Friday, August 01, 2008

The Value of Social Networks

I've been toying with this idea of how valuable social networks are for a while now. Not value in any quantitative sense, but how things work conceptually. Metcalfe's Law, which states that the value of a telecommunications network is proportional to the square of the number of users of the system (n²), is often invoked in this regard. However, I'm not sure it really captures the dynamics of social networks which place a relative premium on the right kind of connections.

(There's also been some debate about Metcalfe's Law in its original context as well. However, I've always taken the "law" to be a statement that increased network size predictably increases value rather than a precise mathematical description of that value--which is a somewhat vague concept in any case.)

Anyway, it strikes me that there are two critical points when it comes to the value of a social network--or, indeed, any communications network.

The first is the point of critical mass. Critical mass is the idea that we reach a point where there are enough people in one of our relevant social groups connected through a product or technology that it starts to have real value. This value, in turn, starts to provide a real incentive for others in that social group to get on the network, increasing its value still further.

Let me give you an example from past lives. I first had access to email in an MIT lab in 1978 or so. It was sort of neat. I occasionally traded emails with a friend who worked in the MIT AI Lab. I didn't know anyone else on email though so it wasn't really especially useful.

Flash forward to the late-1980s. I had email at work, but it was a closed system. My personal email was through Compuserve. I used it a bit--I used BBS message boards a lot more--but, for example, it wasn't all that useful for things like organizing hiking trips or board meetings because only a few people in those groups were on email. So I had to resort to snail mail and telephone anyway. The sea change came when enough people were on email that I could start treating it as the preferred and default communications medium. Over time, backup communications methods became more and more deprecated until everyone pretty much had to be on email.

Whether it's a true point or just some exponential growth relationship, the fact remains that network value is hard to grow at first but if it can get to a certain mass, things really take off. I think we're seeing this right now with analysts and analyst relations folks on twitter. Once enough people are using a given network, it puts pressure on the rest to join as well.

(Conversely, this is probably why I don't get a lot of value out of facebook. There I don't really have a critical mass of friends for whom facebook could provide a useful coordination point.)

At the other end of the scale, I see a given social network stopping to increase in value after a while--certainly at the same rate. Once my network is saturated--perhaps I'm already spending as much time on twitter as I care to, a larger network size doesn't increase the value of twitter to me; I'll cap the number of people I follow even if my number of followers rises. Other networks just tend to cap at a particular size and value because all the relevant people are on and using it.

Even more interesting is the idea that a social network's value can actually decrease past a certain point. (See Clay Shirky's thoughts on the subject.) Further thoughts deserve a separate post but, essentially, what I think of as "pollution" can set in. Think of the problems with email today. Or, historically, the "Eternal September."

In short, it's hard to get a network to the point where it has real value. This is another face of the familiar bootstrapping problem. At the same time, especially absent appropriate access and filtering controls, that same network can collapse under its own weight if it grows too large.

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