“Metcalfe’s Law and Network Quality: An Extension of Zhang Et Al 2015”, Leo Van Hove2016-01-08 (Metcalfe’s Law)⁠:

Zhang et al 2015 exploited data on Facebook and Tencent to validate Metcalfe’s law, which states that the aggregate value of a communications network is proportional to the square of the number of users. This note points out that the value of a social network may be driven not only by its size, but also by increases in the variety and quality of the services offered.

I therefore extend Zhang et al 2015’s approach by explicitly controlling for changes in network quality over time. For the case of Tencent, I also filter out revenues and costs that are unrelated to Tencent’s core (social network) services.

I find that these two extensions only strengthen Zhang et al 2015’s conclusions: Metcalfe’s law now outperforms the other laws even more clearly.

[Keywords: Metcalfe’s law, network value, Facebook, Tencent, quality, cost of revenue]

…However, social networks are different. In fact, in a 2006 blog post, Metcalfe himself stated as much concerning the value of the Internet:

 . . ., the constant of value proportionality, A, has been going up. In the 1980s, Ethernet connectivity allowed users only to share printers, share disks, and exchange emails—a very low A indeed. But today, Internet connectivity brings users the World Wide Web, Amazon, eBay, Google, iTunes, blogs, . . ., and social networking. The Internet’s value per connection, A, is a lot higher now, …