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Metcalfe’s law — aka “network effect” — states that the value of a network is proportional to the square of the number of connected users of the system.

Originally formulated to quantify value with respect to communication devices (fax machines, phones, etc.), it has more recently been applied to other networks; specifically, social networks.

In the same manner that a network of fax machine increases in value when there are more users of fax machines, the value of social networks increase as their user base increases. [1]

This law explains why, for instance, social networks with many users grow exponentially faster than those with few users. In fact, networks with few users tend to die a slow painful death of attrition because there is no value for those few users.

It’s a VERY good thing to keep in mind should you ever be tempted to create some type of social network around your own/owned product, service, band, etc. Can it be done? Yes. Should it be done? Only when you have accumulated enough passionate users that creating a network for them provides more value than do the networks which they are already a part of.

The requisite number for this value to users to be present is vastly more than you think. I would say you need to feel confident that you will have somewhere in the area of 100k users before you should even consider this.

This brings up the inevitable question of how to get all these users prior to instituting a proprietary network. It also explains why so many companies are essentially leveraging Facebook to for their “own” networks.

Essentially, the answer is that it’s vastly harder to get your own users.

Difficult as it is, it’s still important to understand how to acquire your own users; to do so you do the following:

1. Have an exceptional product/service
2. Create an architecture of participation — i.e. use the social networks, and shift the burden of promotion from yourself to your users with a simple goal:
3. Drive people to your (own/owned) Site where you capture their emails
4. Once a significant — several hundred thousand email addresses — have been captured, create a social network that represents a compelling value to them with respect to your product or service, and let them know via email

The alternative: piggyback off FB.

For the vast majority of people, the FB alternative, sadly, is really the only “option.”

For those, however, who feel that having their own network is a more valuable proposition, and are willing to put in the effort, there is an element of “secret sauce” that seems to be emerging that can accelerate your process: Speed/Scarcity.

Scarcity is in many ways the thunderclap of the Internet. It’s one of the few things that can snap an Internet user to attention.

Clearly, all of the flash deal sites (from wOOt to Groupon, et al.) realized this, and – for the time being at least – have been able to capitalize from this realization.

Injecting scarcity into your network accelerates Metcalfe’s law. It supercharges network users, and gives them incentive to act.

Knowing that whatever gambit is put forth is of a limited duration, causes those who care about said offer to act. If that action requires sharing of some kind (or a critical mass (i.e. Groupon-esque) offer; i.e. if X number of people sing up/share, etc., the offer “tips”), the network effect can go into hyperdrive.

This is how, for instance, many companies rapidly increase their Twitter/Facebook presence.

My suggestion: build this approach — some type of frequent offers with a component of scarcity — into your overal strategy. At first, this may (and should) involve utilizing third party, existent networks to achieve scale, but then transition over to your own/owned network to make the offers.

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1 One mistake people make, however, is not recognizing that the equation changes: it goes from being a logarithmic proportionality when applied to social networks, rather than the squared proportionality applicable to telecommunication networks – the general theory still holds, however.

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I’ve been saying for some time that FB can’t be all things to all people, and, ultimately, that trying to be will be its biggest challenge. I’ve advanced the idea that people will gravitate towards networks where their specific interests are addressed.

I believe we’re beginning to see an emergance of this. Others, such as Jay Jamison — who articulates the idea of “interest-based networks” beautifully in this article — seem to think so too.

People are seemingly shocked by the rapid acceleration of Pinterest. They shouldn’t be.

Look at Pinterest’s mantra: “Organize and share things you love.” Compare this with Facebook’s: “Facebook is a social utility that connects people with friends and others who work, study and live around them.”

See the distinction? FB is about organizing around people; Pinterest is about organizing around things.

We’ve naturally conceived of social networks as being “for” helping us connect with other people (that’s what FB, Twitter, Tumblr, etc. do). The problem with this is that for most of us there is a relatively finite number of people with whom we’ll connect (cf. Gladwell’s idea in The Tipping Point that the max number of authentic social connections anyone can have is 150. UPDATE: Thanks to 9gs reader, Elainejoli for correcting an omission of mine. Though Gladwell is perhaps responsible for popularizing the idea of 150 social connections, the theory was originated by British anthropologist Robin Dunbar).

Not so with things.

We’re constantly discovering new things about which we might want to learn more (in an era where everyone is a content creator, this ain’t slowing down).

The unintended consequence of organizing around things, of course, is that it leads to the possibility of breaking through the glass ceiling of acquaintances. In other words, we have a far better chance of making new social acquaintances via organizing around things than we do connecting with people. This is why Pinterest is growing so quickly.

When we organize around a thing, we’re breaking through barriers of geography and demographics and, instead, uniting around a shared psychographic interest. I can, for instance, tweet a link to an article about some great bbq that I’m looking forward to trying in Austin during sxsw, and I know that some percentage of my followers on Twitter and FB will appreciate this article. However, I’m unlikely to expand my social circle via this gesture.

Conversely, if I go organize myself around the interest/object of bbq, and then look to see others who have done the same, there is a chance that my social circle can expand (i.e. meet new people).

To be clear, I’m not for a minute saying that FB is going away/going to fail (the cost of abandonment is just too high for most people; though there have been some studies of late showing a large degree of unused FB accounts).

Rather, I’m saying that there is tremendous opportunity to rethink how we should be concieving of networks moving forward. As I’ve argued forever, look to objects of interest (in some respects, the more specific the better) that people are passionate about, and give them the tools to better organize. Doing so will lead to far more durable, rewarding, and expansive connections than organizing around existing social connections.

Of course, the real winner will be the person/company who combines object-orientated organization with acquaintance-orientated organization (you can bet FB is working on this). The chart below attempts to exemplify the trends, and the potential outcome.

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