Reed's 3rd Law: a scaling law for network value

The Law

As networks grow, value shifts: Content (whose value is proportional to size) yields to Transactions (whose value is proportional to the square of size), and eventually Affiliation (whose value is exponential in size)..


This law was invented when I was struggling to explain Metcalfe's Law.  At first glance, Metcalfe's Law makes sense, but as you look deeper, you realize you don't understand it at all.  To make sense of it, you need to realize that the "value" is in the form of "optional transactions" (the option to perform a peer transaction is created by a network).  Then I realized that the "option" to affiliate in groups is also a form of value, and that the set of all subsets of a set has cardinality 2n, which grows a lot faster than the square law.

For more information, see my Context Magazine article, Weapon of Math Destruction..