, and social networks, says it follows the network behavior of 480 million people. It furnishes friendship data to help customers fine-tune their promotions. Its studies indicate borrowers are a better bet if their friends have higher credit ratings. This might mean a home buyer with a middling credit risk score of 550 should be treated as closer to 600 if most of his or her friends are in that range, says Rapleaf CEO Auren Hoffman.

Such intelligence could prove useful for a financial company. While no one would automatically green-light borrowers based on their friends, the friendship data could lead them to assign a human to see if the mathematical model is missing something. "They pay more than $100 in marketing to [attract] customers," Hoffman says. "If they reject you, they lose it."

Friendship data promise insights into not only the marketplace but also the corporation. Researchers can trace the hidden networks, identifying both the people who transmit valuable information and those who appear to block it—and how workers bypass them. By studying these patterns, managers can promote effective networkers and try to bring less communicative colleagues—outliers—into the flow.

To build up communication within the company, IBM Research scours its networks for employees with similar interests and expertise—and suggests them as friends. One key laboratory for IBM is its internal social network called Beehive, in which nearly 60,000 employees discuss patents, critique software code, and even post photos of pets.

Researcher Werner Geyer and his team sift through Beehive for correlations. Working with a control group of 3,000 employees, Geyer's team analyzed the words employees used, friends they had in common, blogs they left comments on, and many other variables. Then they suggested possible friends. Their most successful group added an average of 3.68 new friends to their networks, more than three times the average of the control group. The idea: Each new friend plugs an IBM worker into another sphere of knowledge and human contacts. "These could be valuable mentor connections," says Geyer.

For many, the question is not how to interpret friendship data but how to manage these networks and fit them into careers. Reid Hoffman, LinkedIn's founder, has built his entire company on extending webs of relations. The idea is that while each of us likely will switch jobs seven or eight times in our careers, we continue to build a network of friends that can sustain us.

LinkedIn's Hoffman sees himself as a test case for the value of casual friends. He says he has 1,864 contacts on LinkedIn. While he has met almost all of them personally, he admits that it sometimes takes a moment or two to recall some of them. "I think of them as light alliances," he says. But they have a value. According to studies, the contacts outside of our close friendships are more likely to lead us to new opportunities. Their networks have less overlap and extend into different areas.

Hoffman looks at friendship as a marketplace in which we trade favors. He says he can create an opportunity for someone by taking 30 seconds and whipping off an introduction to a friend. It's a small investment of time with a potentially big payoff. Both of his contacts benefit, and they have Hoffman to thank. His reputation inches up. But consider the risks. If Hoffman has misread one of his weak ties, the person he recommends might end up being a loafer, or worse. In that case, Hoffman's reputation takes a hit.

All of networked humanity mingles in this vast marketplace, trading information, creating alliances, doing favors. We may not think of our connections in such mercantile terms. But for business and individuals alike, the value in online friendship is poised to grow.

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Baker is a senior writer for BusinessWeek in New York.


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