Growth of Value in Social Networks

Metcalfe’s Law states that the value of a communications network grows with the square of the size of the network. Metcalfe, however, could well have been misquoted. The validity, or not, of Metcalfe’s Law is critical in a time when companies are valuing themselves, using this rough rule of thumb as a justification. Does Metcalfe’s Law actually hold for online social networks? This project seeks to review current social network models and look into methods of valuing them. We will explain the basis of Metcalfe’s Law, as well as other theoretical value models and examine empirical data to test the validity of both the network models and the value metrics. Finally we present a dynamic model of an online social network and measure its value growth. In fact, it turns out that Metcalfe is a long way off the mark.