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3 common laws for assessing Network Effects

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3 common laws for assessing the
value of communication networks
Sarnoff’s law
Value of a network is
proportional to the number
of viewers
Broadcast
Yahoo
1
Value of a network is
proportional to square
of number of connected
users
Peer to Peer
Facebook
Metcalfe’s law
2
Value of a group-forming
network is proportional to
number and ease with which
groups form within it (subgroups
grow faster than sheer number
of P2P participants)
Group Forming
Slack or WhatsApp groups
Reed’s law
3
Sources: Andrew Odlyzko et al http://www.dtc.umn.edu/~odlyzko/doc/metcalfe.pdf

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