Is Your Firm Socially Networked? Chances Are, It Will Be Soon

By Maria Trombly | Securities Industry News | June 7, 2004

June 7, 2004 - I joined a social network last week. Many of my friends and colleagues were already members, happily referring work to each other, giving advice and otherwise helping one another prosper.

The price of admission? I had to upload my Rolodex to the Web site run by the social networking company, which happened to be LinkedIn Ltd., the largest business-oriented public social networking company. Are they going to treat my contacts well?

Konstantin Guericke, the company's VP of marketing, assured me that all the contact information is kept private and is not divulged to other members, to the general public or sold to spammers. I immediately learned that many of my friends and acquaintances were already members (including a number of people who work on Wall Street).

The site tells me that my network currently includes close to 200,000 professionals. This means that I can reach any of those people in four steps or less, by asking for referrals. I can use the network to find a job (although, of course, I'm very happy in my present position). I can look for employees, research people and companies and find folks to do deals with. For example, there are 2,502 investment bankers in my network, if I'm ever in the market for investment banking services.

To keep the excitement going, LinkedIn showcases examples of deals completed, jobs found, employees hired and other successes prominently on the site. Is it any wonder that all these people are joining up?

LinkedIn, for example, had 40,000 users in mid-November of 2003, and is now up to over 550,000 users, who have uploaded more than 25 million contacts from their address books. Many of those 25 million will soon be getting e-mails asking them to join LinkedIn and participate in the network. According to Guericke, about 120,000 new users sign up each month.

"It's a bottom-up business," he said. "We find that it's very sensitive to get personal information from people, so we have to provide enough value that individuals will use it as a productivity tool. Then it becomes adopted at a company-wide level once the individuals are okay with it."

LinkedIn is already present at a lot of companies, he added. Of course, as with instant messaging, not all companies are necessarily aware that they have LinkedIn.

To help the process along, LinkedIn has a "workgroup" function on its site, where groups of people can join en masse. It's not a true enterprise product, because the contact information doesn't stay within a company's firewall but, rather, lives on the LinkedIn servers. There are currently no plans to create a true enterprise version of the product, Guericke said.

LinkedIn isn't the only social network out there, of course. It's not even the biggest one, although it is the largest business-oriented network. Others, like Friendster, are oriented more toward dating and personal relationships. New ones seem to pop up every day. So how does all this affect Wall Street firms?

Eating Snam
First, the bad news: Employees motivated to join these networks for personal or professional reasons are exposing themselves, and their Rolodexes, to the outside world. They can be headhunted when they're not actively looking for jobs, pitched products or services they might not want, and waste working hours dealing with contact requests from "a friend of a friend of a friend."

The last issue has given rise to a new term-"Snam"-meaning Spam generated by social networking systems.

"It's a problem if the Rolodex is out there in the public domain," said Chris Selland, VP of sell-side Research at the Aberdeen Group.

It's not as much of a security threat as e-mail or instant messaging, he said, but it opens up an unpleasant can of worms in that it removes the barrier between personal contacts and business contacts. "It's not controllable by the firm at all."

Then there's the good news. Companies can use social networks to make more money.

If a company is large enough, it can even create its own social network behind the firewall, so that employees' Rolodexes never need to be sent to third-party Web sites.

For example, 3i PLC, an investment trust with offices in 15 countries across Europe and Asia, wanted to create a virtual "one-room company."

"A lot of our competitors in each of those countries basically operate in one room," said Rod Perry, 3i's director of technology and human resources. "They can shout across the room at each other and say, Hey, do you know anyone at this company?' What we're really trying to do is bring the knowledge of who we know to the individual employees at the point that they need it, because our business is very much about relationships. Relationships with people win deals, win opportunities to invest in business."

In early 2003, 3i decided to implement a product called InterAction from Interface Software. "If you're in Hong Kong and want to know someone at Phillips in the Netherlands, you could look up Phillips, find out who at 3i knows anyone there, and talk directly to that individual at 3i," Perry said. "Then, very rapidly, you easily get the answers. Before that, we used to put a message on an intranet site internally and ask the question-does anyone know anybody? And it could take two weeks to get the responses. Now we can get those responses in minutes."

According to Perry, one useful application of the new tool has been to find new buyout business.

"We take majority stakes in businesses with our fund, and what we're trying to do is avoid an auction process," he said. "What we'd like to do is get in touch with the big vendor well in advance of anyone else getting there. When we see a possibility arise that someone might do some restructuring, we need to get there first, and that's an example where who knows who really comes in useful."

For example, an employee at the firm's office in Madrid wanted to contact a large German chemical company. An executive in Milan knew the right person, and InterAction was able to find that connection immediately.

"On a deal like that, we invested, say, $50 million," Perry said. "We expect to make at least three times our money for that deal. You can't say that social networking actually won us that deal, but it definitely helped us get there first. This system has been incredibly important to us."

To get employees to contribute their contacts to the system, 3i instituted a carrot-and-stick approach.

"In our annual reviews of individual staff, we divided it up so that people are measured not only in the deals they've done," he said. "Half of their bonus is due to contributing their contacts to the system."

But once the ball is rolling, he added, it becomes easier to get people to contribute. "They start to see the value to them personally of looking good in an office."

Because InterAction is an enterprise-quality social network system, it has a few features that public networks typically don't. For example, at 3i, it's integrated into Outlook. Employees can hit a button to find an InterAction contact, or hit another button to add a contact. They can also attach e-mails to InterAction contact records to keep a current activity record for that particular individual.

"You can find out what people are doing, when the last contact was made," said Perry. "And if you're interested in a particular area, business, or contact, it's possible to set triggers within InterAction so that you receive a message every time someone makes a change to that contact."

Employees at 3i use other social networks as well. "The technology investment business uses LinkedIn a lot," said Perry. "And several other public social networking tools as well. Those are complementary to this; it doesn't replace the internal systems."

The public systems are also more cumbersome to use, he added.

As long as employees know why they're using the networks, and are careful not to post confidential information, Perry said he's not concerned about possible security risks or employees being lured away by other firms.

"There are so many other ways of finding them anyway," he said.

Search Mission
Another enterprise-level social networking vendor is Contact Network Corp., which counts investment banks and brokerages among its customers. Around since 2001, it's older than many of the other companies in this space, and claims to have been profitable since last year.

Public social networking systems pose problems for Wall Street firms, said Colin Mathews, the company's VP of business development.

"One of the primary concerns is data security and the integrity of some of their important assets, mostly relationships and data," he said. "There are also compliance issues and workflow issues that have to be respected."

Contact Networks works a bit differently from InterAction. Employees don't have to manually add contacts to the system-it automatically scours e-mail headers, address books and calendars to find out who knows whom and how well.

"If you sent me 10 e-mails and I never sent any back to you, the system would say that you don't have a good relationship," he said. "We look at patterns of traffic, and also for things like whether you have the person's home phone number. If you have my home phone number, you probably know me very well."

The system can also tie into third party and proprietary customer relationship management systems, Mathews said.

"Every investment bank will have between one and a dozen customer relationship management systems and we're able to leverage those by looking at the data within them and using our scoring mechanism to determine who has a relationship with them," he said. "In some ways, we're a meta search engine."

However, no contact information is shared without the owner's permission.

"This lets you know which co-worker has a useful contact and lets you contact that co-worker," said Mathews. "It doesn't open up that coworker's Rolodex-it leaves it up to the co-worker to decide whether to share or not to share. We're not trying to change the way that people share information with each other. We're making it easier to share information with more relevant people."

Mathews said that Contact Network is deployed at three of the top 10 banks in North America, but he's prohibited by non-disclosure agreements from giving their names. He added that the company is also currently in the process of deploying at 20 more top commercial and investment banks.

"Especially for universal banks or large investment banks with several lines of business and complementary relationship sales, this is a no-brainer," he said.

Embracing the Inevitable?
So what should companies do? Probably the best policy is the one most commonly used for instant messaging and e-mails: allow certain, secure networks for business use and set policies about how contact data can be shared.

"I don't think companies can stop it," said Aberdeen's Selland. "They can waste a lot of money trying to stop it and control, but I think what they have to do is learn how to deal with it and learn how to live with it."

Social Networking Vendors
Enterprise Social Networking
Contact Network Corp. (contactnetworkcorp.com)
Interface Software (interfacesoftware.com)
Visible Path Corp. (visiblepath.com)
Spoke Software Inc. (spoke.com)

Public Social Networking
LinkedIn (LinkedIn.com)
Ryze (ryze.com)
ZeroDegrees (zerodegrees.com)
Friendster (friendster.com)
Orkut (orkut.com)
SixDegrees (sixdegrees.com)
Tribe Networks (tribe.net)