The Network That Really Matters

For Rod Perry, director of technology investment at venture-capital and private-equity firm 3i Group plc, it's not the wired network that matters in getting to a deal before the competition. It's the social network of the firm's 800 employees across 16 countries.

Take a recent transaction: 3i's team in Spain believed a business might be for sale because the parent company in Germany was restructuring. The team suspected a leveraged-buyout opportunity but didn't know the right people to approach.

Using software called Interaction, a business-oriented social-networking system from Interface Software Inc., the Spanish team searched for an employee at one of 3i's six German offices with a connection at the parent company. They identified someone who knew a senior executive on the parent company's corporate finance team--a person responsible for mergers and acquisitions.

"In our kind of business, you have to be there fast because what you're trying to do is avoid getting into an auction with all the other private equity-players and leveraged-buyout houses," Perry says.

The payoff: A deal worth $100 million to 3i Group. "I'm not saying we wouldn't have gotten it without Interaction, but it was certainly a way of getting into the lead fast," Perry says.

With almost all computers connected, a small number of companies have turned their attention to connecting all those people staring at the screens. The means to accomplish this varies, but it usually boils down to sharing contacts--names, addresses, phone numbers--and mapping connections between them to promote specific business or social goals.

The purpose of social-networking Web sites is usually love or money. Friendster, Tickle, and Tribe Networks are among those trying to jump-start amorous collaborations. Then there are AlwaysOn Network, LinkedIn, Ryze, and others aiming to foster professional relationships--finding jobs and investors, mostly. Beyond that, several software companies, such as Interface Software, Spoke Software, and Visible Path, provide code to turn contacts into connections and, it's hoped, sales.

Social-networking tools seem to work best in relationship-intensive businesses such as professional services. When a real-estate attorney at law firm Honigman Miller Schwartz and Cohn LLP devised a way to get a certain tax credit for a particular type of organization, the lawyer used Interaction to find attorneys with contacts in that industry so the firm could target marketing to potential clients, says Cynthia Reaves, a partner at the firm.

The value offered by social networking can even be seen in companies on the periphery of the market, such as automated contact-management service provider Plaxo Inc. Plaxo is concerned with reinforcing the social network you have, says Sean Parker, the company's president and co-founder.

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