Beckstrom's Law

Description

1. Dion Hinchcliffe:

"a way of calculating the actual value of a network (versus the theoretical maximum potential, which is what Metcalfe’s Law and Reed’s Law determine). The premise is that by removing the network and calculating alternative ways of doing things, you can find out the true value of a networked business process. Of course, the gap between this value and the potential value of a network (as a product, service, or community) is a measure of the true untapped business opportunity remaining. Techniques like actively leveraging network effects can help realize these to a fuller extent. This model is also useful for conducting ROI calculations of social computing efforts." (http://www.zdnet.com/blog/hinchcliffe/twenty-two-power-laws-of-the-emerging-social-economy/961)

2. From the Wikipedia:

"In economics, Beckstrom's law is a model or theorem formulated by Rod Beckstrom. It purports to answer "the decades old question of 'how valuable is a network'", and states in summary that "The value of a network equals the net value added to each user’s transactions conducted through that network, summed over all users."

According to its creator, this law can be used to value any network be it social networks, electronic networks, support groups and even the Internet as a whole.[1] This new model values the network by looking from the edge of the network at all of the transactions conducted and the value added to each.

It states that one way to contemplate the value the network adds to each transaction is to imagine the network being shut off and what the additional transactions costs or loss would be. It can thus be compared to the value of a pizza delivery service offered to its customers. If the pizza delivery service shut down, then the social value generated by its deliveries declines, and people will either go hungry or elsewhere.

Beckstrom's Law differs from Metcalfe's law, Reed's law and other concepts that proposed that the value of a network was based purely on the size of the network, and in Metcalfe's law, one other variable." (http://en.wikipedia.org/wiki/Beckstrom%27s_law)