Reading Notes

The Metcalfe effect posits that a network’s value grows exponentially with the number of users. The most intuitive way to see this: imagine a telephone network with just two users, A and B. The network’s value to A is the ability to reach B—essentially a dedicated line between two people. It’s valuable, but costly to sustain. As more users join, however, A can connect to many more people, and the cost per connection drops. From the network’s overall perspective, each additional node increases total value in proportion to the square of the number of nodes.