What is the Value of a Network?

IEEE Spectrum has a new article suggesting that Metcalfe’s Law (network value is approx a square of the number of nodes) is incorrect.

The article says:

We propose, instead, that the value of a network of size n grows in proportion to n log(n). Note that these laws are growth laws, which means they cannot predict the value of a network from its size alone. But if we already know its valuation at one particular size, we can estimate its value at any future size, all other factors being equal.

and

The fundamental flaw underlying both Metcalfe’s and Reed’s laws is in the assignment of equal value to all connections or all groups. The underlying problem with this assumption was pointed out a century and a half ago by Henry David Thoreau in relation to the very first large telecommunications network, then being built in the United States. In his famous book Walden (1854), he wrote: “We are in great haste to construct a magnetic telegraph from Maine to Texas; but Maine and Texas, it may be, have nothing important to communicate.”

Well, that explains alot of problems with Internet business models.
It also explains why most social network web sites don’t do much for me. Maybe I am just getting old.

Update: Metcalfe responds to the IEEE article 

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