Can Metcalfe’s law help Indian entrepreneurs create elephants ?

Just read this post at venturewoods on metcalfe’s law & india. “silicon valley is excited about “network value? . Eyeballs, social networking and even PayPal. In India Metcalfe’s law is not popular?

First I don’t think eyeballs have anything to do with metcalfe’s law at all. Metcalfe’s law is a theory that tries to explain in terms of a law the phenomena of network externalities(direct). The marginal utility of the network increases with every new member and metcalfe proposed that this value increase is proportional to the square of the number of existing users.

In fac that premise itself is being contested recently, if you like reading network literature then here is a critique on metcalfe’s law by the wireless guru Odlyzko

Well that apart ‘eyeballs’ at best could mean exhibtion of indirect externality and metcalfe’s law does not have anything to do about it.
In the comments Alok reference smartmobs and says that ebay maybe governed by Reed law. Now lets deconstrut Reed a bit, he argues that some networks have even higher value than the value proposed by metcalfe. In metcalfe’s model if there n nodes then value is proportional n-square (to be exact in a network a total n * n -1 connections possible which leads to n-square value). What reed argues is that if these networks are formed by humans then they tend form subgroups or networks within network ( subgroups) then that shoots the value of the network. In a network of n nodes the number of sub groups possible is nC1, nC2 , nC3 upto nCn. And we know that when add all these from nC1 to nCn we get 2^ n (basic permutation combination maths). But surprisingly & sadly ebay does not display reed’s law or even mecalfe’s( Revenue over the last 1 year proportioal to the number of users not the square or higher order)

Finally a law will work the same way everywhere irrespective of its popularity. It is Metcalfe’s law at work when the airtel or bsnl guy lays the telephone cable( or gives you a mobile/broadband connection) to your home. The deeper question to ask is can an entreprenuers build/create another network on top of this network (or otherwise) which creates still more value ( probably proportional to higher order numbers )

1 Comment

  1. sanyam says:

    hey man! you alive? 20 days no post :-O .. whats going on?

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