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)."

Comments

Duh

[tjstork]

I am completely unimpressed by this common sense "discovery." They pay people to come up with this?

Re:Duh

[azgard]

Me too. I skimmed through the paper; he just defines some functions, and he calls his new model Beckstrom's Law. How is his definition a law?

Re:Duh

[mea37]

On one hand, you have to put it in context. There have been several models of network value, and none of them have taken this "common sense" approach of defining value in terms of what you get out of the network.

But before running with that, we have to look at the other hand, and see why none of the older models take this approach. I think it comes down to the question of "what is the model's purpose"? The simplicity and usability of a model are potentially as important as its accuracy.

If I can't predict the inputs to my model, then my model can't be used for prediction. I can predict a certain level of information about a hypothetical network using size-based models.

Moreover, if I can't measure the inputs to my model, then I can't use it at all. Claims that we can "measure the value of the Internet" are a bit much.

Don't get me wrong, this model may be well-suited to some purposes. But it does not, as TFS claims, "replace" the existing models any more than relativity "replaces" classical physics. Sure, it may be a highly accurate definition of the value of a network when you can observe that network empirically (but a definition is not a "law"). This assumes that it accounts for negative value of a transaction, though. (What is the contribution of spam to the value of the Internet?)

Of course they pay people to come up with this

[VampireByte]

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).

How exactly does one calculate this value?

[SirLoadALot]

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?!?

Re:How exactly does one calculate this value?

[melikamp]

One word: Statistics.

You are right, though, about the value of a social network. But this is not a problem of appraising internet, it is a much older issue which has to do with foundations of economics. It falls into a wide category which one writer calls "shadow work". An extreme example is the work of a parent at home, raising a child. The economic worth to the society is tremendous, but no one gets paid for it. Likewise, a person may produce tremendous value by simply connecting the right people with each other, but there is no easy way to put a price sticker on it, simply because there is no money exchange.

It may be to the best. I personally like the fact that we have other economies besides the one based on money.

Re:How exactly does one calculate this value?

[Bombula]

The distinction between value and utility also seems skewed. The two are not remotely the same, even in purely financial transactions. Add to that all other 'transactions' across a 'network', such as me posting this comment to slashdot, that are non-financial but which certainly have utility, and you're nowhere near a meaningful valuation of said network.

So I'm forced to agree with the cynics: this seems to be a put-up job designed to make it easier to assign $$ losses resulting from network outages in court cases.

Re:This is going to be used to justify micropaymen

[AvitarX]

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.

For us Layer 1 guys: Ohm's Law

[Gothmolly]

For any consumer- or end-user-level network, Ohm's law is the one you need to most worry about.

Law my ass

[cretog8]

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!

This work has not seen any reasonable peer review

[kune]

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.