Monday, June 30, 2014

The Power of Networking

Tele-copier machine
In 1970’s, salesmen have a problem to sell the new invention for corporate communication devices. They just invented a machine called tele-copier. Tele-copier is a machine that combine two devices into one, which are telephone and a photocopier machine. When salesman approached potential clients, client will ask who else do have this thing? If nobody else are using this, it will be useless.
The machine that known as tele-copier, today is known as facsimile. By 1990’s almost every organization will have their fax machine because it is one of the most useful devices at that time. Can you imagine if you are the only one that using facsimile? That device is pretty much useless. But the more people are using it, it create a different value to the users.

Metcalf’s Law
Robert Metcalf was the founder of ethernet. He define the Metcalf’s Law as:

Economic Value of a Network = (no. of users)2

Illustration of Metcalf's Law
In other words, if you are connected in a network of computer, the economic value is square. In other word, a computer connected into a system relatively have 1 economic value. If you have two computer in a network, the value is 4 and if you have three computers connected in a network the value has increased to 9. If we have more number of users, the economic value will increase exponentially, not arithmetically.

How does this apply in business world?
In business, the impact of the law remains the same. Imagine company like facebook or google, they know the important of Metcalf’s Law. That is why they are giving certain things for free, just to increase the number of users. They would then offer something meaningful later which in turns making them the big bucks. Company who don’t understand this law are focusing on making money everytime they do anything to the customer.

If we think about restaurant that operate franchise, which name that came first to our mind? Of course McDonald’s will come out first. Why? They do have the numbers, or in other words the network of the premise.