Is Metcalfe’s Law Really Wrong?

IEEE Spectrum magazine in a recent cover story by Bob Briscoe, Andrew Odlyzko, and Benjamin Tilly, three respected academics argued that the Metcalfe’s Law – which states that the value of the network is proportional to the square of the number of users of the system – is not only wrong, but also dangerous.

Metcalfe’s Law is named after Bob Metcalfe, the inventor of Ethernet, and the term was coined by George Gilder, who rose to fame during the networking and telecom boom of the 1990s.

Remarkably enough, though the quaint nostrums of the dot-com era are gone, Metcalfe’s Law remains, adding a touch of scientific respectability to a new wave of investment that is being contemplated, the Bubble 2.0, which appears to be inspired by the success of Google. That’s dangerous because, as we will demonstrate, the law is wrong.

While I have questioned the relevance of Metcalfe’s Law when facing economic reality (eBay), it is hard to argue against the basic notion of the law.

The law never stated a mathematical accuracy like say the Moore’s Law, but it was more a representation of a networked world. Bob, now a general partner at Polaris Ventures responds to the IEEE Spectrum article, and defends the Law named after him in a guest post on VC Mike’s Blog. What was an academic debate is proving to be quite lively, and worth tracking.
I recently had a chance to talk with Metcalfe, and taped the entire conversation (via Gizmo, so the quality is not exactly stellar, though Niall did his best to make the sound quality bearable, to say the least.) It is available as a download at the ONPodSessions website. We also posted the entire transcript of the podcast as well.