<B>How much is a network worth?</B>

Enrique Dans. Professor. Instituto de Empresa

24 March 2004

How much is your personal agenda worth? What price would you give to your company’s client list?

This is an elusive concept, with many different dimensions. It makes you think. It seems logical that my contact network, for example, has one value for me, but a different one for anybody else.

Not so long ago, a Professor at Columbia, Duncan Watts, received a lot of attention for an experiment that demonstrated to what degree technology had reduced our planet: the Small World project showed that any two people around the globe were at a maximum of six degrees of separation. By means of just six email messages, we can reach anyone we want. Others who have delved into this subject include Metcalfe and Reed. Their laws state that a network’s value is determined by exponential functions of the number of its users, corrected by certain factors, such as deduction of the number of users (to avoid assigning a value to people contacting themselves), or considering the type of network involved (one-to-one, as opposed to one-to-many or many-to-many networks).

We are starting to see interesting projects on the Net, like Spoke in the United States, or eConozco in Spain, which adopt interesting elements from the previous paragraphs. The idea is simple: you enter the network and invite your friends and contacts in. They, in turn, bring theirs, and your net starts taking shape. Eventually, following the Small World idea, it reaches unsuspected places. Of course, you don’t do this for fun, but rather in hopes of obtaining a certain value. Instead of a contact residing in my memory, and cropping up by chance in conversation, I now have a detailed, ordered map of my contact web.

Sizing up its value

Thus, for example, if I want to reach a certain person, I can see if my network reaches him or her and what the most suitable route could be. Obviously, everything hinges on a flawless privacy policy, and a business model based on development of value-added services for the network’s members. It is too soon to say whether these models will work; but for starters, they offer a good lesson on business in the new economy. Not only do they make use of viral marketing (the request for me to join the network comes from a friend, or, more often, from several), but they apply a principle we have seen frequently on the Internet: Build a network, because the network has a value. How much is it worth? Being from Galicia, I cannot help giving a typical Galician answer: it depends.

We can reach approximation of a network’s value by manipulating a few concrete variables. The first concerns size and number of members. The network of a socially active person is not the same as a hermit’s. For a company, the more clients it has, the better.

But then a second variable comes into play; not quantity, but quality. Clients indeed - but with how much information? Viewing two networks with an equal number of members, it seems reasonable that the one with higher-quality records (more information) is worth more. Finally, a third variable: the permission level. The network of a company whose relationship with clients is limited to filling their gas tanks is not the same as one that manages their personal finances. If somebody steals my agenda in a bar, for instance, the thief will have a network with a large number of contacts, and a lot of information on most of them, but surely a zero level of permission (“Yes, hello, good morning. I’m calling because I got your number from the agenda I stole from Enrique in a bar, and…” No, I am afraid that will not work).

Seen in that light, the lessons from eConozco seem interesting. First try to create the largest network, the best. Second, strive to maintain high “informative intensity,” and a good “information model.” And third, foster relations with clients to increase your permission level. In a networked economy, these seem to form part of the new rules of the game.


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