The End of Metcalfe's Law........the start of Ecclesiastes Law?

Bob Briscoe, Andrew Odlyzko, and Benjamin Tilly, writing in IEEE Spectrum, assert that Metcalfe’s Law is wrong ( http://www.spectrum.ieee.org/print/4109). This is shocking news for all the hockey stick business plans of the emerging new dot.com bubble (Bubble 2.0).

To recap, Metcalfe’s Law states that the value growth of a network is a function of the square of the number of users added f(n)**2. The authors propose that instead, the value of a network of size n grows in proportion to n log(n). As they put it:

“Imagine a network of 100 000 members that we know brings in $1 million. We have to know this starting point in advance—none of the laws can help here, as they tell us only about growth. So if the network doubles its membership to 200 000, Metcalfe's Law says its value grows by (200 000**2/100 000**2) times, quadrupling to $4 million, whereas the n log(n) law says its value grows by 200 000 log(200 000)/100 000 log(100 000) times to only $2.1 million. In both cases, the network's growth in value more than doubles, still outpacing the growth in members, but the one is a much more modest growth than the other. In our view, much of the difference between the artificial values of the dot-com era and the genuine value created by the Internet can be explained by the difference between the Metcalfe-fueled optimism of n 2 and the more sober reality of n log(n).”

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