Editor’s Note: This piece is part of a weekly series in which MainStreet spotlights one new smartphone app to help readers manage their money, shop better or improve their job search. Check back each week to find out how to make your smartphone even smarter!

NEW YORK (MainStreet) — Highlight is either the next logical step in social networking or a bridge too far that jeopardizes our privacy. Most likely, it’s a little bit of both.

The free Highlight app launched earlier this year on the iPhone and is now arguably the most talked-about startup at the South by Southwest conference taking place this week, the same conference that previously helped Twitter and Foursquare cement their place as Internet powerhouses. As with these two websites, the key to Highlight’s success is that it carves out a new niche in the fast-growing social media landscape.

At its best, Highlight effectively serves as a tool for discovering and managing new contacts. The app uses your phone’s GPS data and information from your Facebook profile to find second-degree connections nearby who share similar interests. Whenever someone with a few mutual friends and interests happens to be near you, a notification will pop up on your phone showing you their name, status updates, friends in common, pictures and any other details they have chosen to make public on their Highlight profile. Likewise, if you walk in close proximity to someone with mutual friends, that person will see your name pop up on their phone along with any personal details you’ve made public.

The goal of the app is to give users a “sixth sense” about the social world around them by highlighting “hidden connections,” and it certainly succeeds at that. Next time you’re at a coffee shop, you might receive an alert that someone else there knows a dozen of your closest friends, and you can either try to start a conversation with that person or send a message to him or her through the app, either of which might help you befriend someone you might otherwise never have approached.

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What we really like about the app, though, is its incredible potential for professional networking. Now, whenever you’re at a conference like South by Southwest, you can easily pinpoint your second-degree connections. And thanks to a recent update to the app, you can also bookmark those people you do meet. That way, if you come across one of them at a future conference, you can give yourself a quick reminder about who they are.

For all the hype and all the potential of this app, the early reviews from users have been noticeably mixed. One of the most common complaints is that the app drains the battery like crazy because it’s constantly updating in the background, which means you might want to turn it off when you’re just at home or in the office. Others complained that few people are on it in their area, though that’s something which may change if Highlight gets a true bump from South by Southwest.

The real concern, as some alluded to in the reviews, is privacy. Just to use the app you have to grant it access to your Facebook information and location data, and then you have to be comfortable having these details shared with strangers. To its credit, the app does have an option to make your profile available to friends of friends only, rather than everyone, but for most people friends of friends still encompasses thousands and thousands of people.

The bottom line is that this app may well be the next great tool for networking and friend discovery, but if you’re uncomfortable with the idea of being discovered by random people, it’s probably not right for you. If anything, we would expect the app to eventually connect with other social networks like Twitter and LinkedIn, which would certainly boost the networking potential, but chip away a little more privacy in the process. Then again, you’ll likely find a little extra serendipity in its place.

You can download the app for free on iTunes.

Seth Fiegerman is a staff reporter for MainStreet. You can reach him by e-mail at seth.fiegerman@thestreet.com, or follow him on Twitter @sfiegerman.