Classroom Companion: Business

 
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Answers
1. Assuming that the value of the network is the number of links per user, we find:
1. Network A: 3/3 = 1.
2. Network B: 11/7 = 1.57.
3. Network C: 21/11 = 1.9.
The network effect is positive since the value increases as the number of 
users increases.
2. Snapchat is used for photo sharing, videos chat, and instant messaging.
1. Snapchat is subject to positive network effect (the number of users). This is 
a direct same-side network effect. Snapchat also offers advertisements. 
There is then a direct cross-side network effect from the number of users to 
the advertisers.
2. Facebook (more than 2.2 billion users) is much larger than Snapchat (about 
230 million users). In accordance with Metcalf’s and Odlyzko-Tilly’s laws, 
the network effects of Snapchat are much weaker than for Facebook.
3. Instagram is a value network mediating between users sharing photos and videos 
and is not a broadcast network. Therefore, Sarnoff’s law does not apply to Instagram.
4. The strength of the feedback is defined as the value each user adds to the 
network. The feedback function is shown in 
.
Fig. 
9.13
 for the linear case.
9.7 · Conclusions

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5
In Sarnoff’s law, the value that each user adds to the network is 1; that is, there 
is no feedback in this case.
5
In Odlyzko-Tilly’s law, the additional value each new user adds to the network 
increases as lnn as the number of users increases. For a large network such as 
Facebook, the user adds approximately 20 units of value to the network.
5
In Metcalf’s law, the additional value that each user adds to the network is n. 
For Facebook, this is approximately 2 billion, that is, 100 million times more 
than Odlyzko- Tilly’s law.
5. The gain is defined as:
Gain
Value C
Value A ValueB


1
The result is shown in the table.