When billionaires such as Pierre Omidyar, the founder of eBay, start to invest millions of dollars in websites based around a quirky 60s psychology experiment, it is time to pay attention. US social psychologist Stanley Milgram first tried his now famous Six Degrees of Separation experiment in 1961, but he could never have foreseen a day when a medium called the internet would enable it to be proved on a daily basis - but that is exactly what is happening.

In what's become known as online social networking, sites help users to meet like-minded people by getting friends to invite friends and discover other friends with similar interests and backgrounds. Early versions of these sites were purely for dating and socialising, but have rapidly evolved into online hubs where users can contact networks of peers for information on products and services.

While most of these sites have seen steady organic growth, in the past six months they have also attracted the attention of Silicon Valley's Sand Hill Road venture capital community. Online social networks Friendster.com and Tribe.net have in recent weeks between them won investment of nearly $20m (£11m).

One of the longest running social networks is British-born. Everyone's Connected was founded by six friends in February 2002, and it is a testimony to online social networking that it has never had a formal launch but was recommended by the six co-founders to a few of their friends. Through word of mouth, it now has 115,000 members, with around 6m pages a month, and is growing at 25% a quarter.

Fred Murphy, one of its co-founders, says it was initially thought of as a dating site, but quickly moved away from that. "It's now a community of people you know and people they know," he says. "It overlaps a great deal with your life offline. You might find that people you half-know from a conversation at a dinner party will be in your online network of friends' friends or vice-versa."

The fear that Everyone's Connected is just a bunch of guys with a smart application but a weak business plan is allayed by their claim that the site currently breaks even just from banner advertising. Last month, too, digital agency DNA made a strategic investment in the business. Chris Perry, managing director of DNA, believes that Everyone's Connected gives his company proximity to consumers. "We see this area as a significant development in terms of the evolution of online relationships and the commercial opportunities around that," he explains. "It will help us and our clients to understand how we can develop potential relationships with consumers and sell to them in this social environment."

Perry also thinks the service can be effectively licensed by Everyone's Connected for many sectors including charities, book clubs and even old school reunion sites such as Friends Reunited. Steve Pankhurst, who founded Friends Reunited, isn't worried about being superseded by a social networking site. He has had conversations with Everyone's Connected about offering its service, but has decided to run the service inhouse to his 10m-strong database of consumers in the near future. "I've been intrigued by the six degrees of separation idea because, from the day we founded the site, I could see the worth of having one place online with all your contacts."

Pankhurst is less certain about the large sums of money being bandied about and the premise on which the figures are staked. Friendster.com, a free trial service, is already being valued at more than $50m by Silicon Valley venture capitalists. "They're going through the same mistakes made before [during the dotcom boom] by pumping money into something without a proven business plan."

This is what is so interesting about the involvement not just of venture capitalists, but traditional newspaper groups including the Knight Ridder and the Washington Post Company, which last month each took a stake, via their respective digital divisions, in Tribe.net, a six-month-old start-up with 82,000 members.

That investment has been taken with the express belief that online social networks could be the future of traditional classified advertising. The thought is that younger, web-savvy consumers who are not regular newspaper readers will use these networks to research commercial products and services for which "small ads" are traditionally used.

The chief executive of Tribe, Mark Pincus, says he and his two co-founders envisioned the site as a classified marketplace, focusing on what he calls private party transactions or person-to-person classifieds as against the traditional business-to-consumer which newspapers carry. Pincus points to the early success of eBay with person-to-person transactions as the tip of the iceberg. "There's huge opportunity. The local private party classifieds market has just started to grow."

Knight Ridder Digital says its decision to take a stake was aided by proprietary research, which showed that as many as one in two Americans have made a person-to-person transaction in the past year. Ross Settles, vice-president of strategic marketing at Knight Ridder Digital, says the company realised that people were making these small-ticket transactions not on a price basis but on the basis of personal trust and security that a social network of friends and their friends can offer compared to a newspaper ad from a total stranger. "We believe we can augment our existing classified marketplace and it gives us an understanding of consumer behaviour."

He is less clear about how online social networking person-to-person classifieds will be integrated into Knight Ridder's existing classified model. "We're still watching this space. We might for instance have classified ads from traditional advertisers integrated into relevant Tribe discussion groups."

Everyone's Connected sees person-to-person classified ads as part of the mix and the site has just launched what it calls a "Two Link Times" newspaper, where users can see all ads from friends within two links from themselves.

But this is still early days for online social networking and Everyone's Connected and Tribe might find the same problem that has haunted many a media-focused web business - how to get consumers' heads round to the idea of paying.

Pincus accepts it will be a challenge to get consumers who join for fun and dating to see the site as a marketplace. But, he says, even the big guys didn't start out big. "Ebay didn't start that way. Craig's List took seven years to become a list. It's not easy but it's do-able. The number one thing you need to transact with strangers is trust, which is why online social networks work."

· Yinka Adegoke is deputy editor of New Media Age