Group Forming Networks

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Group Forming Networks = the ability of networks to form groups.

Reed's Law on Group Forming Networks: Definition


David Reed is a network engineer, who added a third law concerning networks NS has summarized the different mathematical laws inherent in the value created by networks.

First, we focus on the individuals. If a network has N-members and memberships grows, then one can see a linear growth in audience, i.e. N+1, N+2, etc.. i.e. a proportional growth in value. This formula was already at play in broadcast media and in such an environment, 'content is king', and publishers vie for the attention of the users of the network. This explains the role of portal sites such as Yahoo, who re-intermediate the economy of attention that we discussed before.

If we now focus on the 'interaction between individuals', we see that the network enables transactions, but that these grow by a 'square value'. This characteristic is called Metcalfe's Law. A network of 2 allows for 2 transactions (back and forth buying and selling), a network of 3 allows for 8 transactions, a network of 4 allows for 16 transactions. This causes websites to be seen as ecommerce platforms.

Finally, we focus on community formation. Networks have the ability to enable the formation of subgroups, they are 'Group Forming Networks'. But value growth here is 'exponential'. It is this characteristic that is called Reed's Law . Every affinity group creates and 'consumes' its own content, and it is here that the true peer to peer processes emerge, characterized by infinite content creation . The economy of attention becomes moot, because what is happening is not limited content competing for the same audience, but infinite content competing for infinite combinations of affinity groups. You are then creating content, not for an audience, but as a means of creating interconnectedness between a group of people sharing an interest or common goal.

Citations from David Reed

Citation 1

"Bob Metcalfe, inventor of the Ethernet, is known for pointing out that the total value of a communications network grows with the square of the number of devices or people it connects. This scaling law, along with Moore's Law, is widely credited as the stimulus that has driven the stunning growth of Internet connectivity. Because Metcalfe's law implies value grows faster than does the (linear) number of a network's access points, merely interconnecting two independent networks creates value that substantially exceeds the original value of the unconnected networks. Thus the growth of Internet connectivity, and the openness of the Internet, are driven by an inexorable economic logic, just as the interconnection of the telephone network was forced by AT&T's long distance strategy. This strategy created huge and increasing value to AT&T customers, based on the same (then unnamed) law of increasing returns to scale at the beginning of the 20th century. In the same way, the global interconnection of networks we call the Internet has created huge and increasing value to all its participants.

But many kinds of value are created within networks. While many kinds of value grow proportionally to network size and some grow proportionally to the square of network size, I've discovered that some network structures create total value that can scale even faster than that. Networks that support the construction of communicating groups create value that scales exponentially with network size, i.e. much more rapidly than Metcalfe's square law. I will call such networks Group-Forming Networks, or GFNs."

"In networks like the Internet, Group Forming Networks (GFNs) are an important additional kind of network capability. A GFN has functionality that directly enables and supports affiliations (such as interest groups, clubs, meetings, communities) among subsets of its customers. Group tools and technologies (also called community tools) such as user-defined mailing lists, chat rooms, discussion groups, buddy lists, team rooms, trading rooms, user groups, market makers, and auction hosts, all have a common theme—they allow small or large groups of network users to coalesce and to organize their communications around a common interest, issue, or goal. Sadly, the traditional telephone and broadcast/cable network frameworks provide no support for groups." (

Citation 2

"Networks that support the construction of communicating groups create value that scales exponentially with network size, i.e. much more rapidly than Metcalfe's square law. I will call such networks Group-Forming Networks, or GFNs. What kind of value are we talking about, when we say the value of a network scales as some function of size? The answer is the value of potential connectivity for transactions. That is, for any particular access point (user), what is the number of different access points (users) that can be connected or reached for a transaction when the need arises.The value of potential connectivity is the value of the set of optional transactions that are afforded by the system or network." (


Reed's Law and Peer Production

"What's important in a network changes as the network scale shifts. In a network dominated by linear connectivity value growth, "content is king." That is, in such networks, there is a small number of sources (publishers or makers) of content that every user selects from. The sources compete for users based on the value of their content (published stories, published images, standardized consumer goods). Where Metcalfe's Law dominates, transactions become central. The stuff that is traded in transactions (be it email or voice mail, money, securities, contracted services, or whatnot) are king. And where the GFN law dominates, the central role is filled by jointly constructed value (such as specialized newsgroups, joint responses to RFPs, gossip, etc.)." (


Business implications?

"In "real" networks, it is important to note that although the total value of optional transactions that involve pairs and groups grows faster than linearly, the total price that can be paid cannot grow that fast. Typically, the consumers of the value have money and attention resources that scale linearly with N. So the law of supply and demand will kick in, lowering prices until the available resources (dollars and attention) are saturated. What's interesting is that this saturation process affects all types of optional transactions-so GFN value, peer transaction value, and broadcast content value all compete for the same resources. Once N grows sufficiently large, GFN transactions create more value per unit of network investment than peer transactions, and peer transactions create more value per unit of network investment than do broadcast transactions. So what tends to happen is that as networks grow, peer transactions out-compete broadcast content in the arena of attention and return on investment. And remarkably, once N gets sufficiently large, GFN transactions will out-compete both of the other categories." (


See the entry on Group Forming Networks in Politics


See the entry on Reed's Law for a critique of its accuracy.

More Information

  1. See the entry on the related Metcalfe's Law
  2. Group Forming Networks Resource Page,