Network Effects: The Ingenesist Project
To borrow from a famous quote: “Uber, owns no vehicles… Google and Facebook create no content… Alibaba holds no inventory… Airbnb owns no real estate….” But they have a combined value of almost 3 Trillion dollars. This is very interesting.
Whereas most companies are priced according to strict financial performance, Network platforms provide a virtual bridge that connects people to each other. They are priced proportional to the square of the number of human connections they serve.
This is known as Metcalfe’s Law of Network Value. If network platforms create a virtual bridge connecting people, why can’t we value real bridges using Metcalfe’s law? Why can’t we value roads, airports, buildings and all manner of engineering, scientific, and technological infrastructure as proportional to the connections they serve?
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Analysis
We often say that Engineers, Scientists, and technologists need only to measure themselves differently in order to become “more tangible”. Most people’s eyes glaze over as if we’re living in some fantasy world. This video demonstrates that principal exactly as it happens with network platforms that are popping up everywhere around us. Really, we’re not making this up.
Metcalfe’s law arose from the telecommunications industry to measure the utility of telephone connections. The value of the network grows exponentially with the number of points in contact. Let’s start by saying that telephone networks themselves are a creation of engineering and scientific professions.
The engineering value of a bridge is equal to it’s replacement cost – so that’s what they pay engineers to create one. However, the economic value of the bridge includes every transaction, truck delivery, soccer game, doctor appointment, and math class that resulted from the ability for 10,000 people per day to cross the river.
Facebook, Google, Alibaba, AirBnB, et al, could not exist if they were valued according to their replacement cost. Imagine what amazing works of engineering, science, and innovation are non-existant today only because it is valued incorrectly.