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To: Mike Buckley who wrote (31494)	9/12/2000 2:28:16 PM
From: areokat	Read Replies (1) \| Respond to of 54805

>>In short, I think you're absolutely right. Show me how to effectively deal with it. :)<< We could say "after careful consideration of all factors the guess is that it will be a Big (or Little) network". Or it's probably a Network with a big N or a network with a little n? I don't know. I thought if I threw the question out one of the more mathematically inclined would quantify it for us. You don't think so huh? Kat

To: Mike Buckley who wrote (31494)	9/12/2000 6:25:24 PM
From: Judith Williams	Respond to of 54805

Mike Buckley asked that I post a PM on the network project as he is busily composing and wanted to spark some discussion. WARNING: This post is long and in three-parts. If a non company-specific discussion of network effects puts you to sleep, skip. Mike Your excellent framework for the networks project spurred some thoughts. This is rocky territory for me, so I will try for a modicum of clarity and hope you can untangle the threads. A general observation before some specifics: It would be helpful to develop a working definition of networks, distinguish them from systems that are in equilibrium and perhaps even the value chain, and develop a sample of the range of networks we want to consider. Definitions can be a useful exercise particularly when the "attributes" are a little slippery (e.g., nodes or the relationship of indirect/direct network effects). My specific comments concern two broad areas that bear some scrutiny: accounting/appropriate metrics and intangible assets the relationship of networks to complex systems and what that relationship can tell us about the probable behaviors of networks You probably have the background stuff below stored away in your memory cache, but just in case a summary of the two perspectives. I. The Accounting or Quantification Dilemma Baruch Lev, in the article "New Math for a New Economy" that Dale Russell recommended, contends that the essential assets that create value have fundamentally changed. They are now intangible assets (i.a.). He groups them in four categories: 1. product r&d (discontinuous innovations) 2. name brand (higher premium) 3. structural aspects (continuous innovations-- technological, marketing, distribution, etc.) 4. monopolies or franchises (patents, barriers to entry, etc.) Obviously one of the reasons we are interested in pinning down network effects is the phenomenal returns possible. These come from i.a. since the ability to leverage tangible assets is relatively fixed. Implications: 1. In hyper growth, transaction-based accounting system understates growth. Intangible assets can create value with no transaction (i.e., beta-test or successful clinical trial for a new drug). 2. Just as work in progress can be accounted for in various ways by software firms, distorting the revenue picture, accounting for acquisition of i.a. can both understate earnings and muddy the waters if one is trying to measure the growth rate. Setting aside the pooling problem where i.a. virtually disappear, accounting for i.a. acquisitions by the purchase method expenses the r&d in process or customer-base development costs. Bio research or AOL's freebies function to depress earnings when expensed. The benefits of these assets then pop up later as revenues or profits but with no associated costs. There is clearly a timing problem here that will cause problems when we try to chart the network effects. fastcompany.com (continued; 1 of 3)