Net Effects

Traditional business transaction systems are typically one way – from the producer to the consumer, through a channel that makes it easy for the flow outward. But most often, these don’t have as smooth a channel for reverse flows, from the consumer to the producer. Groceries, toiletries, consumables, appliances – or even broadcast media like radio and television have been organized around a creation process followed by a unidirectional distribution.

In such systems, the growth of the system scales linearly with the number of users. But there are other systems, like the telecommunication system, which don’t necessarily follow this rule. For instance, telephones or fax – if there’s only one or a small number of users, the utility of such a system is low. But what happens as more users enter? Suddenly, it becomes a lot easier to adopt – and if the adoption brings significant value, explosive growth follows.

Such systems – where value is driven by user to user interaction – and the significant growth – have been the subject of a considerable amount of study. Metcalfe’s Law is one of the earliest analyses of this, and propounds that growth is related to the square of the number of users, not linear. Another significant analysis by David Reed on group forming within networks (seen commonly on the internet) suggests that growth scales exponentially, much more rapid than Metcalfe’s square law.

But what happens when more than one network begin to overlap? Two examples here. Traditional TV shows tended to be programmed content, with viewer interaction restricted to watching the shows as they were broadcast. Contrast that with today’s interactive programs – reality shows, user voting and the like – facilitated by integrating with the show, the communication network. For those shows where the entertainment value is high, and has appeal to a large section of the viewership, ratings and audience have exploded.

Yet another example comes from the Internet & Web 2.0. Consider Blogging as a phenomenon. It started off with people who wished to create their own sites, with an easier way to write / create content. Blogging seems to have characteristics of a group forming network – initially, with topic or writing skills forming the basis for interaction.

Now add Google’s Adsense – a network for advertisers, and those seeking to generate income through ad revenue. As both these networks began to overlap, there’s been explosive growth in both – a virtuous cycle where the growth of one feeds the growth of the other, in turn reinforcing the original growth.

It isn’t a perpetual process. There can and will be a finite limit beyond which growth slows off. But unlike traditional business, networks can scale far more.

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