In talking about the Web, whether the original model, the so-called “Web 2.0″, or the emerging Semantic Web (aka Web 3.0), one of the most important things to keep in mind is the network effect. The power of the Web emerges through the link space realized between Web pages. This is evidenced in a number of pieces of work, most famously the PageRank algorithm (Brin and Page, 1998) that was behind the early success of Google. Unlike traditional information retrieval algorithms, which were solely based on the information content of the individual pages, PageRank takes into effect how Web pages are linked to each other. By coupling this information with traditional indexing schemes, the system was able to outperform its competitors.

The network effect describes the value of a service to a user that arises from the number of people using the service. At its core, it captures that value increases as the number of users increases, because the potential links increase for every user as a new person joins. This is best quantified by what has come to be known as Metcalfe’s Law. This proposition developed by Bob Metcalfe in the early 1980s, was originally defined to better explain to his customers why they needed more Ethernet boards than they were buying. Metcalfe hypothesized that while the cost of the network grew linearly with the number of connections, the value was proportional to the square of the number of users. For example, given n users of ethernet cards, the number of possible connections that can be made is n(n-1) = O(n2)

Metcalfe’s law has been used to explain the growth of many technologies ranging from phones, cell phones, and faxes to web applications and social networks, especially online social networks. The intuition clearly holds that as the number of people in the network grows, the connectivity increases, and if people can link to each other’s content, the value grows at an enormous rate.

Recently, there has been some interesting debate with respect to the validity of Metcalfe’s law. On the low end, in a 2006 column in IEEE Spectrum, Brisco et. al (2006) opined that value in a network grows more like O(n log n) arguing that not all connections are of equal value. At the other extreme, in a 2001 article in Harvard Business Review, Reed (2001) claimed that the value of the network grew exponentially in the number of connections. His argument is essentially that in a largely connected network, such as a social networking Web site, the value is in the creation of subgroups and the number of these subgroups (i.e. the subnetworks of size 2, size 3, … size n) grows exponentially with n. While none of these effects have been validated in practice, it is clear that the network effect is quite real, and even the most pessimistic view still provides for significant value as the number of connections in the network grows.

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