Well... yes and no. If you get "lucky" with network effects, it means that something that's pretty simply technology wise, like reddit, can suddenly become very valuable, all out of proportion to the technology behind it. It's a gamble, but so are startups in general, so creating something that goes exponential is a good proposition in some ways, rather than something that just adds one user after another, slowly.
Absolutely. The higher you can make V from the beginning, the greater overall value you will create by applying Metcalfe's law. The lower your V, the higher your N needs to be.
Last paragraph of the article: "A very interesting variation of this is when you apply Metcalfe's Law not to the entire network of users, but rather think of a social network as a loosely grouped set of connections. In that case, some local networks might have achieved critical mass, and if they are big enough, they will be retained. However, if the smaller networks around any given group start collapsing, then sometimes even the large networks will get pulled down with them."
This also explains why some people just "don't get" facebook, while others do; and these two groups have a hard time understanding each other. It all has to do with critical mass.
I'm too lazy to look for it right now (this baby thing is exhausting), but I recall reading an article saying that N^2 is a bit over the top, and suggesting a better formula, since the number of other nodes you actually connect with is less than the total of all nodes. Although the ability to connect with those other nodes is still valuable, it doesn't quite justify the ^2.
Anyway, I'll trot out the 'Information Rules' book recommendation once again. Sorry for the repeat.
In "Metcalfe's Law is Wrong" http://www.spectrum.ieee.org/print/4109 Bob Briscoe, Andrew Odlyzko, and Benjamin Tilly argue that the value of a network should really be n*log(n) not n^2
I don't buy their arguments, certainly not for smaller values of n that Andrew Chen is writing about.
Why don't you buy their arguments? I think it makes a lot of sense to think about just how much value you get from additional members of a network. Some things, like eBay, are very much dependent on those effects. Other sites and systems, less so.
> The fundamental flaw underlying both Metcalfe's and Reed's laws is in the assignment of equal value to all connections or all groups.
So the more each additional node is equal in value to the others, the closer you are to ^2. If you have a network where it's really important to be able to contact some nodes, but others are far less important, then ^2 seems exaggerated.
both Metcalfe's and Reed's laws are approximations. With Metcalfe's Law you should bear in mind that a technology or infrastructure that gives you the option of connecting with one of N people creates N^2 of value, I think you are actually arguing for a value above N^2 only because you are working from close friends to more distant stakeholders (e.g. members of your community, members of your profession, potential customers, ...). Clay Shirky makes a great point in "Here Comes Everybody" that once you can rely on everyone having access to a technology (e.g. telephone, e-mail, web browser) it is a quantum change from "everyone you currently know." I think Metcalfe's Law has actually held up pretty well. This is worth a much longer discussion if you are interested, I will contact you directly.
I found this confusing. At one point the author talks about exponential decay (in which something gets smaller more and more slowly), but at another point he describes something that sounds more like an auto-catalytic process (where something reaches a tipping-point and then explodes, or in this case implodes).
Build something that is useful with for a single user, but better for a thousand users.