The value of networks of trust

The most valuable and necessary networks of the next economy will be built around trust.

I just had lunch with my VC friend Ed Sim and I was boring him with my view of the future of advertising. The days of one-stop shopping for a mass of “consumers” will soon be over and advertisers will be faced with the opportunity and challenge of putting together smaller, more targeted, more efficient networks: the mass market replaced by the mass of niches. The opportunity is greater value. But the challenge is far greater effort and cost: It’s not going to be easy to put together and manage these small and ad hoc networks.

So I have been arguing that a good way to do this — once the infrastructure is in place — is to rely on human networks of trust: The advertiser or its agency can’t go and find and manage every damned little site (aka audience aggregator, aka community), so they choose a starting point: They trust me and my site (let’s say it’s a big-media site with a sales staff), and I trust you and your site (let’s say you’re a popular blogger), and we trust perhaps one more degree of separation out (let’s say those are your friends who write about the same things in more specialized but related ways). But if your friend messes up and you don’t fix it, then I don’t trust you anymore and I’ll find a new friend to trust — or else the advertiser won’t trust me anymore.

This way, we get to scale while distributing the work and the benefit with the trust. So in the end, the advertisers benefit by putting together the best networks at the lowest cost and effort and risk. And the participants of the networks benefit by attaching themselves, like atoms to molecules, to the highest value buys. (Oh, how I wish this blog had a whiteboard.)

We need some such way to operate in the age when small is the new big.

Then Ed and I were talking about similar challenges for investors and entrepreneurs in the small-is-the-new-big age: Today, it’s much, much easier to start a new company on far, far less capital than it used to be. But this also means that it’s easier for someone else to start a competitor. So speed is more important than ever: You have to develop your business as quickly and nimbly as possible to build your product and then perfect it after it’s out so you quickly establish your value. This means that the VCs need to be able to act just as nimbly to invest as quickly as possible. The good news is that the investments are smaller and the risk is thus less. But the bad news, of course, is that it costs more effort and attention to manage many more smaller investments and it’s hard to act quickly at scale. Early bird, worm, and all that.

So I wonder whether a network of trust is a solution here, too: The VC with the money trusts you to bring in deals and you trust someone else to bring in more deals and whoever brings in the most value gains the most value and grows biggest fastest. The work, risk, and benefit are all distributed.

In a way, I wonder whether that’s what VCs are doing by blogging: They’re going open-source, sort of, to state their interests and bring in more of the right deals more efficiently. But it’s still not efficient enough for a world of companies that need six figures instead of eight to succeed. And there needs to be a means to share benefit with the trust.

I think it can work in news, too: If I trust Sally’s reports on my school board more than Joe, I’ll send traffic her way and she’ll make more money on advertising from the newspaper (see Pincus’ world, below) and maybe she’ll send traffic my way for my reports on the town council if she trusts mine, too.

Where else?

: All of this is my clumsy, imprecise, philosphy-not-math-major’s re-expression of the discussion about Reed’s Law vs. Metcalfe’s Law vs. Oren’s Doubts vs. Evslin’s Postulate, none of which I understand above a kindergarten level. I was just trying to get my head around Reed’s Law, which Evslin explained to me on a napkin, when suddenly he and Wilson and Oren are abandoning it. (Cue Tom Lehrer’s New Math.)

I’ll try to summarize this badly: Metcalfe’s Law says the value of a network increases as more nodes are added to it (i.e., one fax machine is worthless, two fax machines are each work a lot more, a large network of fax machines is truly valuable). Reed says (I think) that if a network includes social sub-groups, it grows exponentially faster. All the wise gentlemen listed above are now debating whether the math works and I leave that to them.

But to me, the humanities guy with the damned liberal arts degree, it’s obvious: A network built on trust is clearly more valuable than a network built on technology.

Repeat after me, after Butterfield, after Mayfield, after Soylent Green: Web 2.0 — It’s made of people. It’s not about controlling scarce assets in a post-scarcity world. It’s about trust.

And it’s hard to chart trust. It’s hard to give it a metric. It’s hard to give it a market value. But it’s damned easy to lose.

: UPDATE: Here’s what Ed took from lunch (besides the check…).

And here’s Tim O’Reilly on both.

  • http://greatideawow.blogspot.com brian

    Jeff, I don’t quite get how trust in and of itself makes for more effective advertising. Joe Advertiser may trust Tim Intermediary who may be trusted by Kate Consumer, but if Joe is selling Mach3 Turbo razors it would not interest Kate. Likewise if Kate just bought a new Honda Civic ads that try to sell her a Ford Explorer will be a waste. Although the nexus might work if Tim were a specialist/expert in a specific market, if Tim were just an entertainer, I don’t see how mutual affection leads to improved sales and less clutter.

  • http://spap-oop.blogspot.com Tish G

    You’re right Jeff…trust is the key. Peer-to-peer communications establishes trust–not top-down communications. Peer-to-peer builds nodes. Exponential growth of communication feeds the math and gives these guys something to do.

    Transparency, or a kind of transluncency–as in putting someone out there in the trences to establish peer-to-peer communication with little guys–will be essential to business. Monlithic corps won’t be able to hide in their citidels of “corporate culture.” They’re going to have to become like old fashioned shopkeepers who dealt with the general public every day. They will have to develop thick skins. Even Apple will have to get a clue.

    but there’s a ways to go before we get there–and that was pretty obvious at BlogOn. The top-down people aren’t going to budge any time soon.

  • http://www.bloodandtreasure.com Noel Guinane

    You’re right. It is all about relationships and trust, but then it always has been. There never was much of a relationship between people without trust. Taking something online magnifies that need because if you don’t have people’s trust, or lose it, it’s going to become apparent pretty quickly, but nothing has fundamentally changed. It’s as true today as it was a thousand years ago – without a reputation, preferably an honest one, you’ve got nothing.

    Someone once likened trust to a gossamer thread. I’ve forgotten the quote but it was something along the lines of trust being as delicate as a single strand in a spider’s web – once broken, it’s impossible to repair.

  • http://worcester.typepad.com/pc4media Peter Caputa

    I think a larger need is to have transparency in influence. Publishers need to be transparent about who they can influence and how many of those people they can influence. And third parties are necessary to capture, audit and report that influence. I coincidentally just blogged about this. I haven’t wrapped my head around how we can distribute the auditor or reporter of “influence”. When it comes to something as simple as advertising accountability, I don’t think we need people to audit results. Computers will do the job. The question becomes how transparent do we need the auditors to be? I’d say they need to be pretty damn transparent and they need to be willing to compete not based on network ownership, but based on ability to audit and optimize.

    If you want to audit the suitability of a contractor or a potential baby sitter, we might need human trust keepers, though.

  • http://www.buzzmachine.com Jeff Jarvis

    Brian: I skipped a step, you’re right.
    The issue is that advetisers want to trust their medium (not to, for example, say “fuck” and embarrass them or to lie, cheat, and steal and hurt their brand by association). It’s not so much about advertisers trusting consumers or vice versa (though, of course, that is the real end game) but, in this case, about trusting media placement. Is that clearer?

  • rightojimbo

    if this is the sort of thing jarvis tells people when they pay him to consult, said people are really, really stupid. even stupider than i thought.

  • lawrence coburn

    Brilliant post Jeff.

    What makes networks of trust effective is that they project the shadow of the future on current transactions (paraphrasing Howard Rheingold I believe.)

    So, exactly as you say, if me or one of my contacts screws up this transaction, you’ll cut me out of your network, and I won’t see the next one.

  • http://www.laurencehaughton.com laurence haughton

    I’ve spent time researching trust and found several insightful studies.

    One explained: Most trust builds slowly, taking months and years of interactions. However when people are in a situation where they need assistance they will quickly extend a form of trust called “calculated trust” to someone who exhibits the right behavior.

    Calculated trust is decided through a simple checklist. “Does the other party,” the potential trustee asks:
    (a) share my values,
    (b) speak my language, and
    (c) listen to me

    And that is the probelm. Who do you know in the media that truly shares the values, speaks the language and really “listens to” businesspeople?

    Sure they all say they are “trusted” but that’s not what I’ve heard in 20 years of private conversations with business decision makers.

    It’s a very low trust business model specifically because the agents don’t share the values, speak the language, or listen to business people. And their terrible track record of delivering what’s expected only makes that trust gap bigger.

  • http://www.laurencehaughton.com laurence haughton

    Sorry. That last sentence should read: “And their terrible track record of delivering “less than” what’s expected only makes their trust gap bigger.”

  • http://www.seobook.com/ aaron wall

    Well, when you link at something you are typically casting a vote for it that search engines and humans use to assume you usually have some amount of trust for what is on the other side of that link.

    I think also you have to have ways of tagging the topics…because you may trust me as a blogger, but think of me differently when I am in another social circumstance. Good people frequently make bad decisions, and I might be smart at one topic and exceptionally inept at others.

    Then there is the issue of value. It is not easy for most people to see at the first instance, but sometimes the value is created not from where the advertisement rests, but from where the visitor originated.

    Google AdSense ads on spam sites that rank well in Yahoo! or MSN search often convert better than contextual ads on sites that are useful with well thought out content, due in large part to users seeing ads right after they expressed commercial intent and have limited options outside of clicking the ad. Sometimes there is great value where there is no trust.

  • Duneview

    Maybe that diagram-filled whiteboard would be helpful.
    After reading some of your Old-Media-Is-Exploded-Small-Is-The-New-Big-2.1-Conversation Kingdom-Post-Media-Post-Scarcity posts, I’ll admit it’s all a muddle for for me. But I’m trying.
    I only take comfort that, based on the comments here and here, everyone else seems to be stumbling over the use of “trust” as the new uber-value for the new 2.0 world — it’s not just me. (By the way, this enumation thing is getting very old, kinda like when “jump the shark” jumped the shark.)
    I hate to get all 1.0 on you, but it seems to me when a newspaper’s circulation drops or a television show gets cancelled, it’s because its consumers (are we still allowed to say that?) no longer “trust” them to deliver value. The value always has been trust. Nothing new here.
    Bloggers (in fact, all web destinations) that deliver value will move up the chain and be desired by users and therefore by advertisers. Simple as that. Advertisers don’t buy “network(s) built on technology.” They buy and have always bought networks built on trust, networks that deliver value.
    You’re right that it will be difficult to manage small, ad-hoc networks. That’s one of the reasons national advertisers have preferred buy on the networks rather than dealing with 500+ individual stations. It’s more efficient. But it’s not hard to chart trust. Or give it a metric. It’s just that instead of calling it a (10), you want to call it (1+1+1+1+1+1+1+1+1+1).

  • http://dannyayers.com/ Danny

    I believe you’re absolutely right about the significance of trust, but would nitpick the line: “A network built on trust is clearly more valuable than a network built on technology.”.

    The two aren’t mutually exclusive, in fact Tim Berners-Lee has been discussing trust in the context of Web technology since the start. The “Semantic Web layer cake” puts trust right at the top of the stack. A lot of work has already been done in this area, although only recently have the applications started to appear, e.g. FilmTrust (documented in Trust in Web Based Social Networks).

    It may be a while before this filters through to the commercial world in any big way. But the fact that RDF technologies through which trust can be expressed are inherently compatible with grassroots things like FOAF and RSS (RSS 1.0 is done in RDF) suggests any significant barriers to trust-enhanced advertising won’t be technical.

  • http://r2000.blogspot.com Alex Dorph

    I think the future of economic blogging will be based on vague terms, like trust networks, and future bosses will give up alot of future money to people who know how to confuse them with future vague concepts.

    R2000
    Bathroom Review

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  • http://marginalizingmorons.blogspot.com/ CaptiousNut

    Alex is right. This smells like highfalutin, academic mumbo-jumbo.

    I am not one to underestimate bloggers, but it reeks of blogger self-promotion too.

  • http://jonnygoldstein.com jonny goldstein

    I ran with the whiteboard idea and did a diagram.

  • Hugh J. Sloan III

    Jeff:

    Nova Spivack, Peter Drucker’s grandson (yawn), Founder of Earthweb (NASDAQ) and second in the technology world as a visionary behind Berners-Lee (no yawn), is working on something that is light years ahead of Mssrs. Zander and O’Reilly, involving the semantic web, really the next big thing.

    This company is called Radar Networks and may interest you as a reality that is backed by Paul Allen and Vulcan.

    Sitting in ex parte for Robert Vesco (Hugh)
    Angel Investor
    Silicon Vallley

  • http://public.2idi.com/=pheloxi pheloxi

    pitty that none of “the web 2.0 geeks/gurus” though more creative name for web 2.0.

    should not be web 5.0? adding chat web 2.0; adding video web 3.0; blogging web 4.0; podcasting 4.5.

    is it related to internet 2?

    can any one explain number thing?

    web 2.0 is from what I understand adding a more human human factor to web, but give it a ‘”windows 3.1″ name.

    “the web 2.0 geeks/gurus” forget what happens a lot they should degeek or give it human touch roo!

    why are there no degeeking advisers in the next genaration web or on the web?

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  • Sofía Santucho

    My experience in using ad networks has been really bad until I discovered adtomatik. The best ecpm and the highest fill rates