Definition - What does Metcalfe's Law mean?
Metcalfe’s Law is a concept used in computer networks and telecommunications to represent the value of a network. Metcalfe's Law states that a network's impact is the square of the number of nodes in the network. For example, if a network has 10 nodes, its inherent value is 100 (10 * 10). The end nodes can be computers, servers and/or connecting users.
Techopedia explains Metcalfe's Law
Metcalfe’s Law was conceived by George Gilder but is attributed to Robert Metcalfe, co-inventor of Ethernet (1980). It speaks to both the growth in the number of connections as well as the value. Given that the Internet as we know it today was not around when the Law was formulated, it spoke more to the value of devices in general. For example, owning a single fax machine useless. When there are two fax machines, you can communicate with one other person, but when there are millions, the device has some value.
Over time Metcalfe’s Law was linked with the Internet's substantial growth and how it works in-line with Moore’s Law. The concept is similar to the business concept of a "network effect" in that the value of a network provides both additional value and a competitive advantage. For example, eBay may or may not have had the best auction website, but they clearly had the most users. Because this is so difficult to replicate, the power of the network drove out other competition.