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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)."
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?
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.
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?!?
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?)