Net fragmentation

[Steve]

x-no-archive: yes

=====================

Metcalfe's Law in Reverse

Jakob Nielsen's Alertbox 7/25/99


Current attempts to split the Web into many isolated mini-networks
undermine the long-term potential of the Internet which depends on
universal interconnection: 

...AOL trying to prevent customers of Microsoft, Prodigy, and Yahoo
from communicating with AOL customers through "instant messages".
This is reminiscent of email in the 1980s when everybody had five
email addresses listed on their business cards; one for each of the
main services.

...Universal Studios fighting movie websites that want to link to
film trailers on Universal's site. 

...A similar story last year where Ticketmaster did not want
Sidewalk to bring potential ticket-buyers to the Ticketmaster page
that sold tickets to events the users had read about on Sidewalk. 

...Owners of sports teams trying to prevent other websites from
covering the sport so that fans will be left with no other coverage
than the "official" sites sponsored by the National Basketball
Association and the like. 

...Cable modem services preventing users from downloading video
clips beyond a certain length from sites outside the span of the
cable service. In the future, cable services may slow down or prevent
any access to unaffiliated sites. The long-term implication is that
MP3-like video-on-demand services may not be available to cable
modem subscribers except for a small amount of tightly controlled
streams from their own servers. 

...The proliferation of distribution deals where portals give
featured placement to those services that pay them the most and not
the ones they would really want to recommend to their users. Of
course, portal users are not customers, but just eyeballs, which
explains why user needs get so little respect on the Web today.

All misguided attempts to achieve short-term advantage by locking in
users or preventing the natural growth of the Internet. 

Having other sites link to specific pages (so-called deep linking) is
usually considered attractive, and many sites run affiliates programs
to attract as many links as possible. Users who follow specific links
are more likely to be hot leads who are interested in buying a
specific product or service. It is unproductive to insist that such
interested users be dumped at the home page and required to find
their own way around the site. Targeted links are one of the most
effective Web marketing methods, so it is extremely short-sighted to
prevent other sites from establishing inbound links. 

Attempts to build walls around isolated sites will fail in the long
term because of Metcalfe's Law which states that the value of a
network grows by the square of the size of the network. So a network
that is twice as large will be four times as valuable because there
are four times as many things that can be done due to the larger
number of interconnections. 

Because of Metcalfe's Law, the largest network always wins over
smaller networks, even if the smaller network has some larger
initial value due to some special-purpose feature or benefit. As the
networks grow, the square factor ultimately tips the hand in favor of
the large network. And since the Internet is the largest network of
them all, it will ultimately win over any proprietary network. 

Metcalfe's Law provides much of the explanation of the success of the
Web relative to earlier hypertext systems like HyperCard, Intermedia,
and NoteCards. They were all much better than the Web and had
features ten years ago that we are still sorely missing on the Web.
But the Web was universal and the other systems were proprietary. You
know who won. 

The law is usually quoted in terms of growth of the network, but we
can run Metcalfe's Law in Reverse and use it to characterize the
effect of cutting a network into pieces: 

The value of partitioning a network into N isolated components is
1/N'th the value of the original network. 

This new law follows directly from the original Metcalfe's Law. Each
of the new components has a size of 1/N'th the size of the original
network. Thus, its value is 1/(N2) of the original value. At the
same time, there are N of these new mini-networks, so the over-all
value is N * 1/(N2) = 1/N 

The value of the full Web is currently about $300 Billion according
to an analysis published by Cisco. In three years, the value will
likely be around $1 Trillion. Let's assume that the various attempts
to split the Web succeed to the extent that it is split into 5 parts
soon and 10 parts in three years. 

The current value of the Web would be reduced from $300 Billion to
$60 Billion - for a loss to society of $240 Billion Each of the
current "mini-nets" would be worth $12 Billion The future value of
the Web would be reduced from $1 Trillion to $100 Billion - for a
loss to society of $900 Billion Each of the future "mini-nets" would
be worth $10 Billion 

The short-term interest in partitioning the Web lies in the hope of
gaining supreme dominance of one of the resulting mini-nets.
Capturing most of $12 Billion can surely be more attractive than
capturing a small part of $300 Billion, even if your actions lead
society as a whole to lose $240 Billion. 

In contrast, the long-term prospects of proprietary strategies are
dim, with the value of each mini-net dropping over time from $12
Billion to $10 Billion. 

Let us use the Reverse Metcalfe's Law to analyze the potential
impact of a proprietary communications system for AOL. Assume that
AOL succeeds in capturing 20% of the world market for Internet
services. Further assume that the remaining 80% of the market can
agree on a single, open standard (hopefully one defined by the
Internet Engineering Task Force). Relative to the theoretical value
of a single, universal network, we find: 

The value of AOL's share is 0.22 = 4% The value of the other
companies' share is 0.82 = 64% The loss due to the partitioning is
the remaining value that is captured by nobody: 100% - (4%+64%) = 32%

In other words, AOL ends up owning a 4% share (which could be worth
a good sum, of course) and a third of the full potential is simply
lost to society. 

In contrast, assume that AOL joined in the single open standard and
then succeeded in capturing the same share of the new value as the
hypothetical 20% I have assigned as its over-all share of the future
Internet. Then AOL would realize five times as much value as they do
under the proprietary scenario. The only downside is that they would
have to compete on quality of service to win their 20% share instead
of simply being guaranteed a proprietary 4% share. 





* * * * * * * * * * * * * *  From the Listowner  * * * * * * * * * * * *
.	To unsubscribe from this list, send a message to:
majordomo at scn.org		In the body of the message, type:
unsubscribe scn
==== Messages posted on this list are also available on the web at: ====
* * * * * * *     http://www.scn.org/volunteers/scn-l/     * * * * * * *