Abstract:

I use data on Facebook and Netflix to validate Metcalfe’s law and propose changes related to variables used in calculations. I find that Metcalfe’s law provides for the best fit in Facebook, but Sarnoff’s law should be used in the case of Netflix. This supplements earlier research by Zhang et al. (2015) and Van Hove (2016a) suggesting that Metcalfe’s law outperforms other laws in some cases but not all cases. Further I find that in Facebook Metcalfe’s law provided for the best fit also after acquisitions. This contradicts arguments, related to interconnections, brought forward by Briscoe and Odlyzko (2006). Metcalfe’s netoid provided interesting conclusions in Facebook, when number of active users was replaced with share of Facebook’s monthly active people in internet active users. The asymptote became clearly visible, enabling forecasting of Facebook’s growth limits. I also checked the links between the number of active users and enterprise value. I found linear relationships in both companies.