I AM NOT ON THE MARKET, I AM HERE WITH FRIENDS:

USING ON-LINE SOCIAL NETWORKS TO FIND A JOB OR A SPOUSE*

Mikołaj Jan Piskorski

Harvard University

Morgan Hall 243

Harvard Business School
Boston, MA 02163

Tel. (617) 495 – 6099

Fax. (617) 496 – 6568

mpiskorski@hbs.edu

January 15, 2007

~ 12,255 words

* Felix Oberholzer-Gee, Jordan Siegel, Dennis Yao and Pai-Ling Yin have contributed to the development of
ideas discussed in this paper. Division of Research and Faculty Development at Harvard Business School has
provided generous financial support for this project.
 I AM NOT ON THE MARKET, I AM HERE WITH FRIENDS:
USING ON-LINE SOCIAL NETWORKS TO FIND A JOB OR A SPOUSE

ABSTRACT

Sociologists have extensively documented that networks influence market

exchange through improved matching and vouching. In this paper, I propose
that networks can also blunt the signal of market participation, as actors who
are on the market surrounded by their network are pooled together with
those who use their networks for other reasons. To control the clarity of that
signal, actors would like to choose strategically whether to appear with their
networks on the market. However, reality puts restrictions on their ability to
do so. On-line social networks, where actors can always appear with their
networks, alleviate these restrictions and make the pooling effect stronger.
The consequences of greater pooling on-line differ by exchange type. For
example, they are positive for actors who are looking for a job, but are
already employed, and so cannot be seen as looking. By pooling themselves
with actors who are using on-line networks to utilize their social capital
better, the employed job seekers can be on the market, while claiming that
they are not. However, the greater pooling has negative consequences for
actors who are single and earnestly looking for a spouse. In this market, it is
important to signal capacity for commitment, so greater pooling of those
who are there only for their friends with those who are ready to commit
works against the latter. Data used to derive these arguments come from an
extensive qualitative research project with various on-line social networks,
recruiters, employees, as well as those who are looking for a job or for a
relationship.
Introduction
The last four years have witnessed considerable entry of web-based firms embracing a new
business model. Unlike traditional businesses that produce goods or services with the intent
of selling them to individual consumers or other businesses, these firms provide platforms
for individual consumers to establish personal profiles on-line and engage in exchanges with
others on the platform. These exchanges range from fairly economic, such as getting a job
(e.g. Monster or LinkedIn), to more social such as establishing and maintaining friendships,
and finding a spouse (e.g. Match, MySpace or Friendster). With some platforms attracting as
many as 60 million users, they fill a substantial void presumably facilitating exchanges that
would be difficult to accomplish in the real world.

At a very basic level, the business model of these new companies is not new. After all,
headhunters, job banks and marriage matching services have existed for a long time.
Similarly, advertising in Yellow Pages, newspapers or on billboards have been a staple for at
least a hundred years. However, at least two characteristics distinguish the new technology.
First, it amplifies the effectiveness of previously available features. People can now include
more information about their characteristics, skills or services. They can also do so through a
number of different media, such as text, photographs or videos. Second, the technology
facilitates the development of features previously unavailable. Most prominent among these
is the ability for people to articulate publicly the social network around them. Whereas in the
past people were constrained to display themselves as individuals, now it is possible to
appear in the company of one’s network. In some cases, the display of friends, some of
whom have never been met in public, is largely ceremonial. In others, certain on-line
functionalities are restricted only to people included in one’s network.

The ability to publicly articulate one’s network has been developed on many platforms,
ranging from those that target primarily business exchanges to those that are purely social.
However, we know little about conditions under which appearing in the company of one’s
network is superior to appearing alone, both for the individuals involved as well as for the
platforms. This paper begins to answer this question by comparing the fates of platforms
that required that their members appear alone with those that emphasized network

Page 1
connections between their members. I undertake this comparison within two classes of
platforms: those that seek to facilitate economic exchanges, such as getting a job, and those
that focus on social exchange, specifically, getting a spouse. Data from extensive field
research with the companies, over 100 user interviews, as well as archival data, suggest that
the success of allowing users to appear with their networks critically depends on the type of
exchange. Specifically, for finding a job, there seem to be substantial benefits to appearing
surrounded by a network. However, for finding spouses, appearing with the network seems
to be an inferior strategy to appearing alone. It is perhaps ironic that to establish perhaps the
most social of all exchanges, it is best to appear alone. Yet, for the most basic of economic
exchange, finding a job, many people will be better off to appear accompanied by their
network.

In this paper I seek to provide a framework to explain the difference in success of the two
platform strategies. I proceed by dividing the paper into two sections, one dealing with
economic exchanges, with special emphasis on getting a job, and the other with social
exchanges, with particular emphasis on finding a spouse. Within each section, I provide the
same type of analysis. I start with analyzing the basic characteristics of the exchange and
examining why off-line search processes will prevent mutually beneficial exchanges from
occurring. Subsequently, I examine whether on-line platforms that allow members only to
appear alone can alleviate any of these failures. Then, I explore whether on-line platforms
with networks can achieve even better exchange outcomes. This analysis suggests two
potential mechanisms through which this can take place. First, on-line platforms with
networks allow members to use their networks in ways that are impossible to achieve off-
line. Second, on-line platforms blunt the signal of market participation, as people who are on
the market are pooled together with those who use their networks for other reasons. I show
that this yields positive effects for actors who are looking for a job, but are already
employed, and so cannot be seen as looking. By pooling themselves with actors who are
using on-line networks to utilize their social capital better, the employed job seekers can be
on the market, while claiming that they are not. However, the greater pooling has negative
consequences for actors who are single and earnestly looking for a spouse. In this market, it
is important to signal capacity for commitment, so greater pooling of those who are there
only for their friends with those who are ready to commit works against the latter.

Page 2
Economic exchange
Parties to economic exchanges usually have well defined exchange needs, which that they
also specifically articulate the value and quality of goods on offer. A young entrepreneur
approaching a venture capitalist has to be very specific how her idea is going to generate
profits in return for obtaining the venture capitalist’s money. Similarly, the VP of Business
Development at an established firm needs to approach other firms with well defined
business proposition and will only entertain offers that have well defined business purpose.
The same is true for labor market searches. Employers usually look for candidates with a
particular level of education, often in a particular field, with a fairly well defined set of skills
and past experiences. Job candidates also have well defined expectations of what a good fit
for them would be.

To execute such economic exchanges, actors usually engage in a two step search process.
First, they engage in an extensive search aimed at identifying candidates who may have the
resource of interest. Once the candidate pool is identified, actors will engage in intensive
search in order to verify the actual quality of goods on offer. Inability to obtain sufficient
vouching for the quality of goods will lead to adverse selection problems which will in turn
prevent many mutually beneficial exchanges from taking place. I will discuss these two
processes in turn

Search Failures
The process of extensive search can take a number of different forms depending on how the
pool of potential matches is identified. As I describe in greater detail below, the
identification can be (i) initiated by the focal actor, (ii) initiated through advertising, which
leads others to self-identify to the focal actor, or (iii) initiated by the network around the
focal actor.1 Each of these options has a distinct set of biases which exclude potential
candidates even though they should have been included. All three methods can be used
simultaneously, with each compensating for the shortcomings of another. However, as I

1Most of the exchanges I discuss below can be initiated by either party to the exchange. For an exchange to
occur it is sufficient that only one party identifies the other and both parties agree to exchange. For simplicity
of exposition, I refer to these parties as the focal party and the other party with the understanding that any
party can be focal in the search process.

Page 3
discuss below, for certain types of exchanges, even the simultaneous use of all three search
methods will yield incomplete candidate pools suggesting that many mutually beneficial
exchanges will not take place.

Non-Network Search Failures

When the identification of candidate pool is initiated by the focal actor, the only way to
make sure that no potential match is ever excluded is for him to contact every other actor.
This option is rarely ever used, as it is often prohibitively expensive. Search costs can be
reduced, however, if the possession of relevant skills is correlated with an easily identifiable
feature. Thus, when searching for money to fund one’s venture, venture capitalists may
present themselves as the obvious choice. Similarly, in the labor market potential candidates
use a number of observable criteria, such as industry, size or profit, to derive a list of
companies that would best fit their skills and preferences. Recruiting managers often do the
same by drawing up lists of graduates in particular departments across local universities and
targeting them individually. While fairly efficient in terms of cost, this search method can
potentially exclude a number of skilled candidates or well-suited firms who do not exhibit
the salient feature. The likelihood of such exclusion becomes more likely as required skills
become less correlated with easily identifiable candidate features.

These limitations can be overcome if the focal actor advertises for potential exchange
partners to self-identify. Since the potential exchange partners know whether they possess a
resource of value, the focal actor will be faced with a better set of potential candidates.
Advertising usually occurs on well-recognized “boards,” which include newspapers, trade
shows, job banks and more recently their on-line versions. Though this search method is
present across a host of different economic exchanges, it is particularly prevalent in labor
markets. Firms frequently advertise their job openings, while candidates submit their CVs for
others to see.

Despite the apparent advantages of self-identification over focal actor initiated identification,
there are a number of reasons why self-identification may exclude best matched candidates
from the consideration set. First, the potential exchange partners may misidentify the
requirements of the focal actor and refrain from identifying themselves to the focal actor.

Page 4
These concerns will be particularly salient when focal actor’s requirements are difficult to
specify, or when the costs of faulty self-identification are large. Second, and perhaps more
importantly, potential exchange partners may either by unaware of the presence of the
advertising “boards”, or even if they are, they are not likely to scan them. Such concerns will
not apply to those actively looking to fulfill their exchange needs, such as looking for
customers for their new product. However, they will be salient for those who are fairly
content with their current exchange situation, such as those who already possess extensive
customer lists or those who are already employed. For them, the opportunity cost of
searching the boards, instead of engaging in the tasks that will further their success in their
current situation, may make the search process not worthwhile.

Limits to Advertising in Labor Markets

Since for an exchange to occur, it is sufficient that only one of the two parties identifies the
other, the situation can be easily rectified. As long the party with the higher level of
opportunity cost of searching for advertisements can themselves advertise effectively, the
other party will be able to identify the right pool exchange partners. The process will break
down, however, if there are restrictions on the ability of that party to advertise. Such is the
case in labor markets for the currently employed, whose opportunity cost to search is higher
than that of recruiters, but they may also be subject to constraints on their ability to display
detailed information about themselves for others to see. The exact magnitude of these
constraints differs across employment relationships. These costs are particularly pronounced
(i) in earlier parts of employees’ careers when firms need to see commitment to stay before
they invest into relationship specific human capital, or (ii) in later parts of employees’ careers
when other employees need to see commitment to stay before they invest into relationship
specific human capital.

The first concern most likely arises due to the timing of the relationship specific investments.
Specific investments make the worker more productive in her current position than in the
next best alternative position. Both employers and employees can undertake these
investments. When they are funded by the employer, the wage bill for that employee is
higher than the employee’s marginal productivity. However, once the worker becomes more
productive, the employer recoups the specific investments by paying the employee a wage

Page 5
that is lower than her marginal productivity, but higher than what she can obtain in the next
best alternative. Given that there is time lag between when the employer invests and recoups
the investments, the employer can easily lose the investment if the employee chooses to
leave. Thus, if the employer can anticipate that the employee will leave, or the employee has
explicitly indicated so, the employer should not invest in the employee. Employees are
clearly aware of this dynamic:

You are always looking for the next job. No matter how good the current one is. You just
don’t know what you are going to get offered. But you have to do this quietly. I would never
talk about this in the corridors at work … you know… you do this quietly, talking to
new employers at home…

Since relationship specific investments increase employee’s productivity in the focal job, the
employee would like to commit to stay with the firm and encourage the employer to invest.
However, the employee does not know if she found the optimal job. For example, there may
be an alternative job for which an equivalent level of relationship specific investment would
result in much higher levels of productivity than is possible in the current job. This implies
that the worker faces a trade-off. If she appears on the market, she may find a better job that
will generate higher returns. However, it is also possible that she will not find a better job, so
she will have to stay in the current job. But by going on the market, the employer will have
stopped investing specifically, and therefore the employee will lose the benefits that would
have accrued to her if she never went on the market. To the extent that the employee is risk
averse or unduly pessimistic about her job market prospects, she will refrain from going on
the market, and foregoing a better job even if that better job exists.

Once the relationship specific investments have been put in, and the employee no longer
fears that the firm will cease to invest in relationship specific capital. However, the
commitment to stay with the firm still remains important for the success of the employee
inside the firm. One manager summarized the underlying reason in a succinct comment:

I think I would have a very hard time to persuade anyone on my team to pull another all-
nighter if they knew I was looking for another job. I would get nothing done.

Page 6
Statements like this imply that often employees’ investments in firm specific human capital
are actually investments in ‘manager specific’ human capital. Many managers can only be
successful if their subordinates invest specifically in the relationship with them, say by
working more than required, winning a client contract, which leads to manager’s promotion
and spillover promotions for the investing employees. However, employees realize that these
investments are only valuable if the employees expect the manager to stay with the company
long enough to repay my investments in terms of helping my promotion prospects. The only
way in which such investments can be protected is if the manager can arrange for the
investing employees to leave the company with him – something that it relatively hard to
arrange in most contexts. Thus, if employees anticipate the departure of a manager, it is
unlikely that they will invest in the relationship specific investments, and thereby undermine
the success of the manager at the current company. As before, this implies that the worker
faces a trade-off. If she appears on the market, she may find a better job. However, it is also
possible that she will not find a better job, so she will have to stay in the current job. But by
going on the market, the subordinates will have stopped investing in the relationship with
the employee, and therefore the employee will lose the benefits that would have accrued to
her if she never went on the market. Once again, risk averse or misinformed employees may
refrain putting themselves on the market, leading to many mutually beneficial matches not
being realized.

Network Search Failures

In addition to the two non-network search methods, actors can also rely on their networks
to help them identify potential matches or ask others to be identified as a potential match for
others. For example, a budding entrepreneur is likely to ask her friends to see if they have
any connections to someone who in turn may know a venture capitalist and arrange for a
referral. Similarly, candidates rely on their networks to identify potential firm matches or
present them to firms as feasible candidates. At the same time, to identify new employees,
firms tap into the networks of current employees.

Network identification is cheap in that it does not require actors to advertise or engage in
costly searches. In addition, network searches do not require that candidates self-identify as

Page 7
being on the market. Thus, network searches are not subject to the limitation that certain
employed people cannot advertise. Similarly, network searches do not require that firms self-
identify as looking for an employee. This way, firms can avoid the problem of advertising for
a position, when the position is already occupied by someone, who the firm intends to fire.
The importance of this role of network searches was first underscored by Granovetter
(1974) who observed that up to 30% of job matches through networks occurred when
neither the firm nor the employee were technically looking for a job.

Despite the beneficial effects of network searches, there are subject to three significant
limitations. The first one arises as the onus of identification of the appropriate matches lies
on the brokers, but the ultimate benefits of the match benefit the two parties engaging in the
exchange. This misalignment of incentives is likely to lead brokers to identify fewer good
matches between others than if they themselves were direct beneficiaries of the match. The
extent to which this is going to be a problem depends on the relationship of the brokers to
the parties who could benefit from the exchange. Motivated by the expectation of reciprocity
or direct interest in the welfare of their friends, immediate friends are more likely to help.
However, as the length of the chain linking the two actors increases, the likelihood of that
the brokers who link them will act on their behalf declines. Already when the chain involves
three degrees of separation, actors in the middle do not know either party to the exchange.
Unlikely to care about their welfare, they can only rely on very indirect reciprocity from their
direct contacts. Thus, many good matches that could be arranged by brokers are left
unmatched. 2

Even within the class of immediate relationships, interviews revealed substantial differences
between different types of ties. Strong ties are more likely to respond to requests for help,
while weak ties are less likely to do so. The first reason why this happens is that weak ties
have smaller motivational investment than strong ties do. The other reason is aptly
summarized by this quote:

2 It should be noted that this argument in no way contradicts standard brokerage arguments according to which

brokers can be expected to generate wealth than non-brokers are. All this argument says that there are reasons
to expect that brokers do not arrange for all possible mutually beneficial exchanges.

Page 8
 If I refer you to someone, I sort of take responsibility for why I am telling you this is a good
person for you. Often I won’t forward information, unless I am really sure what I am
forwarding. […] With my closest friends, I might tell them, “Look , I am not sure how
good the lead is, so you better check if this guy is for real.” […] For people I do not know
that well, it would be like “Why you telling me this, if you don’t really know”. It’s
awkward, you know…

The comment is indicative of a more general concern shared by many interviewees who
were concerned about mismatching people under conditions of incomplete information. If
uncertain about the quality of the fit, stronger ties tended to qualify their referral, essentially
removing its vouching component. Weak ties seem to prefer not to say anything at all –
given the strength of the relationship, it seemed inappropriate to them to forward
information they were unsure of.

The observation that weaker ties have lower motivation to act as brokers would not
necessarily present a problem, if it was not for the empirical observation that all weak ties are
bridges, even though not all bridges are weak ties (Granovetter 1974). To the extent that
bridges allow access to parts of social structure inaccessible through other ties, they are
critical to identifying matches that could not be found through any other network path. This
creates an important trade-off. The strong ties that are most likely to act on our behalf are
least likely to locate the appropriate exchange partner for us. In contrast, the weak ties that
are likely to know an appropriate exchange partner are unlikely to act as much as they would
if they directly benefited from the exchange. As a consequence, many mutually beneficial
exchanges are not being realized through social networks. It is only the rare individual with
strong ties to redundant actors that would escape this trade-off (Burt 1982).

Vouching Failures
Once the candidate pool is identified, actors will engage in intensive search / vouching in
order to verify the actual quality of goods on offer. The quality of certain types of goods,
such as money, is easy to verify, thus requiring little vouching. For other goods, such as new
business plans, quality is harder to verify leading to potential misrepresentation. To prevent
potential market failures, they party offering the good will have to engage in substantial

Page 9
amount of signaling to convince the other party of the veracity of their claims. Similar
concerns apply to job markets. Certain positions, requiring general skills that can be acquired
through education, are fairly easily to signal. For other positions, requiring, for example,
leadership abilities, candidates will find it much more difficult to provide credible signals.
Inability to verify such skills will lead to adverse selection problems which will in turn
prevent many mutually beneficial exchanges from taking place.

The three search processes I have discussed differ in the effect the amount of vouching they
require for the exchange to take place. When the focal actor identified the pool of candidates
or advertised for others to identify themselves, significant amount of vouching is required.
When signaling is very hard to undertake, e.g. signaling leadership abilities or entrepreneurial
zeal, exchange failure is possible. In contrast, network searches often automatically provide a
certain amount of vouching. Specifically, actors surrounding the candidate can easily vouch
for the qualities of the candidate which the candidate would be unable to convey herself.
Since network afford candidates more degrees of freedom in terms of vouching (either direct
signaling or network vouching), it is less likely that the best qualified candidate will be
rejected, because there will be too much uncertainty regarding her quality.

Summary
Taken together, the foregoing discussion suggests a number of systematic biases in the
search and vouching processes that prevent mutually beneficial exchanges from taking place.
Searching for others is likely to be problematic if salient characteristics are not correlated
with resources of interest. Advertising to encourage actors to self-identify is unlikely to work
if needs cannot be well articulated and target audience is unlikely to scan for advertisements.
Similarly, trying to identify potential partners by scanning their advertisements will easily fail
if the potential targets will find it difficult to advertise as available partners (particularly
prevalent in labor markets). Access to such targets can be arranged through social network
searches. However, such searches are likely to fail if the path linking the two potential
exchange partners is long or composed of brokers who have little incentive to act on the
behalf of these actors. Even if exchange partners have identified each other, exchanges can
still fail if the quality of goods to be exchanged is uncertain, but actors have limited ability to
signal the quality of the good. Network searches offer more degrees of freedom in this

Page 10
respect, as in addition to the actors’ signaling, the network surrounding them can vouch for
the quality of the good. However, for that to happen, the network has to be involved in
partner identification. All of these failures suggest numerous opportunities for improvement
across a broad spectrum of economic exchanges. Next I turn to discuss the extent to which
on-line networking platforms can do that.

Solving Economic Exchange Failures On-Line

On-Line Platforms for Economic Exchanges
In the last couple of years, we witnessed a proliferation of on-line platforms that have
facilitated new ways of searching for potential exchange partners. These platforms seek to
facilitate a broad spectrum of exchanges – ranging from business to business exchanges,
through person to person exchanges (eBay or Craigslist), to labor market transactions
(Monster, HotJobs). Most platforms specialize in one type of exchange, though some like
Craigslist can be used for multiple purposes. Common to all of these platforms is the ability
to set up a profile or an advertisement where individuals can display a substantial amount of
information about themselves, their needs or what they can offer to others. Some of these
platforms allow individuals to post individual advertisements, but have no easily identifiable
profile. Consequently, the history of individual’s postings or their identity is hard to verify.
Craigslist is in this category. Others required profiles, which allow tracking of profile
activities over time. This is the case for eBay, for example. Finally, Monster and HotJobs
work best when individuals provide personally identifiable information, such as their resume.
Certain platforms are completely free to the users and make money from advertising. Others
are free for some types of transactions, but charge for others. For example, Monster or
Craigslist charges recruiters for job ads (though the latter does so only in select cities). These
platforms are also differentiated by whether they allow people only to appear alone or
surrounded by their on-line network.

On-Line Platforms with No Networks

The first on-line platforms that sought to facilitate exchanges only allowed their members to
appear alone (eBay, Monster, Craigslist). By reducing the cost of advertising to individuals,
they quickly attracted substantial participation and facilitated many exchanges that would

Page 11
otherwise not happen. Perhaps the most notable exception was platforms that sought to
facilitate business to business transactions – these fared less well. The ability to post
advertising cheaply allowed spammers and low quality producers to pool together with high
quality producers, leading the latter to abandon the sites very quickly. Consequently, users of
such platforms abandoned them quickly. In the words of one purchasing executive for a
mid-size company:

I would never try to source any of inputs on of those market exchange websites again…
Have you actually tried to use’em? Most of it is spam I realize now… Once I tried to get a
new supplier for our plastics division… I thought things were going to work out well until
they turned out to be a fly-by-night operation. Now I would not trust anyone unless they
came referred through friend.

Similar concerns marred the labor market platforms. In the past, the cost entailed in
preparing and sending resumes had at least some separating effect in that people who were
most likely to benefit from extensive search were most likely to engage in it. As on-line
boards allow everyone to join the labor market pool cheaply, that separating effect is
diminished leading employers to be more cautious about the resumes they see.

It now takes a minute for anyone to submit their CV so I get a lot of mismatched CVs
[…] People will also play different games with you. More people will misrepresent their
titles and responsibilities, the length of their employment… Sometimes even putting down
employers they never worked for or in a few cases their [educational] credentials… Yes… I
do wonder sometimes how many of the people I hired had misrepresented themselves…

On-line advertising boards have also not helped those who are already employed people to
look for new jobs. But they did improve the ability of employers to detect their employees’
attempts to put themselves on the market, leading employees to be extra careful. In the
words of an HR recruiting manager:

I am on these sites everyday for at least half a day, so it is very easy for me to see who at
[company name] has their CV up on Monster. In fact, the other day, I saw someone who I

Page 12
 had personally recruited to be a project manager a year ago. Within five minutes, I was by
his cubicle and said: ‘What’s going on? Either you are serious about working here, or you
take down your CV. […] Within a couple of hours, the CV was gone.

On-Line Platforms with Networks

On-line platforms that utilized social networks shared basic similarities with platforms that
forced actors to appear alone. Anyone could set up a profile on the platform and include as
little as one’s name, region and industry. However, many people listed their educational
attainments, detailed career histories and other affiliations, together with dates and
responsibilities each activity entailed. The platforms also provided existing members with
search capabilities along a broad set of dimensions. If the searching actor found a match, he
or she could submit a request to contact the target individual. There were, however, a
substantial number of differences. First, the individual profile prominently displayed
member’s on-line network. A member’s on-line network comprised of the person who
invited the focal actor to join the platform3, links to actors who were invited to join the
platform by the focal actor, as well as ties to people who were already platform members at
the time of the invitation. Though there have been a few differences across the sites, on
most successful ones, ties were bi-directional and had to be agreed on by both actors.
Second, platforms with networks did not always allow everyone to see everyone’s profile,
with some restricting profiles beyond the 4th degree of separation. Ability for contact was
also sometimes restricted. LinkedIn, for example, did not allow direct contact, but required
that intermediaries linking the searching party and the target to approve of the request for
contact.4 In practice, this implied that the first-degree intermediary was asked to forward the
request. If the intermediary agreed to do so, he or she was required to write a brief
recommendation, which the second-degree intermediary could use to decide whether or not
to forward the request. The second-degree intermediary, who did not know the requestor,
had to rely on personal knowledge of the first-degree contact, his or her recommendation,
the requestor’s profile, and knowledge of the next person in the chain to decide whether to
forward the request. If the request was passed on, the third-degree intermediary repeated the

3 Even though anyone could become member, on some of the business focused platforms up to 90 percent of
members joined in response to an invitation from an existing member
4 In 2005 LinkedIn members could by-pass this process by paying $10 to the platform.

Page 13
process. The chain of participants linking the requestor to the target was concealed from the
requestor, allowing anyone along the path to decline the request anonymously.

Platforms with networks aimed at facilitating economic exchanges, such as LinkedIn, also
attracted substantial membership when they entered the market around 2003 (e.g LinkedIn,
Ryze, ZeroDegrees). Their primary source of appeal lay in improving the operation of off-
line social networks, which I described in the previous section. Specifically, the introduction
of platforms with networks shifted the onus of identifying the appropriate candidate from
the intermediaries to one of the people who will be a beneficiary to the exchange and
thereby allowing numerous exchanges to happen that would otherwise not happen. This
basic benefit of on-line social networks was mentioned in almost every interview with a user
of business on-line networks, with users reporting finding new business opportunities or
new suppliers, new business partners or new employees or employers:

In the past, if I wanted to get someone to do a project for me, I would send an e-mail to
bunch of my closest friends, a few people who I kinda knew wad the right connections, and
then I would keep asking other people until I found who I was looking for. Sometimes that
would work quickly, sometimes it would not. Now, I just look for these people on my own.

Those who were invited to join (some numerous times), but refused to do so, would often
report fairly restricted exchange needs that can be easily met within their immediate network,
or had networks which did not seem to suffer from substantial broker incentive problems.

I do not really understand what these people are doing putting themselves on-line. Why are
they there? I would never sign up… I don’t want to be found […] and if I ever need
someone to help me out with something, I have my three friends. They are very well
connected and I know will help me out.

It was not always clear, however, that actors’ perceptions of the potency of their own off-
line networks were correct. One of users who had refused to join for a long time, before
finally succumbing described his experience:

Page 14
 I needed someone who could translate a fairly technical and confidential document from
German into English. So I typed in a search and found that a close friend of one of my
closest friends specialized in exactly that… I just would never know to ask that friend for
a lead.

On-line social networks not only facilitated exchanges that would not have been realized off-
line, but they also held an advantage over the platforms that allowed members only to appear
alone. Almost every interviewee felt that the network component gave them the assurance
that they are dealing with real people who are not pretending to be someone that they are
not. Some people went to quite some length to figure out just how robust the system is:

You know I have thought about this... I wanted to figure out how hard would it be for me
to pretend to be someone else and I realized that it is not easy… Think about it… You
can create twenty fake accounts to show that you have friends. But then these ‘friends’ can’t
have no friends, ‘coz that is going to look suspicious. And they cannot be friends of each
other. That would be just to weird so you have to create more accounts… And then I
realized I could no longer be bothered. […] So I figured this is safe.

More than three quarters of interviewees also claimed that the network component of the
profile, if well developed, gave them greater assurance that the information in the profile was
true. After all, as someone reasoned:

I am not gonna put that I did this or that at [company name] and then invite my friends to
my on-line network who know that I did not do that. That is why I sometimes look at who
people invite to figure out how good their profile is. Lots of friends usually means a real
profile.

Thus, unlike the platforms without networks that allowed for more information display, but
also allowed for greater pooling of low quality actors with high quality actors, platforms with
networks allowed for clear separation of high quality partners from those of low quality. This
characteristic allowed on-line platforms with networks to dominate on-line platforms

Page 15
without networks at least in the realm of business exchanges requiring significant amount of
vouching.

Platforms with Networks in Labor Markets

In addition to the expected effects of on-line platforms with networks on the efficacy of
business related exchange, interviews revealed that the platforms had a very substantial
impact on labor markets. The biggest impact was felt in the segment of employed people
who were looking for a job. As I argued in the previous section, many of these people
cannot be seen as looking for a job. As evidenced by an earlier quote, the use platforms
without networks, such as Monster, was not a safe one. Yet, displaying themselves in the
context of an on-line platform with social networks allows them to display a substantial
amount of information about themselves (their employment histories and achievements) was
not seen as problematic, even though it could be (and actually is) used by potential recruiters
to identify candidates. Almost every recruiter I interviewed reported extensively using the
business oriented on-line social networks in order to recruit candidates that were not easily
available elsewhere:

These [on-line] social networks have exposed organizational structures to the extent never
seen before. You know, it was always so much trouble to find these middle level managers,
you know not VPs, but the people who actually get the work done. You can’t find them in
Who-is-Who’s, or on Monster, can you? But you would not want someone who comes from
the street – that usually means trouble. […] Now, they are so easy to find, even if you
have to get them from another city.

Members themselves are aware of this dynamic, even though their primary reason for
engaging in on-line social networks had little to do with finding employment: 5

Am I looking for a job on LinkedIn [the biggest business on-line network]? Not really. I
am here just to keep up with my friends and occasionally look for people to help me out

5
More detailed interviews that this benefit is not particularly useful for employees responsible for sourcing
inputs for the organization or selling the organization’s outputs. These employees report no constraints in
advertising a lot of information about themselves in order to help them get their job done.

Page 16
 with projects. But would I be offended if I got a job? Hell, no! Have you ever heard of
anyone complaining about being recruited? […] Yes, I did get two offers. Actually, one of
those I seriously considered, but it was just logistically too difficult with my family…

This suggests that business oriented on-line social networks have a dual function. They allow
actors to engage in network brokered business exchanges which would be difficult to
execute off-line or on on-line platforms without networks. In addition, they also allow
people to display a significant amount of information about themselves for the purposes of
obtaining employment – something that is particularly valuable for people who are already
employed and cannot display such information in other contexts. This begs the question
how it is possible for people to maintain their presence on these social networks even if by
doing so they may signal they are on the market, but they cannot show up on platforms
where they would display equivalent information about themselves, but could not articulate
their networks.

Equilibrium Pooling Mechanism

The answer to this question lies in the clarity of the signal that a member of each platform
sends with regard with regard to his or her market participation. Membership in a platform
where individual appears alone, such as Match, sends a clear signal that the member is clearly
interested in engaging in a labor exchange. In contrast, membership in a platform with
networks is more ambiguous. The member could be there for looking for a job, but the
member could easily be there just keeping up with their friends, or engaging in networking
that is beneficial for the firm. Some members could be doing both. The three types of
individuals are observationally equivalent and it is difficult for the employer to distinguish
between them. Indeed, when I asked members, who declared themselves definitely “off the
market”, about the possibility of being considered as looking for a job, given how rich their
profile was, usually expressed surprise. To account for the richness of their profile, they
usually replied:

You can’t really do good business outside the firm without a full profile with all these
things… achievements… duties… career history… People read this very carefully, see how

Page 17
 long you worked here, are you progressing, who wrote references for you. 6 They want to
know that the company is putting out the best person out there and not someone who is
unlikely to get things done.

However, members who declared themselves as potentially interested in obtaining jobs had
equally detailed profiles. Thus, essentially, they were using the cover of their colleagues who
were not on the market to be able to enter the labor market, display substantial information
about themselves, and if the match occurs, leave the job for a better match.7 Because
platforms with no on-line networks did not provide this ambiguity, they could not be used
for such pooling and therefore did not allow for employed people to openly enter the labor
market. It is important to note that if platforms with no social networks improved the
efficacy of business related exchanges which would draw a substantial number of people
who did not look for a job to enter these platforms, it would be possible for the employed
job seekers to enter those platforms too, display a lot of information about themselves and
pool themselves with those who are not looking for a job. Since these platforms with no
networks were subject to spam and were not used to generate more business, this did not
occur. Thus, it is the effectiveness of the on-line platforms with networks in facilitating
business exchanges coupled with the ineffectiveness of the on-line platforms with no
networks that allowed the former to be used also as venues for employed people to enter the
labor market.

It is unlikely that recruiters will remain oblivious to this dynamic. After all, if they use on-line
social networks to employ candidates who already have jobs, they realize that the same can
happen to their company and they can start losing employees at a faster rate than they had
ever experienced. My interviews indicate that at this point in time, there is substantial
variance between firms in terms of understanding the dynamic. Those that understand how
to use business related on-line social networks can still exploit them, while being protected

6 LinkedIn allowed members to write references for each other that were visible to third parties upon the
approval of the profile owner. Most references came from ex-colleagues, prior bosses or subordinates.
7 My interviews thus far did not identify a characteristic that would make candidates more likely to be more

effective at using network, but less effective as a job market candidate. Presumably such trade-off could be
used by the employer to discern between the two types of platform members. However, in anticipation of such
separating signal, employees who are looking for a job would probably have to pretend to be like employees
who are not looking for a job, and bear the associated cost.

Page 18
from having their employees poached by firms that have not understood it. At some point,
however, it can be expected that all firms will understand the dynamic. If this is the case,
firms may impose a blanket policy of forbidding their employees from registering on
business on-line networks (or impose a cost on employees who register on such websites in
terms of smaller relationship specific investments). Thus, it is important to discuss why the
dynamic I described above is not an off-equilibrium outcome generated by not all firms
understanding these fairly recent developments in labor markets and show that even in
equilibrium firms will allow their employees to participate in on-line networks even if by
doing more employees will depart.

The main reason why firms are unlikely to introduce such policies against their employees’
on-line presence is that there are two types of financial cost for doing so. The first penalty is
attached directly to the ability of on-line networks to actually improve off-line networking
which can benefit the firm. Firms actually benefit from their employees being on-line and
secure inputs or outputs for the firm over and above what they would be able to do without
the on-line help. Thus, by banning employees from on-line social networks, the firm loses
the benefits that accrue to it through employees’ networks. To the extent that these losses
are greater than the losses incurred from investing in employees who are then likely to
depart, the firm is likely to choose the smaller cost and allow its employees to stay on-line.8
The second cost is associated with wages necessary to attract workers. Firms that allow their
employees to appear on-line can afford to pay lower salaries to their employees, as
employees are essentially paying for the option to move to a better matched company.
Employees who will be denied the opportunity to appear on-line might be stuck with an
inferior outcome for a longer period of time and may thereby require higher salaries to
compensate them for the diminished options in the future. These two costs will put at least
some firms at a serious competitive disadvantage and consequently it is unlikely that we will
witness large scale adoption of policies that would prevent employees from appearing on on-
line networks. It is likely therefore that their role of allowing employed employees to enter
labor markets will continue in the future.

8 This argument suggests that the more positions in the firm entail substantial relationship specific investments

financed by the firm, the firm is more likely to impose policies against on-line presence.

Page 19
Summary
The objective of this section was to establish reasons why on-line platforms with networks
are likely to be superior to on-line platforms without networks with respect to economic
exchanges. Qualitative data provided here suggest the platforms without networks facilitate
greater pooling of high and low quality actors, thereby crowding out the high quality actors.
Since in equilibrium only low quality actors remain, potential buyers abandon such platforms
and consequently they fail. For employment based platforms, the on-line platforms with
networks are not clearly superior to those without networks, but they hold a distinct
advantage in perhaps the largest segment of the labor market – the currently employed who
cannot be seen as looking for a job. By allowing such employees to display information
about themselves, without being explicitly seen as looking for a job, platforms with networks
can facilitate numerous exchanges that otherwise would not take place. One important
condition has to hold for this argument to be valid: on-line social networks have to solve
off-line network failures and thereby provide value over and above what employees can
achieve off-line. If this argument is not valid, employers could always costlessly impose
restrictions on participation in on-line networks, and therefore undermine the functioning of
such on-line networks.

Social Exchanges
Social exchanges, much like economic exchanges, have fairly defined needs and wants with
well defined characteristics of partners responsible for meeting them. For example, when
looking for long-term partner, most people can articulate a set of desirable partner
characteristics, which may include age, religion, race, weight and height, financial situation,
or attitude towards children. Yet, in contrast to economic exchanges, social exchanges
usually do entail a number of needs that evade contractual agreements that guarantee that
the needs will be met. Instead, such exchanges usually entail unilateral exchange which can,
but does not have to be, reciprocated. Though formal assurances of reciprocity would make
social exchanges less uncertain, few people would cherish contracting with their friends or
spouses on expressions of care or love. Indeed, the meaning of such exchanges changes
quite drastically when we know that someone is obliged to express their interest in us as
compared to the situation when they do not have to, but want to. Though these concerns are

Page 20
present across a wide spectrum of social exchanges, they are most pronounced in long-term
exclusive romantic relationships.

Social exchanges are also similar to economic exchanges in that many are actually
‘relationships’ involving repeated exchanges with the same partner over time. Like their
economic counterparts, many such relationships can, but do not have to, be characterized by
significant amount of relationship specific investments. For example, like labor market
relationships, certain types of romantic relationships entail relationship specific investments,
such as strong affective commitments or children, leading to greater satisfaction in the
current relationship than would be possible in an alternative one.

Yet, beyond these basic similarities, there are further differences between the two types of
exchanges. Perhaps the most important one lies in the object of attachment. Employment
relationship is technically an attachment to an asset, with little emotional attachment that
lingers once the relationship ceases. In contrast, authentic romantic relationships are
attachments to other people that tend to persist even after the relationship is over. Thus,
when an employer terminates the employment relationship, the employee may feel that the
employer renegotiated on payment for specific investments and seek retribution. However,
the fact that the employee worked for the employer is unlikely to reduce the employee’s
interest in future employers offering him a job. This is usually not the case in romantic
relationships. When one partner terminates the romantic relationship against the wishes of
the other, latter suffers from types of two losses. First, similarly to the employment
relationship, the abandoned partner will feel that her partner renegotiated on the specific
investment. Second, and in contrast to the employment relationship, the abandoned partner
usually retains significant attachment to their partner for some period of time. Consequently,
the abandoned partner is likely to be less interested in other partners than she would be if
the original relationship never occurred. Thus, she is likely to prefer to remain alone even
though absent the unexpectedly terminated relationship, she would have preferred to be in
partnership with someone else. Anticipating the possibility of deriving great disutility from
yearning for a relationship they can no longer be in, people may wish not to form that
relationship in the first place. Consequently, unless people can be assured that the partner is
truly committed to continuing the relationship, they are likely to pass up on romantic

Page 21
relationships. Put differently, mutual assurances of commitment to continuing a relationship
are very important to forming a long-term relationship.9 Credible signals of such
commitment are, therefore, likely to be of tremendous importance.

Search Failures
The fact that romantic relationships entail searching for a set of fairly easily observable
characteristics (age, intelligence, education, income, looks, etc.) as well as for a set of fairly
unobservable characteristics, such as likelihood of being committed to a relationship in the
long-term, significantly complicates the search process. Though some of the observable
characteristics may be used as proxies for the unobserved one, few of the interviewees
believed that they are all that informative, instead claming that they would be willing to
change what they thought were their ideal partner characteristics as long as “the person makes
[them] feel special.” Thus, the most difficult part in the process of search for a romantic partner
is trying to find someone who is likely to posses these hard to observe characteristics.

In practice, there are two ways in which this is achieved. The first way entails getting to
know the person outside the scope of a romantic relationship. This can occur as a by-
product of working together or being engaged in a common activity, such as being in the
same class, attending the same party or playing sport together. By interacting with each other
in a non-romantic context people can reveal substantial amount of information that would
potentially, and very imperfectly, signal their future commitment. However, if signals are
very imperfect, not much will be revealed and potential partners may be reluctant to enter
into a romantic affair.10 Non-romantic friendships provide much better signals of future
commitment. Yet, as reported by many interviewees, changing a relationship from a
friendship to a romantic relationship is very difficult for two reasons. First, friends may be
very concerned about misreading the signals and expressing romantic interest that is not
reciprocated by the friend. Such a mistake usually leads to a break up of a friendship.

9 It is also for this reason that partners prefer that the other is unattached before forming a relationship with
them. As I discussed in the previous section, the same is not necessarily the case in labor markets, where there
may be some preference for workers who are already employed.
10 In few cases, (particularly female) interviewees have reported that they are forced to play hard to get in order

to separate those men who were interested in casual relationships from those who were willing to make a
commitment. These interviewees were very aware that this is potentially problematic as the mate in which they
may be interested in may interpret ‘being hard to get’ as a signal of disinterest, again leading to a failed
exchange.

Page 22
Second, friends may be very worried about establishing a romantic relationship, because they
know that if the romantic relationship were to break up, they were also likely to lose the
friendship, too. Anticipating this potential cost, friends often prefer not to engage in
romantic relationships, even if they both would invest specifically in the relationship. Taken
together, this discussion suggests a substantial number of failures in the romantic market,
generated by insufficient signaling in the case of common activities, or very significant
breakup costs in the case of direct friendship.11

The other way in which people seek to identify interested partners is by putting themselves
in social environments where they are likely to meet other single people looking to form a
relationship. This may involve, for example, going to a singles bar or single people mixers at
the local church or art gallery. The success of this strategy is premised on an assumption that
at some point in their lives people are interested in forming long-term relationships, often
with the intention of procreation, and if they have not achieved this goal yet, they are
interested in achieving it soon. Within the set of people who have identified themselves as
interested in forming a long-term relationship, everyone tries to identify their match on the
basis of more observable characteristics. Thus, the two search methods are almost mirror
opposites of each other. Whereas the first search method seeks to establish a set of people
who match verifiable criteria and then seeks to ascertain their intent to enter into a long-term
relationship, the second method attempts to identify a pool of people interested in entering
into a long-term relationship and then seeks to find a match on verifiable criteria.

The second option sounds very attractive in that it allows for quick identification of
interested people on a criterion that is hard to observe. However, it is potentially fraught
with adverse selection problems. Specifically, it is very easy for anyone to attend the same
meeting and fake interest in establishing a long-term relationship in order to obtain attention
and possibly other favors as a prelude to such a relationship. Consequently, it is easy for
someone to make a mistaken commitment to someone only to realize that that person never
had an intention to form a relationship in the first place. Lacking such assurances people are
likely to refrain from using the second option, even if it could potentially generate many

11As in the discussion of search failures for economic exchanges, this discussion should not be taken to imply
that long-term relationships will not occur. It is instead designed to

Page 23
mutually beneficial romantic relationships. As a consequence, they will be forced back to
using the first search option, which also may result in many failed exchanges, though for a
different reason.

Network Search Failures

Given the extent of exchange failures in this market, it would seem that there are substantial
benefits to identifying potential partners through networks. Indeed, many people when
asked how they met their spouse indicated that they met through a friend, suggesting that
friends engage in a fair amount of matching between people. Yet, when asked about their
friends trying to match them with other people they knew, most interviewees did not enjoy
such dates and found them uncomfortable. 12 Said one of the male interviewees:

A lot of my female friends like to play matchmakers. I have been on many dates arranged
by them… Some were OK, but most were awful… I would get back home and think to
myself…. what were they thinking?

This limited ability of brokers to identify good matches is consistent with the earlier
discussion according to which people do not explicitly search for clearly observable
characteristics, but more for the harder-to-see proclivity to engage in specific investments in
relationship with them. Since the friends are unlikely to be able to observe these proclivities,
they are unlikely to be able to identify better matches. The apparent inconsistency between
the two statements can be reconciled by recognizing that friends are most useful to matching
when all they do is bring the potential spouses into a common activity, such as a party of a
dinner, where the two individuals could meet and establish a relationship. More generally,
therefore, this discussion implies that even though friends can help in forming romantic
relationships, their role as “brokers” is limited. Unlike in the business world, where inaction
on the part of the brokers is likely to lead missed opportunities, in the world of dating their
inaction has fairly limited consequences. Thus, in a stark contrast to business oriented on-

12 The validity of this statement is clearly determined by a host of cultural factors. The discussion here should

be understood as referring mainly to the matching patterns between mainstream inhabitants of North America
and Europe.

Page 24
line platforms with networks, the socially oriented ones are unlikely to be able to solve
substantial network failures.

Solving Social Exchange Failures On-Line

On-Line Platforms with No Networks

The first on-line platforms that sought to facilitate social exchanges focused primarily on
intimate relationships and allowed their members only to appear alone (Match, Phoenix).
The initial success of these platforms was hampered by a cultural misconception regarding
the types of people available on these platforms. Some people reasoned that people who sign
up for these services cannot find a mate off-line which suggests that there is something
flawed about them that would make them unfit for long-term relationship. Others were
concerned that the anonymous nature of the on-line dating experience was too reminiscent
of websites or newspaper advertisings associated with casual sexual encounters or
unorthodox sexualities. With more and more successful marriages arranged through on-line
dating, the stigma attached to on-line dating has been steadily decreasing. Still, even up to
this point, many couples who met on-line are reluctant to disclose that fact, using the place
of their first off-line date as the place where they first met.

Although most of the on-line platforms required membership fees, some were free
(plentyoffish). Similarly to the free business focused on-line platforms, the free platforms
were largely unsuccessful at matching people. 13 Most daters avoided these sites, because of
the concerns regarding the quality of potential matches available on such cites. One female
dater summarized this concern succinctly:

Would I really want to date a guy who cannot bring himself to spend $30 a month to find
me?

13 Interestingly enough, author’s research has revealed that there still exist many free dating platforms that by all

measures generate a substantial amount of internet traffic. Interviews revealed that they serve as a stepping
stone for some users who do not want to pay for dating. However, they quickly realize that the quality of
matches is too poor and often migrate to paid platforms. Owners of such websites often get compensated for
such referrals, which is how they stay in business.

Page 25
Indeed, such concerns were not groundless. Of the interviewees who tried these platforms,
most reported finding people interested only in casual relationships with little intention of
settling for a long term relationship than was the case on paid platforms. Even those
members who did not mind the selection problems encountered further problems. Matching
on such sites was difficult as personal profiles were distinctly shorter and less detailed than
those on paid websites. This was not coincidental. Since the service was free and anyone
could sign up and examine the profiles, members were “almost embarrassed” to disclose too
much information that others who are not interested in dating could see for free. Such short
profiles, however, made it hard for users to find a good fit and to differentiate between
serious and casual daters, further reducing the usefulness of free platforms.

In contrast, paid platforms gained much greater popularity with some of the most successful
ones attracting around 15 million members (though only 3 to 4 million were actually paying
members at any one time). There was fairly little doubt in the participants’ minds that these
paid platforms helped overcome many exchange failures experienced in the off-line world.

It is just like an electronic singles bar, I thought… but easier… I figured I would try it…
Worst that can happen is that no-one talks to me, but then nobody will ever know…. Just
imagine you walk into a real bar and no-one talks to you [laughs]. It’s also easier to
talk… there is no awkward small talk… you already know something about the person
and they know something about you.

Even within the category of paid platforms there were substantial differences in the extent to
which they admitted members. Most platforms allowed everyone to join, as long as they paid
their monthly dues. Others, such as eHarmony, made the joining process more complicated
asking potential members to fill out a questionnaire, which could take up to 3 hours, asking
potential members to describe themselves and their best match. Interviewees considered
many of the questions redundant and repetitive, but the companies wanted to keep this
repetitiveness present in order to test for consistency of answers. Only once the answers
were reviewed, and the potential member screened for the possibility of being married, was
the profile included in the database. Some platforms went even further – instead of the
platform administrators deciding who is allowed to join the platform, the potential member’s

Page 26
profile was displayed to the existing platform users who were given the right to vote on
accepting the new member. Although such restrictions reduced the number of paying clients,
the more restrictive platforms were able to charge up to 10 times more for the membership,
which with marginal costs almost equal to zero, translated directly into higher profit.

Though the paid and selective on-line platforms offered a strong signal of interest in
establishing a long term relationship, they still suffered from an important set of vouching
problems. Many members complained that unlike in an off-line situation, there is no
guarantee that the person is representing themselves appropriately, including their age,
weight, and sometimes even marital situation. These complaints were not imaginary as
almost every interviewee relayed at least one story of meeting someone who had hoped that
by misrepresenting themselves on-line they will secure a date who will then accept someone
ten years older and 30% heavier. The incidence of such misrepresentation did vary across
platforms, however. The more restrictive the access to the platform there less
misrepresentation there was. Presumably, the expected pay off from the bait and switch
strategy was too low for people to go through the grueling selection process.

On-Line Platforms with Networks

The development of on-line platforms with networks for the purposes of sociability
coincided with the development of these platforms for business exchanges (i.e. around
2003). Like their business oriented peers, these platforms were developed in order to fill a
perceived failure of the social platforms with no networks, particularly when it came to
meeting people for romantic purposes. For example, the founder of Friendster, the first
social on-line network that gained great notoriety, described his motivation to set up the
platform as:

I found the idea of chatting with random, anonymous strangers really creepy… I started
thinking about a dating site that wasn’t about dating... something where I wasn’t going to
be cyberkitten307… That’s not how we interact in the real world… In real life people
meet each other through their friends. [sic]

Page 27
In many respects, on-line platforms with networks for social exchanges did not significantly
differ from their business oriented platforms with networks. New members posted personal
profiles specifying their age, hometown, current geographic location, schooling, occupation
and relationship status. They could also indicate an interest in finding dates, activity partners
or friends, provide a list of their favorite books, movies and TV shows, and provide short
descriptions of themselves and the kind of person they hoped to meet. Most users uploaded
photos of themselves. A new member’s profile was then linked to that of the member who
had invited him or her to join. New members could extend their networks by inviting others
to join, by asking existing members to connect to them or by accepting such overtures from
existing members. Connections had to be agreed to by both parties. Every profile page
contained a list of the member’s friends accompanied by their photos. By clicking on such a
photo, a member would be redirected to that member’s profile, which in turn listed that
member’s friends; their photos too could be clicked on. Every profile page also included a
depiction of the path of friends connecting the current viewer of the page with the target
member. Members could also search for others directly by typing in their names. Finally,
they could contact other members through internal messaging system. However, to prevent
unwanted overtures, members could restrict their profiles and all communications to friends
or friends of friends.

On-line platforms with networks exploded in popularity. When Friendster was first released,
it reached 1 million members in the four months following its release. That number grew to
10 million within a year and reaching 30 million within three years, despite significant
performance problems faced by the website. MySpace, another very successful website,
currently has almost 150 million profiles world-wide (which analysts estimate amounts to 40-
50 million actual users). Despite the original inspiration, few members explicitly used the site
to find new people they did not know for dates. Instead members used these websites to
solve many off-line network failures with people that they already knew. For example, one of
the most common activities was checking profiles and pictures of friends of friends.
Interviews with users revealed significant interest in understanding their friends’ social lives

Page 28
(and where respondents fit into it) – something that is hard to establish in the off-line
world.14

Even though on-line dating was not prevalent on these platforms, it does not necessarily
mean that these platforms do not have an advantage over and above alternative means of
meeting people. After all, on business platforms with networks job searches were not the
primary activity, and yet they facilitated labor market exchanges that would otherwise not
occur. However, when asked about their use of on-line platforms with networks for dating
purposes, most respondents indicated substantial problems with using these platforms in
such a way.15 One respondent reported:

She may indicate in his profile that she is interested in dating men. But then what does that
mean? She may be there just hanging out with her friends, and then tick ‘interested in
dating men’ just because she is single… just to see what happens…. But that does not
mean that she is actually interested in something serious.

Others claimed that the information in the profile was too generic to allow them to establish
a potential fit or even to figure out whether the person is actually interested in dating. The
motivation to disclose limited amount of information was fairly obvious to the single people
who were looking for a relationship.16

I would never put the kinda stuff on I put on my dating profile on any other place…
particularly social network. You need to expose yourself a little, actually quite a lot
sometimes, what you are looking for in life, and last thing I need is my friends reading this
and having a laugh.

14 Though patterns of usage of on-line social networks for social purposes is consistent with the main claim of

this paper that people undertake exchanges on-line which would be hard to achieve off-line, I discuss them in
detail in another paper.
15 The use of on-line social networks for dating purposes is much more prevalent in same-sex romantic

matching. Detailed explanation for reasons this is so is beyond the scope of this paper.
16 In contrast to the prevailing trend, one interviewee designed his MySpace profile with the intention of

attracting dates. The interviewee’s friends quickly recognized the profile as such, and made a number of
comments to this effect on the member’s profile, thereby undermining the efficacy of the profile when it came
to dating or other forms of social interaction.

Page 29
Some members went even further in protecting themselves from their friends:

I am now dating someone from Match who I know for sure did not indicate on Friendster
that he was looking for dates. But he just did not want the entire world to know that he is
looking. Actually…he just did not want his friends to know. They were all too eager to set
him up with someone… he thought.

More generally, these quotes illustrate how platforms with networks blur the signal of
participation on the market for long-term relationships in at least two ways. First, because
people can use on-line social networks for the purposes of sociability as well as dating,
potential suitors are unclear whether they should approach such a member and engage in a
relationship. This may lead them not to try in the first place. It is important to note that this
is exactly the same problem that is potentially faced by a recruiter who sees a potential job
candidate on a business on-line platform with networks, which I discussed in the previous
section. However, in this example the firm will not find it that costly to approach or even
hire someone who is actually not interested in forming a long-term relationship. In contrast,
as I discussed in the earlier, approaching and developing a relationship with someone who
then proceeds to terminate it is very costly, frequently to the point that the actor would be
better off not forming the relationship in the first place. It is the difference in the costs of
failure that drive actors to behave differently in response to a structurally similar situation.
The other way in which platforms with networks blur the signal of participation in the dating
market is through participants reporting themselves as uninterested even when they are.
Such misrepresentation is caused by the implicit cost that the member would have to face if
their friends observed them to be actively involved on the dating market. Neither of these
costs is present on on-line platforms without networks, thereby making them more effective
platforms for matching people for long-term relationships.

Summary
The objective of this section was to establish reasons why on-line platforms without
networks are likely to be superior to on-line platforms with networks with respect to finding
a long-term romantic relationship. Qualitative data presented here suggest that people will
avoid entering into mutually beneficial exchanges unless they can be assured that their

Page 30
romantic partner is interested in investing specifically in the relationship. This creates a
potential problem because in reality those who are interested in such investments are
difficult to discern from those who are not, potentially leading to adverse selection problems.
As a consequence, people are forced to used the more drawn out and also failure prone
methods of ascertaining commitment by first engaging in non-romantic relationships with
potential mates. Within this set of search failures, it is easy to see how on-line platforms with
networks do little to improve the situation. Since on platforms like this members who are
truly interested in forming long-term relationships are mixed with those are there just for the
purposes of pure sociability, these platforms provide no information on the type of the
potential mate. In contrast, platforms with no networks can easily engage in separating the
truly interested from the rest. By providing members of such platforms with pre-selected set
of candidates they can assure both parties that they are each interested in forming a long-
term relationship and therefore remove one of the biggest obstacles to such matches in the
off-line world.

Conclusions
This paper was motivated by the need to understand the conditions under which the newly
developed on-line platforms with networks provide better means of facilitating exchanges
than platforms with no networks. To answer this question properly, I argued that it is
important to recognize that on-line networks operate in the shadow of off-line networks, so
it is first important to recognize where off-line networks fail, thereby allowing on-line
networks to alleviate these failures. In advancing the argument, I examined when and how
networks can fail in its well-documented role of brokering between interested parties and
vouching for the quality of their goods and showed how on-line social networks can help
alleviate these failures and facilitate new exchanges.

I also advanced a fairly new argument according to which networks can blunt the signal of
market participation, as people who are on the market are pooled together with those who
use their networks for other reasons. To control the clarity of that signal, actors would like
to be able to strategically choose whether to appear with their networks on the market.
However, reality puts restrictions on their ability to do so. On-line social networks, where
actors can always choose to appear with their networks, alleviate these restrictions and make

Page 31
the pooling effect stronger. The consequences of greater pooling on-line differ by exchange
type. They are positive for actors who are looking for a job, but are already employed, and so
cannot be seen as looking. By pooling themselves with actors who are using on-line
networks to utilize their social capital better, the employed job seekers can be on the market,
while claiming that they are not. However, the greater pooling has negative consequences for
actors who are single and earnestly looking for a spouse. In this market, it is important to
signal capacity for commitment, so greater pooling of those who are there only for their
friends with those who are ready to commit works against the latter.

More generally, I hope that this paper will spur development in understanding why networks
may fail to facilitate mutually beneficial exchanges and what we can do about it. Many
sociologists have documented that social networks are natural substitutes for failing markets
and they facilitate exchanges that would otherwise not take place. Yet, despite their beneficial
effects, few sociologists would argue that social networks will necessarily allocate goods
efficiently. However, the precise reasons why networks do not always reach the most
efficient allocation are not articulated. This suggests substantial opportunity for theoretical
development. Whereas the students of markets have clearly outlined conditions under which
markets fail, students of networks have not yet developed an analogous theory which would
outline conditions under which networks fail. A well articulated theory of ‘network failures’
could then help us determine how these failures could be corrected, thereby increasing the
number of mutually exchanges. Hopefully, this paper provided the first step in this direction.

References

Burt, Ronald S. 1982. Toward a Structural Theory of Action: Network Models of Social Structure,
Perception, and Action. New York: Academic Press.
Granovetter, Mark. 1974. Getting a Job: A Study of Contacts and Careers. Cambridge, MA:
Harvard University Press.
—. 1985. "Economic Action and Social Structure: A Theory of Embeddedness." American
Journal of Sociology 91:481-510.

Page 32