Source: saunderslog.com

19th century economists argued that surplus value, or capital, came from production. Raw materials and labor create value, not trade. Socialists, like Marx, argued that trade was simply the mechanism for goods to reach the market, and created no value in and of itself. Capitalists, by contrast, believed in the accumulation of that surplus through trade.  Ultimately, the capitalist view won out. 

A hundred years later a similar model of social capital was invented in the sixties and seventies. Economist Pierre Bordieu defined social capital as being the actual or potential resources linked to the possession of a network of durable relationships. Intuitively we all know this. Put more simply, Bordieu is saying that there’s value in who you know, and the quality of those relationships.

American Robert Putnam distinguished between the various types of social capital. Bonding and bridging capital refer to tightly linked and deep relationships as opposed to weaker ties. Individuals tend to have a small circle of tight relationships, and a much larger circle of weaker ties. Ironically, the most valuable ties, from a business perspective, are those weak ties. Weak ties bring fresh viewpoints and information into social networks that tight knit groups of people with similar viewpoints are unlikely to discover on their own. Paradoxically, as today’s social networking applications are now beginning to understand, social networks with many weak ties allow information to disseminate more efficiently, and consequently grow much more quickly.

Figure 1 The Impact of "Weak Ties" on Facebook’s Growth

Researchers at Michigan State University have recently introduced a third idea to this mix – the idea of “maintained social capital” – to describe how individuals maintain valuable connections as they progress through life. Once established, connections must be nurtured and maintained in order to retain their value. Enter today’s social networking applications. Beginning with a foundation of “who you know”, networking applications like LinkedIn and Facebook allow individuals to easily build bridging relationships outside of their close networks. Moreover, the process of maintaining that social capital has never been easier, as these systems automatically expose others daily lives. Changing activities, events, birthdays, photographs, and tastes are now part of the maintenance capital which each person in the network can access.

In essence, social networks are markets for relationship information. Social networking applications are the agora where relationship connections are evaluated, exchanged, made, broken and ultimately valued. As a result of trade in social relationships, facilitated by formal membership in a networking application – or market place – the accumulation and concentration of social capital is happening at an unprecedented pace.

The consequences of this market place of relationships cannot be underestimated. For example, consider the evolution of information discovery on the Internet. In the early days, carefully catalogued indices reigned supreme, with Yahoo! as the leading vendor. As time went on, and the volume of information became unmanageable, algorithms took over. Google’s Page Rank became the one to beat. But even Google users suffer from information overload today. The next phase in information discovery on the Internet is a return to a simpler model – information sharing rather than search – and a return to the trust relationships which that implies.

Figure 2 The Evolution of Information Discovery

Notions of identity are also stretched in this relationships marketplace. As users increasingly live their private lives in the public sphere, social interactions become persistent, searchable, and replicable. Trusted identity authorities become the lynch pins of social networking applications. Identity elements move beyond the simple and obvious names, addresses and phone numbers, to encompass personal taste, geography, interests, what you write and who you know. The amalgam of these personally identifying elements into identity, combined with the trust relationships implied in social networking applications, will force the reinvention of directories and the directory businesses. What is the business of the Yellow Pages directory in a world largely driven by word of mouth and referrals, for instance? And what of the rush of the IM giants to accumulate the “identities” of their users in a world where old ideas of identity have lost their relevance?

Many people can remember the first time they saw a URL on a billboard or the side of a truck.  A harbinger of the way in which the Internet would change the world, at the time it was an utterly foreign concept.  As the social graph being accumulated and documented online reaches into every aspect of our lives and businesses, what are the implications for the future? 

More on that, in part 2 of this post. Stay tuned.