Stutzman on Metcalfe’s Law and social networking

Some very interesting thoughts from Fred Stutzman looking at how Metcalfe’s Law is too simplistic when applied to social networking.

This notion of “full value” makes the mathematics of network value calculation quite appealing. If everyone on the network gets the same value from using the technology (everyone has the same options – i.e. call or not call on the phone), then valuing the network is absolutely possible. When using Metcalfe (or Reed, or Odlyzoko and Tilly’s refinement) to value a network, the core assumption is that the value we derive from the network is binary – this works for things like ethernet and telephony, but the mathematics prove to be overly crude when applied to social network technologies.

Therefore, the fundamental flaw in applying Metcalfe to social technology is its inherent lack of nuance and granularity. When people join the network, they are given more options than simply connecting; the network is worth the sum of associations and actions that are allowed in the network. We must instead think of network value in terms of a network effect multiplier, as the actual value a network adds to an application is under the direct control of the application designers.