

Andrew Chen: Why every Web 2.0 startup needs to think about Metcalfe's Law - andrew_null
http://andrewchen.typepad.com/andrew_chens_blog/2008/05/when-facebook-a.html

======
sanj
The real thing that you should focus on is avoiding being _beholden_ to the
network effect.

Build something that is useful with for a single user, but _better_ for a
thousand users.

~~~
davidw
Well... yes and no. If you get "lucky" with network effects, it means that
something that's pretty simply technology wise, like reddit, can suddenly
become very valuable, all out of proportion to the technology behind it. It's
a gamble, but so are startups in general, so creating something that goes
exponential is a good proposition in some ways, rather than something that
just adds one user after another, slowly.

------
neilk
Jakob Nielsen said precisely the same thing nine years ago, in an article
called "Metcalfe's Law in Reverse".

<http://www.useit.com/alertbox/990725.html>

------
ph0rque
Last paragraph of the article: "A very interesting variation of this is when
you apply Metcalfe's Law not to the entire network of users, but rather think
of a social network as a loosely grouped set of connections. In that case,
some local networks might have achieved critical mass, and if they are big
enough, they will be retained. However, if the smaller networks around any
given group start collapsing, then sometimes even the large networks will get
pulled down with them."

This also explains why some people just "don't get" facebook, while others do;
and these two groups have a hard time understanding each other. It all has to
do with critical mass.

------
davidw
I'm too lazy to look for it right now (this baby thing is exhausting), but I
recall reading an article saying that N^2 is a bit over the top, and
suggesting a better formula, since the number of other nodes you actually
connect with is less than the total of all nodes. Although the ability to
connect with those other nodes is still valuable, it doesn't quite justify the
^2.

Anyway, I'll trot out the 'Information Rules' book recommendation once again.
Sorry for the repeat.

~~~
skmurphy
In "Metcalfe's Law is Wrong" <http://www.spectrum.ieee.org/print/4109> Bob
Briscoe, Andrew Odlyzko, and Benjamin Tilly argue that the value of a network
should really be n*log(n) not n^2

I don't buy their arguments, certainly not for smaller values of n that Andrew
Chen is writing about.

~~~
davidw
Exactly, thanks!

Why don't you buy their arguments? I think it makes a lot of sense to think
about just how much value you get from additional members of a network. Some
things, like eBay, are very much dependent on those effects. Other sites and
systems, less so.

> The fundamental flaw underlying both Metcalfe's and Reed's laws is in the
> assignment of equal value to all connections or all groups.

So the more each additional node is equal in value to the others, the closer
you are to ^2. If you have a network where it's really important to be able to
contact some nodes, but others are far less important, then ^2 seems
exaggerated.

~~~
skmurphy
both Metcalfe's and Reed's laws are approximations. With Metcalfe's Law you
should bear in mind that a technology or infrastructure that gives you the
option of connecting with one of N people creates N^2 of value, I think you
are actually arguing for a value above N^2 only because you are working from
close friends to more distant stakeholders (e.g. members of your community,
members of your profession, potential customers, ...). Clay Shirky makes a
great point in "Here Comes Everybody" that once you can rely on everyone
having access to a technology (e.g. telephone, e-mail, web browser) it is a
quantum change from "everyone you currently know." I think Metcalfe's Law has
actually held up pretty well. This is worth a much longer discussion if you
are interested, I will contact you directly.

------
abstractbill
I found this confusing. At one point the author talks about exponential decay
(in which something gets smaller more and more slowly), but at another point
he describes something that sounds more like an auto-catalytic process (where
something reaches a tipping-point and then explodes, or in this case
implodes).

