Comments on: Critical Mass = Massive Wealth http://www.allpeers.com/blog/2007/02/09/critical-mass-massive-wealth/ The official AllPeers blog Sun, 12 Oct 2008 05:23:25 +0000 http://wordpress.org/?v=2.2 By: pierre http://www.allpeers.com/blog/2007/02/09/critical-mass-massive-wealth/#comment-49499 pierre Mon, 12 Feb 2007 17:50:35 +0000 http://www.allpeers.com/blog/2007/02/09/critical-mass-massive-wealth/#comment-49499 The increase in liquidity I am talking about definitely has nothing to do with either globalisation or technology. It is a simple money creation phenomenon, and as such it is a product of central bank policy, via interest rate setting and financial sector regulation. As to the second point, I do not dispute the value of network effects you very cleverly spellt out. My query was more whether we are talking about technology or old-style media effects, or a mix of both. Point taken with then phone or fax analogy. The increase in liquidity I am talking about definitely has nothing to do with either globalisation or technology. It is a simple money creation phenomenon, and as such it is a product of central bank policy, via interest rate setting and financial sector regulation.
As to the second point, I do not dispute the value of network effects you very cleverly spellt out. My query was more whether we are talking about technology or old-style media effects, or a mix of both. Point taken with then phone or fax analogy.

]]> By: Matt http://www.allpeers.com/blog/2007/02/09/critical-mass-massive-wealth/#comment-49488 Matt Mon, 12 Feb 2007 14:44:20 +0000 http://www.allpeers.com/blog/2007/02/09/critical-mass-massive-wealth/#comment-49488 To your first point: what is responsible for this increased liquidity in the financial markets, if not globalization and technology? To your second point, I think you misunderstand the effect of critical mass on products like YouTube. The key here is Metcalfe's law, which states that the value of a network increases in proportion to the square of the number of nodes. Some have claimed that this under- or overestimates the value of each new node, but in any case it is clear that the delta is much larger than if the increase in value were linear. The reason that YouTube is so successful is not that they have reached some theoretical "critical mass" for advertisers (in fact, there ability to generate real revenues from ads is still unproven).It is rather that videos added to the site have much higher value than on other sites (since far more people will see them) and visiting the site is likewise far more valuable (since there are so many more videos to see). In the case of Skype, to take another example, the product is only as useful as the number of people you can call with it. Since Skype has so many more users than the nearest competitor in the pure-play VOIP space, they have a near lock on the market. To your first point: what is responsible for this increased liquidity in the financial markets, if not globalization and technology?

To your second point, I think you misunderstand the effect of critical mass on products like YouTube. The key here is Metcalfe’s law, which states that the value of a network increases in proportion to the square of the number of nodes. Some have claimed that this under- or overestimates the value of each new node, but in any case it is clear that the delta is much larger than if the increase in value were linear. The reason that YouTube is so successful is not that they have reached some theoretical “critical mass” for advertisers (in fact, there ability to generate real revenues from ads is still unproven).It is rather that videos added to the site have much higher value than on other sites (since far more people will see them) and visiting the site is likewise far more valuable (since there are so many more videos to see). In the case of Skype, to take another example, the product is only as useful as the number of people you can call with it. Since Skype has so many more users than the nearest competitor in the pure-play VOIP space, they have a near lock on the market.

]]> By: Pierre http://www.allpeers.com/blog/2007/02/09/critical-mass-massive-wealth/#comment-49345 Pierre Sun, 11 Feb 2007 13:40:18 +0000 http://www.allpeers.com/blog/2007/02/09/critical-mass-massive-wealth/#comment-49345 Matt, This seems to me to raise two separate questions. Does technology contribute to wealth inequalities? If so, are critical mass effects part of the reason? I am extremely weary of arguments that technology or productivity gains underlie rising wealth inequalities. This seems to me much more a financial phenomenon. Bankers make more money, relatively to the common man, than they ever did. So do a few CEOs riding high on stock option gains, boards stacked with good old boys and the leveraged m&a game. Technology has little to do with it, and liquidity creation a lot. But ever since Greenspan felt it necessary to prop the tech bubble back in 1999, the Fed has been keen to obfuscate, lest fingers end up being pointed in the right direction as to these politically unwelcome inequalities. So quoting Bernanke would seem to me to add insult to injury if I weren't one of these fat bankers myself :-) The critical mass question seems to me the more interesting you raise. I understand it applies in traditional media, because advertising flocks to the networks, whether print, audio-visual or other, with access to the widest public. Perhaps it is not technology-enabled but, again, advertising-based models that thrive on critical mass. eBay, which also bought Skype, may have been an exception. Anyway, shouldn't you differentiate technological critical mass (adoption of a standard by a public which then becomes captive), and a more traditional customer access effect, which is what was really at play for eBay and for Skype? Matt,
This seems to me to raise two separate questions. Does technology contribute to wealth inequalities? If so, are critical mass effects part of the reason? I am extremely weary of arguments that technology or productivity gains underlie rising wealth inequalities. This seems to me much more a financial phenomenon. Bankers make more money, relatively to the common man, than they ever did. So do a few CEOs riding high on stock option gains, boards stacked with good old boys and the leveraged m&a game. Technology has little to do with it, and liquidity creation a lot. But ever since Greenspan felt it necessary to prop the tech bubble back in 1999, the Fed has been keen to obfuscate, lest fingers end up being pointed in the right direction as to these politically unwelcome inequalities. So quoting Bernanke would seem to me to add insult to injury if I weren’t one of these fat bankers myself :-)
The critical mass question seems to me the more interesting you raise. I understand it applies in traditional media, because advertising flocks to the networks, whether print, audio-visual or other, with access to the widest public. Perhaps it is not technology-enabled but, again, advertising-based models that thrive on critical mass. eBay, which also bought Skype, may have been an exception. Anyway, shouldn’t you differentiate technological critical mass (adoption of a standard by a public which then becomes captive), and a more traditional customer access effect, which is what was really at play for eBay and for Skype?

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