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 / Fourth Quarter 2002 / Issue 29(originally published by Booz & Company)


Best Business Books 2002: Networks

Where Linked and Nexus describe how networks behave, Smart Mobs simply yet expansively describes how people behave — and misbehave — within networks. Rheingold is particularly interested in the just-in-time virtual marketplaces that networks can create on the basis of trust and reputation. “A field known as ‘experimental economics’ has extended game theory into two specific ‘minigames’: the ‘Ultimatum Game’ and the ‘Public Goods Game,’” he writes. “Research using these games as probes indicates that:

  • People tend to exhibit more generosity than a strategy of self-interest predicts.
  • People will penalize cheaters, even at some expense to themselves.
  • These tendencies and the emotions that accompany them influence individuals to behave in ways that benefit the group.”

In other words, e-Marketplaces are media as much for social interactions as they are for financial transactions. That is, who you are and what you’re doing are as important as what you want to buy or what you want to sell. It’s no accident that eBay is still around and making money for both itself and its, ahem, community of auctioneers. Your reputation on eBay can — and often does — matter far more than what you are attempting to either buy or sell.

“Reputation marks the spot where technology and cooperation converge,” Rheingold writes. “The most long-lasting social effects of technology always go beyond the quantitative efficiency of doing old things more quickly or more cheaply. The most profoundly transformative potential of connecting human social proclivities to the efficiency of information technologies is the chance to do new things together, the potential for cooperating on scales and in ways never before possible.”

And yet, when novel “networks of scale,” as Rheingold describes them, actually emerge, Barabási and Buchanan insist they will be shaped by the algorithmic imperatives of small-world theory and power laws. People can’t break these laws of networks any more than they can violate Newton’s laws of motion.

However, mathematical laws can be slavishly obeyed or cleverly exploited. Indeed, as Newton himself once remarked, “To master nature, one must obey her.” Scientific laws can empower even where they seem limiting. Entrepreneurs and innovators will figure out how to master networks while obeying their (apparent) laws.

What is Intel without the ideology of Moore’s Law? What is the options and derivatives marketplace without Black, Merton, and Scholes? It’s still too early to say how the laws of networks will shape tomorrow’s technologies and sociologies. But it’s not too soon to argue that more individuals and institutions will be more inextricably intertwined with more networks in the future. So you shouldn’t read these books with the expectation of rewriting business plans or revising capital expenditures. You should use them to better understand the networks your business has, and to rethink what they should be. Perhaps, in the process, you may discover more than one small world among the disconnected parts of your organization and marketplace.  

Reprint No. 02407

Michael Schrage, [email protected]
Michael Schrage is codirector of the MIT Media Lab’s e-Markets Initiative and a senior adviser to the MIT Security Studies program. Mr Schrage is the author of Serious Play: How the World’s Best Companies Simulate to Innovate (Harvard Business School Press, 1999).
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