Interviews with Digital Media Thought Leaders
Modifying Metcalfe’s Law for Apple
Podcast Audio | Posted by Phil Leigh on June 21, 2010
Download Audio Narrative Here (5 Minutes)
According to Metcalfe’s Law the value of a network is proportional to the square of the number of connected members. With apologies that WordPress does not permit superscripts, the concept is expressed algebraically as:
Metcalfe’s Network Value = n<2>
where n is the number of network users and <2> is a symbol for squared.
The Law is more of a metaphor than an ironclad rule. But it accurately describes the importance of adding participants. For example, the infant telephone industry of the late 19th century provided little value when there were few subscribers to call. But as numbers grew the network’s utility for each subscriber increased exponentially. In principle the law applies to all multilateral networks such as fax machine users and social websites like FaceBook and FourSquare.
Apple’s Impact
Eventually the most significant effect of Apple’s mobile devices, such as the iPhone and the iPad, will be a coming-of-age for The Wireless Internet. They are harbingers of a day when consumers can choose to be routinely and nearly continuously connected to the infinite mind of the World Wide Web. Although Apple mobile units can reach any website via a browser, the company also successfully pioneered a new paradigm of connectivity in the form of Applications from the App Store.
Updating Metcalfe’s Law
Similar to the way Apple invented new product categories with the iPhone and iPad, the App Store success means that the company also launched a new type of network, to wit an App-Centric Network. Upon analysis, Metcalfe’s Law requires modification when applied to such a network. The value of an App-Centric network is the product of the number of members times the number of applications. It may be expressed algebraically as follows:
App-Centric Network Value = ( subscribers num.) x ( Apps num.)
Like Metcalfe’s Law, the modified equation is more a heuristic expression than empirical rule. But the significant difference is that the value of the network is the product of two variables instead of just one. Moreover, the effect of changes in one variable are either amplified, or diminished, by changes in the other. If both are trending upward the network value increases exponentially. Thus, anything that Apple, its ecosystem, or AT&T do to enhance, or reduce, the value of either component on the right side of the equation impacts the overall value of the network to the user on the left side. For example, by adding phone features Apple favorably impacts the first variable. Similarly, adding mobile advertising within Apps benefits the second.
The equation leads to a number of other important implications. All are discussed in our $395 research report to be released next month, but we’ll share one now.
Some applications are themselves basically multilateral networks. As such their value is governed by the conventional version of Metcalfe’s Law. Consider FourSquare. As an application its value rises with the square of the number of users. Substitution into the second variable yields:
Network Value = (device sub. num.) x (FourSquare Friends)<2>
Note that the second variable is squared. Thus, the value of the network to the user expands even more rapidly as the number of his FourSquare Friends grows. By implication, one of the most powerful techniques for Apple and its ecosystem to increase the value of the customer’s network is to develop successful multilateral apps.
As noted, next month we’ll release a research report focused on the AT&T Wireless metered pricing plan and it affect on Apple and the Apple ecosystem. Included will be an analysis of how the potential negative impact on Network value can be mitigated. Those subscribing by June 25th get a 25% discount from the $395 price. Should you wish earn the discount please email me with your advance order by June 25th.
Categories: Podcast Audio
Tags: Apple, ATT, iPad, iPhone, iPod, Metcalfe's Law
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Mobile advertising would continue to grow as more and more mobile phone users get hooked on texting and mobile browsing..’.