Knowledge Center

Knowledge Center

Metcalfe’s Law

Observation that relates network value being proportional to the square of users
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Description

The law was originally presented in a presentation given by Robert Metcalfe in 1980 to address the value of communications networks and stated that the value of a telecommunications network was proportional to the square of the number of connected users of the system (n2). This applied to networks such as phones, faxes etc. While most phone networks are incapable of implementing all possible connections simultaneously, they can get fairly close without the cost of actually making it 100% solvable.

However, the law became applied to another area during the Internet boom. It translated it to be the value that an Internet company could have as it grew its user base. This meant that the economics would be wonderful. Costs rise linearly and value rises quadratically. As we now know, this was totally wrong. Just because people can connect does not mean that they will or that any value will be derived from it.


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