Beckstrom's law
Encyclopedia
In economics
, Beckstrom's law is a model or theorem
formulated by Rod Beckstrom
. It purports to answer "the decades old question of 'how valuable is a network.'" According to its creator, it can be used to value any network be it social networks, electronic networks, support groups and even the Internet
as a whole. To read a white paper explaining the law and mathematics in detail, please see Economics of Networks. This new model values the network by looking from the edge of the network at all of the transactions conducted and the value added to each.
It states that one way to contemplate the value the network adds to each transaction is to imagine the network being shut off and what the additional transactions costs or loss would be. It can thus be compared to the value of a pizza delivery
service offered to its customers. If the pizza delivery service shut down, then the social value generated by its deliveries declines, and people will either go hungry or elsewhere.
Beckstrom's Law differs from Metcalfe's law
, Reed's law
and other concepts that proposed that the value of a network was based purely on the size of the network, and in Metcalfe's law
, one other variable.
In words:
where:
= value of a network j to all users
Vi,j = net present value of all transactions to user i with respect to network j, over any time period
i = identifies one user of the network
j = identifies one network
k = identifies one transaction
Bi,j,k = the benefit value of transaction k to individual i with respect to network j
Ci,j,k = the cost of transaction k to individual i with respect to network j
rk = the discount rate of interest to the time of transaction k
tk = the elapsed time in years to transaction k
n = number of individuals
m = number of transactions
Economics
Economics is the social science that analyzes the production, distribution, and consumption of goods and services. The term economics comes from the Ancient Greek from + , hence "rules of the house"...
, Beckstrom's law is a model or theorem
Theorem
In mathematics, a theorem is a statement that has been proven on the basis of previously established statements, such as other theorems, and previously accepted statements, such as axioms...
formulated by Rod Beckstrom
Rod Beckstrom
Rod Beckstrom is an author, high-tech entrepreneur, and CEO and President of ICANN.He previously served as Director of the National Cyber Security Center. Prior to that Beckstrom was Chairman and Chief Catalyst of TWIKI.NET, a company which supports TWiki, an open source wiki...
. It purports to answer "the decades old question of 'how valuable is a network.'" According to its creator, it can be used to value any network be it social networks, electronic networks, support groups and even the Internet
Internet
The Internet is a global system of interconnected computer networks that use the standard Internet protocol suite to serve billions of users worldwide...
as a whole. To read a white paper explaining the law and mathematics in detail, please see Economics of Networks. This new model values the network by looking from the edge of the network at all of the transactions conducted and the value added to each.
It states that one way to contemplate the value the network adds to each transaction is to imagine the network being shut off and what the additional transactions costs or loss would be. It can thus be compared to the value of a pizza delivery
Pizza delivery
Pizza delivery is a service in which a pizzeria delivers a pizza to a customer. Delivery is normally made with an automobile, motor scooter, or bicycle.- Ordering :...
service offered to its customers. If the pizza delivery service shut down, then the social value generated by its deliveries declines, and people will either go hungry or elsewhere.
Beckstrom's Law differs from Metcalfe's law
Metcalfe's law
Metcalfe's law states that the value of a telecommunications network is proportional to the square of the number of connected usersof the system...
, Reed's law
Reed's law
Reed's law is the assertion of David P. Reed that the utility of large networks, particularly social networks, can scale exponentially with the size of the network....
and other concepts that proposed that the value of a network was based purely on the size of the network, and in Metcalfe's law
Metcalfe's law
Metcalfe's law states that the value of a telecommunications network is proportional to the square of the number of connected usersof the system...
, one other variable.
In words:
- The value of a network equals the net value added to each user’s transactions conducted through that network, summed over all users.
Beckstrom’s law as an explicit economic model
The net present value V of any network j to any individual i is equal to the sum of the net present value of the benefit of all transactions less the net present value of the costs of all transactions on the network over any given period of time t, as shown in the following equation. The value of the entire network is the summary of the value to all users, who are defined as all parties doing transactions on that network.where:
= value of a network j to all usersVi,j = net present value of all transactions to user i with respect to network j, over any time period
i = identifies one user of the network
j = identifies one network
k = identifies one transaction
Bi,j,k = the benefit value of transaction k to individual i with respect to network j
Ci,j,k = the cost of transaction k to individual i with respect to network j
rk = the discount rate of interest to the time of transaction k
tk = the elapsed time in years to transaction k
n = number of individuals
m = number of transactions
External links
- Beckstrom's Law & The Economics Of Networks – ICANN
- Economics of networks Rod Beckstrom National Cybersecurity Center Department of homeland security
- 2008 Black Hat Keynote Rod Beckstrom director-NCSC-DHS
- Cybersecurity is hampered by a lack of understanding about the physics and economics of the networks we are trying to defend
- Value Network Analysis
- How To Value Your Networks
- The New Laws of Intranet ROI
- Beckstrom's Law