The power of simple network effects

Sarnoff’s Law, named after the American radio and television pioneer, observed that the value of a broadcast network grows in direct proportion to the number of viewers.

Yet while simply dropping your product or service to a group of users will have some marginal benefit, where risks are mitigated, gaps are closed, problems are solved, seeing an end-user as a node on the end of a spoke from a hub significantly undermines the potential utility.

Bob Metcalfe, the inventor of the Ethernet, described this when he formulated Metcalfe’s Law which illustrates that the value of a network becomes exponentially greater with every additional user that becomes connected.

One fax machine is useless. Two fax machines have some marginal benefit. But with every fax machine that joins the network the total number of possible connections with whom a user can send and receive information increases, meaning the potential utility of every fax machine in the network rises each time.

Computer Scientist David P. Reed took this a step further (in Reed’s Law) when he asserted that the utility of a network increases even more dramatically still when the people connected are empowered to create their own subgroups to collaborate within a network.

Clubhouse is taking on a life of its own because people can form groups easily. It’s these communities that make Clubhouse so interesting for everyone, and its utility is amplified by this interconnectivity between users.

The power of these simple network effects is at the centre of every business transformation and every successful organisational change.

This is not (exactly) about cost-benefit analysis, it’s about growing beyond the critical mass to maximise the potential benefits. And it occurs when utility is designed right into the heart of your change, and more importantly when the product or service works better when we can collaborate and self-organise with others.

As a user, the conversations I’m empowered to have with my connections become the chain reaction for utility. Utlility creates more growth, which leads to more utlility.