Subject: Re: How accurate is Metcalfe's law? (Was: Ximian software)
From: Bernard Lang <Bernard.Lang@inria.fr>
Date: Fri, 4 Jan 2002 12:41:49 +0100



I do not know whether this is related to Odlyzko work, which I have
not read (I know Odlyzko in interested in library business), but this
reminds me of Bradford's law that is used by librarians to assess the
worth of a collection.

Here is the law as explained by jean-Claude Guedon in
http://www.arl.org/arl/proceedings/138/guedon.html

> Everyone in the library profession knows Bradford's distribution
> law. It posits a multiplier, bm, actually derived from a ratio: if you
> need 5 journals to survey the essential parts of your specialty and
> these 5 journals yield, say, 12 interesting articles, and if to find
> another 12 articles, you need 10 journals, then bm will be 2 (10
> divided by 5). And if you want to find another collection of 12
> articles, you will multiply the 10 journals by the multiplier and will
> find 20.  Obviously, returns diminish rapidly, as the multiplier grows
> exponentially, and it explains why scientists have long learned to
> moderate their urge for exhaustive searches.

It seems to me that a similar view can be taken to assess the value of
a network to each customer.  At least of a phone network.

Now, I am not sure how that converts into value for the companies
running them, since networks are interconnected.

Bernard


On Thu, Jan 03, 2002 at 10:48:38AM -0500, Ben_Tilly@trepp.com wrote:
> 
> Perry Metzger writes:
> > Ben_Tilly@trepp.com writes:
> > > But the value of the net to an individual person is still bottlenecked
> > > by that person's ability to enjoy making the connection.  While it is
> > > possible for individual connections to be worth a thousand dollars per
> > > hour to the recipient, I think most will agree that, barring inflation,
> > > it will never happen that the average person will exceed $1000/hour of
> > > derived value from time spent connecting.
> >
> > Careful there. As the Chicago and especially Austrian economics
> > schools mention over and over, the only way to assess monetary
> > equivalent value is with what people will pay for something. Net
> > connections are worth whatever people are paying for them (typically
> > pennies an hour), regardless of the value of the information
> > retrieved.
> 
> I suspect you missed my basic point.  Metcalfe's "law" says that the
> value of a network scales as the square of the number of people who are
> connected to it.  I am claiming that this is impossible by pointing out
> that this rule implies levels of value per person that are simply
> ridiculous.  My point wasn't that access to the net should be worth
> $1000/hour, it is that it isn't worth that as can be seen that people
> aren't willing to pay it.  In other words I am saying that most people
> won't pay for access, therefore we know it isn't worth that.
> 
> But even so, any decent economist should also tell you that up front
> fees aren't a good way to account costs.  If a business decides to
> provide network connectivity, email, etc, its cost for doing that is
> not the cost of the network connection.  Instead its cost should
> include the cost of keeping it administered, the cost for employee time
> spent using the connection for legitimate purposes, and the cost of
> employee time for the predictable time people will spend on the net
> when they were supposed to be working.
> 
> I guarantee you that my employer is paying orders of magnitude more for
> the ability to send this message than the cost of the network
> connectivity it takes to send it.  The employers of many recipients
> likewise...
> 
> > It does not matter that my life is of infinite value to me and that
> > without water I will die -- the glass of water in front of me is not
> > worth even $1 no matter how much I value my life, unless in odd
> > circumstances (say, at an oasis in the desert).
> 
> It is true that total value does not matter under normal circumstances.
> The value there is unexploitable by legitimate businesses, and is
> therefore as irrelevant to their normal life as the energy matter has
> by virtue of having mass is in normal life.  (But the rare cases
> where even a small fraction of that value can be harnessed is the
> economic equivalent of a nuclear bomb.)
> 
> However that doesn't mean that it is worthless to attempt to understand
> what motivates the perception of value in potential customers.  For one
> thing without understanding what they find valuable, you have no idea
> what to sell or how to price to get the most out of your audience.
> 
> For instance consider one of Odlyzko's points.  When you allow people
> to connect to a network, the majority of the value that the people will
> get out of it comes from simply connecting to other people.  Therefore
> there is more money in selling simple connectivity than in selling
> custom content, and people in the business of selling connectivity stand
> to make more if they can support a pricing model that encourages
> customers to connect at will.  (ie You should try to use a flat rate
> pricing model.)  These are non-trivial conclusions with important
> consequences for businesses.
> 
> Incidentally I keep thinking there is a connection between this and
> open source development models.  The idea being that proprietary
> software is in the business of content creation, and free software is
> content created by network dynamics (the latter eventually surpassing
> the former in terms of how much members of the network value it).  If
> you push this analogy further the majority of the money to be made is
> in providing access to the network.  Access points to this "network"
> being employees, consultants, etc who are "connected" to the software
> world and can use it to solve non-programmers problems.
> 
> I am not sure that the analogy is very accurate, but it predicts what I
> already believe so I like it. :-)
> 
> > (Attempts to produce other metrics of value, like the Marxian "labor
> > theory of value", have been general failures. The Marxian metric would
> > value a badly designed and shoddy program that took 300 programmers a
> > year to write far above an equivalent program that was beautifully
> > written but took only one programmer to write. It also values a ditch
> > that takes a week to dig for a man with a shovel far above an
> > equivalent ditch produced in an hour by a backhoe. Beware of
> > value metrics that are not validated by the intersection of supply and
> > demand curves.)
> 
> Why do I have this sneaking suspicion that attempts to fully consider
> the "true value" of things will lead to calculations that turn out to
> be infinity divided by infinity, and when renormalized will give answers
> that you can make come out to anything you wish? :-)
> 
> Cheers,
> Ben

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