Classroom Companion: Business

Value model
Company A
10,000 users
Company B
20,000 users
Company C
30,000 users
Gain in percent
Sarnoff
10,000
20,000
30,000
0
Metcalf
1 × 10
14
4 × 10
14
9 × 10
14
80
Odlyzko-tilly
1.6 × 10
8
3.4 × 10
8
5.2 × 10
8
4
6. Look for information on Wikipedia or the web for your choice of social media 
network.
7. Value of Facebook.
V Facebook











5 6 10
2 2 10
27 6 10
9
9 2
9
.
.
.
(a) This value can be a measure for (i.e., proportional to) the number of user 
interactions, revenues, or stock market value.
(b) To have value 1, the number of users must be:
n 



1
5 7 10
13 245
9
.
.
.
8. Value model:
1. Google Search: Sarnoff (no interaction between users).
2. Gmail: Sarnoff (there are other email services).
3. World of Warcraft: Reed (formation of groups of players).
4. Wikipedia: none of them—the value of Wikipedia is independent of the num-
ber of users.
5. Netflix: Sarnoff (no interaction between users).
6. Twitter: Metcalf (depends on the number of followers).
7. YouTube: Metcalf (number of viewers depends on the number of videos producers).
8. eBay: Metcalf (depends on the size of the marketplace).
9. Facebook: Metcalf (depends on the number of friends).
 
Chapter 9 · Network Effects

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9
References
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Dunbar, R. (1998). Grooming, gossip, and the evolution of language. Harvard University Press.
Idland, E., Øverby, H., & Audestad, J. (2016, November 23–25). Economic Markets for Video 
Streaming Services: A Case Study of Netflix and Popcorn Time. NIK 2016, Ålesund, Norway.
Knapton, S. (2016, January 20). Facebook users have 155 friends – But would trust just four in a 
crisis. The Telegraph.
Merton, R. K. (1968, January 5). The Matthew Effect in Science. Science, 159.
Milgram, S. (1967). The small world problem. Psychology Today, No. 2.
Odlyzko, A., & Briscoe, B. (2006, July 1). Metcalfe’s law is wrong. IEEE Spectrum: Technology, 
Engineering, and Science News.
Øverby, H., & Audestad, J. A. (2019) Temporal market evolution of interactive games. SSRN. Available 
at 
https://ssrn. com/abstract=3412902
Reed, D. P. (2001, February). The law of the pack. Harvard Business Review.
Roberts, P. (n.d.). The most important Facebook statistics for 2017. Our Social Times, Cambridge.
Shapiro, C., & Varian, H. R. (1999). Information rules: A strategic guide to the network economy. 
Harvard Business School Press.
The Erdös Number Project. Oakland University.
Wiener, N. (1948). Cybernetics: Or control and communication in the animal and the machine. MIT 
Press.
Zhang, X.-Z., Liu, J.-J., & Xu, Z.-W. (2015). Tencent Facebook Data Validate Metcalfe’s Law. Journal 
of Computer Science and Technology, 30(2).