Reed's Law

from David Reed

As networks grow, value shifts: Content (whose value is proportional to size) yields to Transactions (whose value is proportional to the square of size), and eventually Affiliation (whose value is exponential in size)... At first glance, Metcalfe's Law makes sense, but as you look deeper, you realize you don't understand it at all. To make sense of it, you need to realize that the "value" is in the form of "optional transactions" (the option to perform a peer transaction is created by a network). Then I realized that the "option" to affiliate in groups is also a form of value, and that the set of all subsets of a set has cardinality 2^n, which grows a lot faster than the square law.

I'd like to close with a speculative thought. As Francis Fukuyama argues in his book Trust, there is a strong correlation between the prosperity of national economies and Social Capital, which he defines culturally as the ease with which people in a particular culture can form new associations. There is a clear synergy between the sociability that Fukuyama discusses and the technology and tools that support GFN-s (Group Forming Networks) - both are structural supports for association. As the scale of interaction grows more global via the Internet, isn't it possible that a combination of social capital and GFN capital will drive prosperity to those who recognize the value of network structures that support free and responsible association for common purposes?

http://www.reed.com/Papers/GFN/reedslaw.html

http://www.reed.com/dprframeweb/dprframe.asp?section=gfn