Saturday, February 13, 2010

Technology Network Effect

Network effect is a fascinating phenomena. The name relates to an economic effect. According to wikipedia "a network effect is the effect that one user of a good or service has on the value of that product to other people".
The power of Network Effect comes from Metcalfe's Law which "states that the value of a telecommunications network is proportional to the square of the number of connected users of the system".
There are many examples of things that succeeded because of Network Effect and of things that failed because they didn't have enough Network Effect.
In the age of the Internet the competition for using the Network Effect is fiercer then ever. There are many factors which influence the power of the Network Effect.
One of the main factors is how open the technology is. The Internet itself (i.e. TCP/IP protocol) was established mainly due to the openness of its underlying technology.
As you can see above, the Network Effect is defined as the effect of one user. This implies that every user counts and every user should be aware of the effect he creates in the network.
With this awareness comes responsibility to do the right thing. It is like voting in a democratic process. Unfortunately not all users take this into account when doing their decisions. For example, whenever a user chooses to use MS-WORD file format and not ODF format he creates further Network Effects in favour of the monopoly in office formats and against an open alternative.
The latest issue of Network Effect on the Internet is now the H.264 video format. You can read Christopher Blizzard's blog post about this issue. I think we should all help make the Internet open by supporting Mozilla's decision to not support H.264 video format and demand from the sites we use to support open formats such as Theora.
We can further discuss Network Effect examples in the comments section.

Khen Ofek
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