One counter-example, and a possible new POV

Post #197,104 by drewk 3/3/05 8:49:53 PM 3/3/05 9:11:41 PM Reply	One counter-example, and a possible new POV We don't value potential connections to most people very much. Ever flown to a convention? Was it in a decent-sized city or not? One thing I have noticed living in Cleveland is the almost complete lack of taxis. Sure you can call one, but unless you are at the airport, or at Tower City during morning or evening rush hour, you are not going to just walk out on the sidewalk and flag one down. When organizations are looking for a location to hold their conventions, the ability of attendees to get around factors in. In Cleveland there isn't enough demand for taxis to support heavy coverage, but without the heavy coverage the convention business won't come here. Chicken, meet egg. Closed networks present a similar issue. People won't join them until there are people in them. That's why first-mover advantage is so important building new networks. Now for why Metcalf's Law has an upper boundary: Network effects only hold up while networks are still islands of incompatibility. When you have to choose between incompatible cell phone networks, you want the larger network. Its size is an asset. But which internet do you want to sign up for? Well, there is only one. In theory that should make it wildly valuable. The barrier to start a "new" internet is huge, because no current users would have an incentive to switch.[1] But lack of alternatives is synonymous with lack of competition. So I think the value curve will rise geometrically in comparison to the alternatives. Once a single network has achieved the defacto merger you describe, the value of the alternatives also drops. Once the value of the alternatives drops, your multiplier is less useful. [edit] How can you talk so much about graphs and not have any? While your "law" may model observed trends more closely than Metcalf's, both the law and the explanation of the reasoning require more mathematical knowledge than most people will probably have. As much as it might feel like "dumbing down" your presentation to the USA Today level, some pretty pictures might make it more concrete for people who can't follow the math. [1] Technology being equal. === Purveyor of Doc Hope's [link\|http://DocHope.com\|fresh-baked dog biscuits and pet treats]. [link\|http://DocHope.com\|http://DocHope.com] Edited by drewk March 3, 2005, 09:11:41 PM EST Expand All History
Post #197,217 by ben_tilly 3/4/05 2:48:17 PM Reply	That's not entirely a counterexample We were trying to analyze communication networks, not conventions. As you noticed, Cleveland cannot hold large conventions because it doesn't have a fundamental requirement for that (a good taxi supply). If you want to draw analogies, that's something like saying that a network that isn't working can't be used. As to the upper boundary question, there isn't really one. Even if there is only one game in town, the value of the network affects how much people will be willing to pay for it, and how much usage of the network there will be. In other words even once network effects have forced everyone to one standard, there are consequences of the size of network effects. On why we don't have graphs, that paper is supposed to be headed for an academic publication. It may not be understandable for most people, but it isn't supposed to be either. (Of course I don't think that most people here quite count as most people...) Cheers, Ben I have come to believe that idealism without discipline is a quick road to disaster, while discipline without idealism is pointless. -- Aaron Ward (my brother)
Post #197,228 by drewk 3/4/05 3:27:51 PM Reply	You got the analogy, but missed the point ... that's something like saying that a network that isn't working can't be used. Right. And the proposed network that can't overcome the barrier to entry can't be used, either. That's what I meant in saying a new internet wouldn't get off the ground. If you could promise people $5/month for high-speed access they'd flock to you in droves. But if the only way to make money at that price is to already be the only game in town, you're not going to build it. Even if there is only one game in town, the value of the network affects how much people will be willing to pay for it, and how much usage of the network there will be. You're using "value" for "utility". The "value" of the network is how much people are willing to pay for it. They don't pay because it's valuable. It's valuable because people are willing to pay. I just thought of another thing. In your explanation of why larger networks want smaller networks to pay when they merge, you used Metcalfe's Law to describe the value of the networks. It would make more sense to use Zipf's Law. If the smaller network has all of the top third most-popular nodes, it will probably be more valuable. === Purveyor of Doc Hope's [link\|http://DocHope.com\|fresh-baked dog biscuits and pet treats]. [link\|http://DocHope.com\|http://DocHope.com]
Post #197,437 by ben_tilly 3/7/05 4:06:43 AM Reply	Chicken and egg on value You're using "value" for "utility". The "value" of the network is how much people are willing to pay for it. They don't pay because it's valuable. It's valuable because people are willing to pay. Whenever two parties enter into a reasoned voluntary trade, it is because each values what they are getting more than what they are giving up. To the network owner, the value of the network is what you're being paid. To the network user, the value of the network is what you'd have been willing to pay if you were forced. Those two numbers tend to be different, often substantially so. Vendors would like the gap to be small, and customers want it large. Metcalfe's Law is about the value that customers perceive, not what vendors get. In general in a competitive market, the gap tends to be fairly large (in fact economics says that the price should be the marginal cost of the last provider). In a monopoly the gap tends to be much smaller. If Metcalfe's Law holds, then a vendor should be able to dominate a market, and then proceed to jack up prices substantially, trusting to network effects to keep competitors from getting established. So the market should tend towards a monopoly that eventually becomes very profitable. This plan doesn't seem to work as well in practice as Metcalfe's Law would predict. As for your comment about where we should use Zipf's law vs Metcalfe's, we didn't use either. We used our own n log(n) law instead. As for whether to use a variation, while it is possible that the smaller network has all of the value, it is highly unlikely in practice. If you disagree, I'd be interested in hearing about specific examples. Cheers, Ben I have come to believe that idealism without discipline is a quick road to disaster, while discipline without idealism is pointless. -- Aaron Ward (my brother)

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