Metcalfe's Law Refutation Explained

sdpinpdx writes "According to this article in the July 2006 IEEE Spectrum Metcalfe's Law (that the value of a network is n^2) is wrong (it's probably only n log(n)). The authors speculate this had something to do with the .com bubble, and that their more conservative model might help alleviate the next one. The article includes an interesting quote from Metcalfe: 'The original point of my law (a 35mm slide circa 1980, way before George Gilder named it...) was to establish the existence of a cost-value crossover point--critical mass--before which networks don't pay. The trick is to get past that point, to establish critical mass.'" This would seem to be an update to a story we ran more than a year ago.

Comments

Re:Linky...

[Jaysu]

just kidding... try this one:
http://en.wikipedia.org/wiki/Metcalfe's_Law

Re:How is this supposed to say a thing about value

[MountainLogic]

This all came about because Metcalf was trying to make a case for networking (e.g., ethernet). Back then the ethernet cards he was selling were expensive. The decision maker would go, "gee, if it cost $x to network two people why can't Bob just walk down the hall to Jan's office?" If X is greater then the cost of Bob "walking down the hall" (or snail mailing or flying...) then there is no busines case for installing a network. More to the point:

If the node cost, x, is $100 and there are 100 users, n, then the cost for the network is $10,000.

If the single user business value, v, of the network is $10 for one user then the ROI for different valuation methods is:

Linear: vn = $1,000 -- no business case, don't even think about it

Metcalf's Law: (n(n-1)=2)v = 49,500 -- winner

Metcalf's Law as misused by dot-bombers: N^2 * V = 100,000 -- "Proves" selling frozen mud on the net is a winner

As restated by the authors: n long (n) * v = 2000 -- no business case, but better than a flat linear

There really are two problems here. The scaling formula and setting the business value. If you set the business value for a single connection greater than the cost of the network then it is a no brainer, but back when Metcalf as pushing networking that was a hard case to make and given how many people use /. at work that may still be the case.

Re:Refutation?

[treeves]

You're probably right, but I thought I'd mention that one of the author's names I recognized as a top-notch mathematician: Andrew M. Odlyzko. I read about him in a book about the race to prove the Riemann Hypothesis.

I'd say he's a pretty smart guy - I don't about practical or "street" smarts - but some smart people don't value money so highly.