While the potential advantages of Web 2.0 tools for improving organizational collaboration, innovation and knowledge management is recognized, there is little understanding of how developers should design Enterprise 2.0 applications and processes to leverage the collective intelligence of web-based communities. This paper focuses on one form of Enterprise 2.0 application, social networking software, and explores design challenges emerging from the nature of the software. We argue the importance of ‘sociality’ rather than ‘functionality’ as the key design concept, and highlight challenges in relation to the identification of users, the specification of user requirements, and the nature of success in relation to social networking software. Drawing on research on the successful development of online communities, we posit that the success of social networking software can be regarded as the degree to which it facilitates the development of social capital in an online environment. We then use the theory of network governance and an analysis of social networking software to hypothesize the factors that lead to the development of online social capital. Working from this model, the paper concludes that the design of social networking software should focus on restricting access, allowing participants to assess the reputation of others, and implementing collective sanctions for those that violate the norms and values developed by the community.