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New Fundamental Law of Network Economics
intersys writes "A new fundamental law of economics has been formulated by Rod Beckstrom, former Director of the National Cyber Security Center. In Words: The value of a network equals the net value added to each user's transactions (PDF) conducted through that network, valued from the perspective of each user, and summed for all. It answers the decades-old question of 'how valuable is a network.' It is granular and transactions-based, and can be used to value any network: social, electronic, support groups, and even the Internet as a whole. This new model or law values the network by looking from the edge of the network at all of the transactions conducted and the value added to each. One way to contemplate the value the network adds to each transaction is to imagine the network being shut off and what the additional transactions' costs or loss would be. Beckstrom's Law replaces Metcalfe's law, Reed's law, and other concepts which proposed that the value of a network was based purely on the size of the network (and in the case of Metcalfe's law, one other variable)."
As whiskers abound,
The network is found,
Infinitely sound,
Until Slashdot-ground.
Burma Shave
Get thee glass eyes, and, like a scurvy politician, seem to see things thou dost not.--King Lear
1(4)+1(2)=6
I am completely unimpressed by this common sense "discovery." They pay people to come up with this?
This is my sig.
a new law that will, when the current crisis will end, contribute to create the next crisis?
"Value added to each transaction" seems.....dynamic at best. Shutting off the internet would mean time lost to my kid doing homework ( and having to go to the library to research an answer ) , but more time gained from reduction in answering pointless IM messsages and Facebook "5 favorite industrial sludge" survey apps.
In other words, it cannot be measured, it can be freely adjusted for argument's sake, and therefore has no scientific basis whatsoever.
Here is a more robust theory I am calling Fenratty's Law:
- Michael P. Fenratty
It's a useless definition, as all it does is pass the buck down the chain into the domain of the unmeasurable guesstimate.
Metcalfe might be a guesstimate, but it is much, much simpler, and probably as accurate, as this proposed replacement.
When Google was first introduced, the internet immediately became more valuable to me. When there was a system error, prior to Google I would have to search through dozens manuals and try and decypher what the problem was. With Google, I would punch in the error code and up would come and explanation of what the error was and how to fix it. Savings - many minutes or hours of time and the cost of those many books.
But as Google grew larger, it became harder to get meaningful search results. And with search engine optimization, the results I want are further and further removed from the results. The value of Google and the internet has decreased.
The next killer web app to me would be a small google. That a a replacement for usenet.
He's with the National Cyber Security Center, and for security purposes there's always this dramatic "the hacker caused damages of X dollars" where X is very large. They want X to be huge so that equally large sums can be spent on bringing offenders to justice, so that the press has this huge amount of loss to report for dramatic purposes, so that huge civil suits can be brought, etc. Additionally, this Beckstrom fellow devises "Beckstrom's Law" and now he can be called in for expert testimony, he being the expert because "Beckstrom's Law" is named after him (by himself of course, but that's just a minor point).
Run and catch, run and catch, the lamb is caught in the blackberry patch.
Some scientist defining a new model is not breaking news by itself. Does this new model allow to predict things better? And how do you estimate the value added by a network for practical systems? If it's done RIAA way (which says they lose zillions of dollars because people won't buy their shitty CDs), then it's not good. :)
And to discredit network neutrality. Mark my words. Without network neutrality, the conservative elements will attempt to make the net into a broadcast medium dominated by a few mega-players, with 1-1 communications as an expensive add-on. The micropayment scheme discourages any use of the 'Net that isn't 'money-making'. Either one of these concepts transforms the 'Net into aol, msn, and compu-serve in the bad old days where you paid by the hour or by the bit. IOW, just like the cell phone networks are right now (profitable, certainly, but not as useful as the net not fully controlled by telcos).
Whenever 'value' is equated to function of 'cost' and the units are $$, you're gonna get this.
Paranoia is a Survival Trait!
Also known as the Law of 24:
Networks are easy, simply "open a socket". (And have a gun. And Jack needs to yell at the network a lot)
Jack: "WHY ARE YOU NOT ROUTING THESE PACKETS! "JUST TELL ME WHERE THE BIT-BUCKET IS!" "WHO ORDERED THE 3COM HUB?"
What? It makes as much sense as the article.
Sent from your iPad.
I think this definition is pretty damn useless -- how is one supposed to calculate this value for anything but trivial example cases? You would have to determine the value of each transaction, and then the 'value-add' of the network for that transaction, as determined by the user. I make 'transactions' (financial and otherwise) on the Internet all the time, and I couldn't begin to guess at useful values for these. And I'm just one of millions of such users.
Finally, how would one even begin to define 'value' for the transactions in a social network? How much (or little!) is being poked worth?!?
...at least, not in the academic sense. Though there are some research papers that contribute just as little. At its base, this is how Value-Added-Tax is calculated. Wheel, reinvented, wow...
Enjoy life! This is not a dress rehearsal.
Except this could be used as an argument FOR net neutrality too.
Adding a fee is a zero sum game, the person paying gets less value, the person being payed gets more.
so, in the no transaction payment model:
perceived value - (overhead/large number) + (advertising revenue + marketing value) - (overhead/larger number + transactional cost) = transaction value added.
taking a fee out of the perceived value, and adding it to the revenue does not improve the transaction's value at all. And will decrease the number of transactions overall, since people will be less likely to get value out of any given transaction. Using this model it should be the goal to increase usage so that there are more value adding transactions, not decrease it so that some people make more money.
Wow, sent an e-mail as suggested when clicking on "use classic" banner, and got a fast response that addressed my msg
I thought to call something a "law" in science you needed a much firmer proof.
For any consumer- or end-user-level network, Ohm's law is the one you need to most worry about.
I want to delete my account but Slashdot doesn't allow it.
So if one network were shut off, and another network turned on, and the second network was more efficient, then the value of the first network would be negative, since shutting it off ended up decreasing transaction costs? Or consider the value of my wife. If I shut her down, but a new, more efficient wife were immediately available, did my former wife have negative value?
Now, you might say that there's not a replacement network immediately available. But surely there are replacement wives available. So is the value of my wife in the positive things that I get from her currently, or is it only relative to the potential value of other wives, or of the freedom of having no wife at all?
Also, is an elegant wife or an elegant network of more value than an inelegant one, regardless of any direct effect of that elegance on transaction costs? Should we prefer an ugly wife or network merely because transaction costs are less?
Beckstrom's approach gets at something, just as most simple-minded reductions have some grain of truth in them. But it's also, in the large picture, mostly wrong.
"with their freedom lost all virtue lose" - Milton
... and what exactly was the value conquering a 10 years old Open Source project like TWiki using a VC funded company, acquiring the trademark and then locking out all of its contributors? Because that's what Rod did 2008. I tell you: it only had value for a single node/company while other stakeholders were trampled under their feet. Sour grapes? No, live goes on on the Foswiki fork. Let's see 2009.
So, could you say that a network is a hologram, which is why its perceived value changes based on the point you occupy with in it? It was the "edge of the network" statement that drew up that whole universe-as-hologram thing.
meh
And surely Beckstrom must've realised this, since its trivial to get to Metcalfe's law from his equations.
Beckstrom:
Vj = Sum(i=1..n, V[i,j]) = Sum(i=1..n, Sum(k=1..n, B(i,k)) - Sum(l=1..n, C(i, l)))
= Sum(i=1..n,Sum(k=1..n, B(i, k) - C(i, k))).
= Sum(i=1..n,Sum(k=1..n, Sum(z=1..n, B(i, k) - C(i, k))/n ))
Let A(i) = Sum(z=1..n, B(i, k) - C(i, k))/n , the average benefit to user i of the network. Then:
Vj = Sum(i=1..n, Sum(z=1..n, Ai))
= Sum(i=1..n, n*Ai)
= n* Sum(i=1..n, Ai)
I'm sure you can see where I'm going with this now...
Let A = Sum(i=1..n, A(i))/n , the average benefit to any user of the network.
Vj = n^2 * A. Oh wait - that's Metcalfe's law. All Beckstrom's done here is give an expansion of the average benefit per user.
A rule for assigning a value to something--when you come right down to it, an arbitrary rule, even if it turns out to be useful--is not a law. Sheesh!
Now that we know the value, it's only a matter of time before some government tries to tax it based on it's current up-to-the-minute value.
Knowledge is how to play a game, intelligence is how to win, wisdom is knowing what game to play.
What about competing networks? What about redundant networks? Do the networks lose value because they become individually less important? Or do they multiply because they all can do the same valued transactions?
What if the main network fails, and the auxiliary network takes over. Does that network now adopt the new value of its transactions? Is it more valuable because it's the last of the backbone? Is that value lost as soon as the main network goes back up?
What about a server that changes load depending on the time of day? Does that network become more valuable at peak, and less valuable at the minimum? Can I invest in a network early morning, sell at peak, and get filthy rich within a month? Is this kind of value something that can be really traded?
Can these questions be answered by a flimsy 10 page PDF, with one title page, 2 huge diagrams, and an empty last page? A: No, they can't!
This simply is none sense logically.
Here is a thought experiment of sorts.
Company A and company B are competitors, same size, same work, same number of employees, same clients. All things are equal.
Company A has invested in multiple redundant servers, their network is made up of dozens of different services such as web sites, databases, file sharing. Essentially all the bells and whistles.
Company B has an antiquated 1985 dos based network. They are able to produce the same amount of results. They however have to put in 10 x the amount of information to reach those results.
Now, company C has one employee, that works 1 hour a day, with a super network of software and servers at his disposal and inputs 1% of the information of either A or B, yet gets 10% more return.
Are you telling me that company C, has a less valuable network?
Thus, the value of a network is not what goes in, but what comes out. No difference than how we determine computer performance, car performance, and so on. Basically, what is the utility of the thing involved. We do not value networks or anything else just on the sake of how much work it takes to use it. Only a government bureaucrat would assume something is more valuable because it is more work to use, and would define efficiency according to how much resources it consumes.
Living in Chile
Are we gonna have to pay taxes based on this?
Normally I ascribe all life to intelligent design, but in your case I'll make an exception.
"Law of Network Economics"
I suppose only a non-economist would call a theory of economics a "law".
What's next, rocket engineers coming up with a new theory of gravity?
This law, I just came up with, is important for website advertising and revenue, because sex appeal may be part of the ??? before $$$!!!
The value of a website sexiness equals the net added by each post conducted through that website, valued from the perspective of the opposite sex, and summed for all.
One step closer to the $$$!
I guess this may happen more than one place on such a curve, and who knows when its a global optimal situation?
Look at his pic. You gotta believe the guy was a dick for a boss.
He was student body president at Stanford and made $200 million (more or less)when he sold CATS. No wonder he thinks his shit doesn't stink.
Credit where it's due: I should have hair like that.
This paper has not seen any reasonable peer review. There are indices simply missing. The letter l (ell) is clearly not a good index. He uses n for number of transactions, users and networks. He even uses n for networks and users in the same formula, which must mean that number of users and networks are identical. In the summation of the users he leaves the denominators simply away. Usually scientiest don't name laws after themselves.
This doesn't mean that the basic idea might be wrong, but the work itself doesn't support the argument.
Monetary is only one kind and sometimes the poorest measure of value.
Consider social networking? What is the unit of exchange? What are the values of those transactions?
Some things that are little or no monetary worth are priceless in their value.
Peace, health, love/friendship, freedom, joy. No one transaction on a network can equate or be specifically related to any of these
yet improving and maintaining those things is the primary thrust of nearly all human activity.
No one transaction has made me a more loving person, but the cumulative effect of many of them has given
me a greater respect for humanity and life. How do you measure the value of these transactions?
âoeTolerance applies only to persons, but never to truth. Intolerance applies only to truth, but never to persons.
"Discovering a law" ain't the same thing as "defining a term."
Kepler discovered the elliptic nature of the planets' orbits. The orbits were there all along, and Kepler was the first to notice their eccentricity.
Descartes defined the Cartesian coordinate system. The system did not exist until Descartes invented it as a useful heuristic.
Definitions tell us a lot about how our minds works. Discoveries tell us a lot about how the world works.
... a variation of Cole's Law.
Have gnu, will travel.
I don't pretend to understand Brannigan's Law. I just enforce it.
Value is an ill-defined term, and different observers will value the same transaction differently. This isn't only because it's ill-defined, but also because valuation is observer centric.
Because of this the law is both too vague to be useful, and silly. Many observers will only value some of the transactions. Others will value some of the transactions negatively. Etc.
E.g., what is the value of the advertisement that may appear at the top of this page? To slashdot it's valued as a source of income. To the advertiser it's valued as a way of attracting business. To most readers it's ignored. To some readers it's a nuisance. Each means of valuing the ad gives it a different valuation...and each valuation is clearly observer-centric.
I think we've pushed this "anyone can grow up to be president" thing too far.
This is just madness. How valuable is a network? That's like asking, how valuable is your telephone or the mailbox.
Hey, that's the formula Paul Stachour used for the value of email, to compare the ARPAnet and a bunch of lower-connectivity private provider's nets.
--dave
davecb@spamcop.net
I'm no fancy expert like this guy, but here are two obvious problems that invalidate the theory as far as I'm concerned:
1. It's impossible to measure. Ergo, it's useless.
2. There is value in potential uses, not just actual transactions. For example, how much is 911 service worth? Zero until you break your arm? No. There is a value in knowing that you can reach 911, regardless of whether you use it. Similarly, networks provide value by creating opportunity, even if that opportunity is unrealized.
----
Not to be confused with Col.
"The value of a network equals the net value added to each user's transactions"
-----So, if I build a $25,000,000 computing center, and 1,000,000 people make searches for porn, then each search was worth $25?
I don't think so.
What determines a network's value is:
1. Quality of network hardware,
2. Quality of network software,
3. Network speed,
4. Network efficency.
However, this is just the value of the network.
The value of each transaction is dependent on the transaction's criticality value to the user, with 'criticality' being:
1. Usefulness of the transaction (to the customer),
2. Quality of the data (informational content),
3. Quality of the data (dropped bits, errors, etc.),
4. Urgency of the transaction (how badly the customer needs the information).
If the customer is in a situation where they need the information *NOW*, then the value of the transaction will increase as the deadline for the use of the information gets closer.
An Analogy:
If you have a research paper due in 2 months, the transactions you make are valuable, but not as valuable as transactions made 6 hours before the due date.
A company can have a cheap operation, but still have roughly the same value as any high-priced operation if they can make critical transactions just as fast. The limiting factor would be expansion capacity. Expansion capacity would limit the number of transactions that could be handled at comparative quality before needing to upgrade. If the need to expand does not justify the need for expenditures on an upgrade, than the values are roughly the same.
Knowing Google's lust for data collection, the Soviet Union is still alive and well inside the psyche of Sergey Brin....
I believe this principle was proposed previously by others, including Benkler's "The Wealth of Networks."
Scott
This definition has been used in the literature on Network Economics for over 20 years.
Theories and laws are different categories of things.
A law is an observation that's so reliable that you assume it's always going to happen. For example, the law of gravity says that if you drop something on Earth, it will accelerate toward the ground at approximately 9.8 m/s^2. That law says nothing about why things fall (at all, or at that rate) when you drop them, it just says that they do. There's no proof for that, other than the fact that billions of people have been dropping things for thousands of years and the same thing happens every time.
A theory is an explanation for observed facts. A theory of gravity attempts to explain why things fall, for example "matter emits gravitons" or "matter distorts the shape of spacetime". You can disprove a theory by observing something that contradicts it, and you can add weight to a theory by observing things that it predicts you'll observe, but no matter how much evidence you find, it'll always be a theory.
(Similarly, creationists like to point out that evolution is "just a theory", but besides the fact that they're conflating the scientific meaning of "theory" with the layman's definition, it's also not true. The fact -- or law -- of evolution is that genetic distribution changes over time; we can observe that in fossil beds, mutating viruses, isolated islands, and basically all around us. The theory of evolution attempts to explain why that happens.)
Visual IRC: Fast. Powerful. Free.
The problem with this kind of model if that it give a value in such a way that business men can start to calculate how much they should charge for a given pipe, even the pipe to your house. Quantizing everything, giving it value. Well to do that you have to Identify each kind of thing over that pipe, which means they have to know what each thing is, its type, its size, track on it save its value.
Two problems. The cost of doing that and saving that intformation is huge. Of course that would be factored into the cost in such a way that it did not look like you were getting that overhead. And all that juicy information left around for the government and law enforcement folks to monitor, even more than they currently do.
But it means the end of cheap phone, video, audio. Even though its profitable for them now. They will see the the opportunity to make billions, and control what you can see and do, if by nothing like pricing policy. Like that old fellow Watt the Secretary of the Interior. Who thought that all that public land in the parks and forests was under-producing and sold off large tracks of land for logging and mining etc. They will try to privatize the internet, turn it into a large cash cow as well as control the media, like they have been doing with radio and tv and print. The internet is currently the last frontier the right does not have a solid grip or a good deal of control.
can you hear the bell tolling?
Every time I post something on slashdot, someone tells me I'm wrong, and then never disprove what I'm saying or make a case for the other side.
It's like everyone just likes to hear themselves type.
Just a theory.
I'd like to buy homeland for our 10 million people. http://twitter.com/mahadiga
Actually, I did disprove what you said and made a case for the other side. A theory can never become a law, even if you provide "a much firmer proof", because theories and laws are entirely different.
It's like you just like to post replies without reading the comments you're replying to.
Just an observation. (But if you find this happening every time you post something on Slashdot, maybe it's actually a law.)
Visual IRC: Fast. Powerful. Free.
Problems on the first page of this paper:
* He doesn't know what "exponential growth" is.
* He names his law after himself.
* The thing obviously wasn't edited, e.g. "Metcalfe's Law, the most popular version, proposed that the value of a network was proportional to the square of the number of nodes on a network" should use "it" instead of the 2nd instance of "network", and "is proportional" instead of "was proportional".
Your tax dollars at work.
The actual proposal is quite obvious. Anyone who has access to this kind of data -- each user's valuation of a network -- should definitely sum them. Everybody else will still need more general principles like Metcalfe's law.
See also:
http://lumma.org/microwave/#2006.08.23.1
-Carl
So you're saying this "network law" is, if fact, a law?
I don't get it.
Maybe I need more sleep.
Great, its defined by the 'transactions'. So what is a transaction? The intellectual value gained from reading a website? Credit card values charged? Advertisement revenues? Bandwidth use?