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Question: Is Metcalfe's Law relevant?

Metcalfe's Law says the value of a network is proportional to the square of the number of users of the system.

Now folks are debating whether it can be applied to Web 2.0, with the critics saying it is dangerous, and the defenders saying it is valid.

We were supposed to meet with Mike Hirshland, of Polaris Ventures today, but we ended up having to cancel. But he gave me the heads-up on a blog post, where the pros and cons are discussed, including a guest post by Bob Metcalfe, also a partner at Polaris, who coined the law.

The blogosphere has started bubbling some interesting discussion of how Metcalfe's Law applies to current Web 2.0 dynamics like social networking. Some IEEE types, Brad Feld, Niel Robertson, a PhD. student named Fred Stutzman, my partner Sim Simeonov, myself and a few others have posted on this in the last few weeks.

We didn't think there are any laws on the Internet. But we point to the debate here, because it if it is relevant to Web 2.0, we'd like to hear about it. Is there anyone who thinks there's enough credence to Metcalfe's law to base decisions on? VCs, what would you think if an entrepreneur mentioned Metcalfe's law in his/her pitch? Would you keep listening, or show them the door? And entrepreneurs, has this debate given you any insights?


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From: n.sputnik/Nick Dynice
Metcalfe䴜s Law 2.0 is Web 2.0
Excerpt: A couple weeks ago I wrote about how Metcalf䴜s Law appears to not be correct when the network becomes too populated. Recently, people have been saying in no longer makes sense or questioning wheather the law still makes sense in the face of Web 2.0....
Tracked: August 21, 2006 12:10 PM

Comments

My original post (referenced above) on how to more accurately use network effects to value social software is located here - http://chimprawk.blogspot.com/2006/07/network-effect-multiplier-or-metcalfes.html

I think there's a lot of value in using Metcalfe, but the logic has to be updated for the present situation - using someting I call the "Network Effect Multiplier".

The network effect multiplier refers to the combination of the core economic value of a piece social software, more or less combined with the degree of value taken from the social experience. Hope this sheds some light on the discussion.

Fred Stutzman on August 18, 2006 9:03 AM
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Fred, I think you are on to something. Yes, there is some value in a social network whose point is networking for networking's sake (more value in some contexts, like teens looking for a date or people looking to network professionally). But there probably will be more value where a web service offers a core proposition -- photos, travel, calendars, what have you -- and then layers in social features. I agree that is where you get a multiplier effect. But I also would add Bob's point -- that the value won't increase as much if you add lots and lots of users but don't offer tools to find others with affinity or shared interests. Where you have all 3 of these -- a core value proposition, social tools, and tools to enable discovery/networking of others with shared interests -- is where I think Web 2.0 and social networking starts to get interesting. And, I think there is a new crop of startups doing just this...

Mike Hirshland on August 18, 2006 12:18 PM
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Metcalfe's law is wrong. The value of a network is the square of the number of smart people on it minus the number of morons, idiots, flamers, and posers.

This is Bennett's law of networks:

v = (s^2) - (m + i + f + p)

For many networks, v is a negative number, hence we have to introduce a filter that makes a virtual network out of a real network and reduces m + i + f + p to a term less than s squared.

Metcalfe's Law suffers from the techno-uptopian idealism commonly expressed in tech cricles but never really believed.

Richard Bennett on August 18, 2006 2:15 PM
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