Popular Dishes

Monday, September 24, 2012

Of Forgotten Revolutions and Network Effects

The brief history of the Internet is filled with episodes of revolutionary technologies that eventually turned into fads. The obvious point in case is the dotcom bubble of the late nineties: The ultimate cause of the fatally inflated valuations of companies such as pets.com was blind trust in network effects and, in particular, in Metcalfe’s law, which in its general form postulates that the value of a network increases more than linearly (n2, nlog(n), etc.) with respect to its size.
Too quickly forgotten?
Network effects are not though the only factor in play, especially when it comes to social network sites: while network effects increase the value of SNSs as a function of size of network size, Zipf’s law and Dunbar’s number point to forces that are actually inversely proportional to network size.

 Zipf’s law states that each additional member in any series of items (such as an additional SNS contact or “friend”) has a predictably diminishing value. Moreover, acclaimed British anthropologist Robin Dunbar suggests that there is a cognitive limit on the number of people with whom one can maintain stable social relationships. The value for that number ranges from 100 to 230, while a middle-of-the-road value often cited by many authors as “Dunbar’s number”.

--- to be continued next week ---