Metcalfe correctly sized A as a „per-user value“. Affinity is also a function of network size, and Metcalfe correctly stated that A must decrease as n becomes large. In an interview in 2006, Metcalfe explained that I wanted to bring this topic to PM101 because it is extremely relevant to the purpose of this blog and also to what we do – product and program management. Metcalfe`s law refers to the value of a network and also to the possibilities that depend on the number of its users. This law, attributed to Robert Metcalfe, states that the value of a network is proportional to the square of the number of its nodes. Simply put, the value of a network increases as new nodes or users are added. This value does not increase linearly, but exponentially with the addition of additional nodes. Metcalfe`s law assumes that the value of each node n {displaystyle n} is of equal use. [9] If this is not the case, for example because one fax machine serves 50 employees in a company, the second fax machine serves half of them, the third half of them, etc., the relative value of an additional connection decreases. In social networks, if users who join later use the network less than early adopters, the utility of each additional user may decrease, making the entire network less efficient when the cost per user is fixed.

If you don`t apply spam detection, algorithmic feeds, and other ideas, the network quickly becomes unusable. However, add the appropriate features to support detection, fight spam, and increase relevance in the user interface, and you can increase user viability. The maximum possible number of edges in a simple network (i.e. without multiple edges or self-edges) is ( n 2 ) = n ( n − 1 ) / 2 {displaystyle {binom {n}{2}}=n(n-1)/2}. Therefore, the density ρ of a lattice is the fraction of the real edges. The value of networks increases exponentially with the number of people using that specific network. Metcalfe`s law states that every time you add a new user to a network, the number of connections increases proportionally to the square of the number of users. Ethernet is a family of wired computer network technologies commonly used in local area networks (LANs), urban networks (MANs), and wide area networks (WANs). Ethernet was developed at Xerox PARC between 1973 and 1974. It was inspired by ALOHAnet, which Robert Metcalfe had studied as part of his doctoral thesis. There is a downside to network effects, as exponentially growing networks are more difficult to control, coordinate, or organize.

The rise of unsolicited emails, scammers, and fake news is an obvious consequence. And while Facebook and other networks employ huge armies of people to try to eliminate these factors, that`s probably an old way of thinking. In reality, it must use network-based solutions such as peer-to-peer accreditation, as in the trust profiles that users give themselves on platforms like Airbnb, eBay and Uber. 3Com has developed network cards connected to a computer to access Ethernet, a local network of shared resources such as printers, storage and the Internet. With all these users and interactions, the network has this data that can be analyzed to naturally generate even more interactions, including capturing even more users that help the network become more powerful. Metcalfe explained that while the cost of the network is directly proportional to the number of cards, the value of the network is proportional to the square of the number of users. In other words, the value lay in the connectivity between users, which allowed them to collaborate and achieve more than alone. Network effects, relationships, and data become the assets of a network-based business. They are „lightweight“ assets, usually in the form of intellectual property (compared to the mostly heavy assets of linear companies) and financially generate „intangible“ value.

I may be using the vocabulary of economics here – network effects, tipping points, and market saturation – but I attribute it to ecologists like Professor Allee, who have for centuries created animal population models to predict how fast they will grow, when they will be overcrowded, and predict their complex dynamics. By adopting these ideas, we can describe how technology products can introduce, scale and defend markets through network effects. In order to do justice to the network effect, an association must of course offer its members opportunities to truly engage with each other. In a hypothetical scenario, each user on a network will be worth $10. If you just started this network and it has two users, the value is $10 x $10, which is equivalent to $100. If you buy another user, the value of that network is $1,000. Metcalfe`s law is the first attempt to calculate the lattice effect. However, it is not the only one that can be used for this purpose. A well-connected club also has the added benefit: „If you build it, they will come.“ If you can show that your members are actively communicating and interacting with each other, it will be much easier to recruit new faces (and increase your networking effect in the process!). By experiencing the enormous value of the network and the source of knowledge that your association offers, new „members“ quickly become „people for life“.

The mathematics of meerkats, which govern social animals, also apply to us. After all, humans are social animals who connect with each other by sharing photos, selling collectible sneakers, sharing professional projects, and sharing dinner expenses. Instead of hunting and mating, our networks help us with food and encounters. Metcalfe`s law represents the first attempt to quantify the lattice effect. It suggests that the value of a network is proportional to the square of the number of connected users (n2). This means that you can think of n as an icon for users. It became an important concept in biology because it was the first to grasp the idea that there is a tipping point – a so-called „threshold of avenue“ – at which animals are safer and end up growing faster as a population: an ecological network effect. Metcalfe`s LawThe value or utility of a network is proportional to the number of users of the network.

indicates that the value or utility of a network is proportional to the number of users on the network. At one point, Metcalfe pointed out that utility is a quadratic function (utility = n2). For example, a telephone network of 10 people has a utility of 100 and a network of 100 people has a utility value of 10,000. It has since reduced this and the advantage of a network is based on a log function (utility = n × log(n)). VC MIKE (2010). The protocol model is shown in Figure 1.7 „Network size increases network value.“ Thus, for a network of 100 users, this would give a utility = 100 × 2 = 200 or 200 utility units. The equation is not the important question. It`s the idea that if you have more people using a phone, fax, railway, Web 2.0 application or whatever, your network becomes more attractive and attracts even more users. Consider whether to opt for a local cable TV network or a satellite TV network. When individuals think about the network that other people choose, there is a network externality or network effect that influences the decision. The type of network effect a company will have is a factor in its business model. Therefore, many forms are possible, which are under direct or indirect network effects.

For nonprofits, the network effect means that the value of your organization is actually exponentially greater than the number of unique members, because your members connect with each other. Metcalfe`s law was one of the first attempts to quantify the network effect, suggesting that the value of a network is proportional to the square of the number of users (n^2). The tech product metaphor is obvious: if a messaging app doesn`t contain enough people, some users will delete it. And as the user base shrinks, it becomes more likely that every user will leave the network, which will ultimately lead to network inactivity and collapse. (This happened with MySpace when Facebook started kidnapping its users, or when consumers and app developers switched from BlackBerry to Google or Apple smartphones.) An essential pillar of the study of network effects is Metcalfe`s law, in which „the systemic value of compatible communication devices grows like a square of their number“ (to name a definition). Simply put, whenever a user joins an application with a network behind it, the value of the application is increased to n^2. If a network has 100 nodes and then doubles to 200, its value does not double, but it quadruples. Metcalfe`s Law helps you understand how some popular tech companies are succeeding.

It explains how digital businesses can gain a competitive advantage by creating network effects, interactions, and relationships.