Tuesday, July 8, 2008

Geeking Out On Social Networks

Ever hear of a model called “Metcalfe’s Law”? Metcalfe’s Law is a mathematical formula applied to a network to try and predict valuation within a communications network. It was developed by a gentleman named Robert Metcalfe who also developed Ethernet. The law states that in a communications network, the value of the network is proportional to the square of the number of its users. In mathematical terms it is stated as n(n-1) with “n” representing the total number of members in the network.

I learned about this from my friend who works on Wall Street trading technology and I found it immediately interesting because it can be applied to the growth of the online social network. If you apply this to MySpace and Facebook, the social networks of the day, you can almost come up with an idea of how they were valuated so high and why companies like Facebook and now YouTube continue to be valued through the roof. That being said, the article I was given actually spent its entire time debunking Metcalfe’s Law and I found myself doing the same. What I couldn’t understand was how the model took into account the value of the communications going on between members. It assumes that everyone’s messaging was valued the same which I don’t agree with.

My rationale for turning this into a math lecture is that it provides an insight into how marketers may utilize social networks. What is important for marketers to learn is how their target audience is using this space. To date we focus on who they are and their demographics and then try to expose them to advertising or we create profiles pages for brands and products in the hope they will link to them and integrate them into their lifestyle. This works for some products and services, but not for everyone.

What we need to do is empower these people to spread a message on our behalf and then compensate them for the number of relevant communications stemming from their efforts.

I know these companies are headed in this direction, but I am not sure how to get there. Hopefully someone smarter than me can figure it out!

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