TECH TALK:The Intelligent Enterprise: Integrating CRM, SCM, EIP: Reed’s Group-Forming Law

The true power of the Internet is getting realized through its ability to support collaboration and teamwork through the building of spontaneous groups. An Internet user can easily join discussion groups, chat rooms, community websites or auctions. The Internet also facilitates easy ad hoc creation of “teamrooms” by any group of Internet users through groupware technologies like Instinctive’s eRoom and Excite’s Excite Communities.

According to David Reed, a former research scientist at Lotus:

In networks like the Internet, Group Forming Networks (GFNs) are an important additional kind of network capability. A GFN has functionality that directly enables and supports affiliations (such as interest groups, clubs, meetings, communities) among subsets of its customers. Group tools and technologies (also called community tools) such as user-defined mailing lists, chat rooms, discussion groups, buddy lists, team rooms, trading rooms, user groups, market makers, and auction hosts, all have a common theme-they allow small or large groups of network users to coalesce and to organize their communications around a common interest, issue, or goal.

David Reed has shown that if you have N people they can in theory form 2N– N – 1 different groups. For example, three individuals A, B, C can form 4 groups: AB, AC, BC and ABC. As N increases, the power of potential groups and the value of the network rises at an astounding rate.

Writes Steve Connor in the Economist, “Early days of the Internet were dominated by a small number of centralized services (Sarnoff’s Law, proportional to N, the number of users), then e-mail exchange (Metcalfe’s Law, proportional to N2 ) and now the formation of groups (Reed’s Law, proportional to 2N).”

According to Arnold Kling:

In a way, Metcalfe’s Law describes the advantage of conversational capability compared with broadcast capability. If a network has broadcast capability, it would seem that its value would increase proportionately with the number of people who can receive the broadcast. This means that returns to scale, as measured relative to the number of people, are constant. However, if the network allows its members to converse with one another, then its value would increase in proportion to the square of the number of people who can participate.

Reed’s Law describes the increasing returns from conferencing capability. Suppose that we allow more than just two-way conversations. Suppose that we create chat rooms, forums, or other vehicles that allow network participants to form subsets. The returns to scale, as measured relative to the number of people, are even higher in a conferencing network than in a conversational network.

Published by

Rajesh Jain

An Entrepreneur based in Mumbai, India.