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Russell Bennett
Russell Bennett is the Principal at UC Insights and has over 20 years of experience in the software technology...
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Russell Bennett | October 03, 2011 |

 
   

The Economics of Interoperability

The Economics of Interoperability What Metcalfe's Law and related network effects can teach us about the potential for any meaningful interoperability efforts to occur--and succeed.

What Metcalfe's Law and related network effects can teach us about the potential for any meaningful interoperability efforts to occur--and succeed.

Nowadays, it seems that one of the most wished-for UC features is that of seamless "interoperability". In many ways, it is a sign that the UC industry is starting to "cross the chasm" when customers have moved on from asking about the feature set or the ROI and now want to know if a UC system will work with other UC systems. Having spent the last 5 years of my career working on UC interoperability in one way or another, I thought that I should be able to provide some insights on this topic.

(Note that I am not going to get into a laborious explanation of why standards don't guarantee interoperability, or why achieving interoperability is hard work--perhaps I will leave that for another day.)

In several recent papers, I have referred to Metcalfe’s Law as an explanation for various issues surrounding UC. Several years ago, in a conversation with a UC vendor, an interesting interpretation of Metcalfe's Law came up:

"A small network that connects to a large network gains disproportionately from the transaction, relative to the large network."

At the time I dismissed this as unimportant to the conversation at hand. However, now that I have thought about it more carefully, I realize that this interpretation has some quite profound implications for interoperability--implications that have little to do with technology and more to do with economics and game theory.

An Explanation of Metcalfe's Law
Robert Metcalfe formulated this notion to describe the so-called "network effect", i.e. that a communications network becomes more valuable when more people (or devices) start to use it. This was expressed mathematically as:

Network value = n * (n-1) / 2
[Where 'n' is the number of users or devices on the network.]

The network "value" is the sum of all the potential connections that could be created between each of the "n" users in the network. However, if "n" is a very large number (say 10 million), this is not to say that each of us has 10 million contacts; but it becomes more likely that all of our current and future contacts are included in the 10 million. This is where network theory enhances Metcalfe's Law. (A full discussion of network theory is outside the scope of this paper. See "Six Degrees--The science of a connected age" by Duncan Watts.)

Metcalfe's Law and UC
Clearly, Metcalfe's Law and network theory have accurately predicted the development of the Internet and the various services that can be found on the Internet, including email and instant messaging as well as social network services such as Facebook and Twitter. The adoption of UC is also subject to Metcalfe's Law and network theory, although some UC modalities are affected differently than others.

UC voice communications can take advantage of an entirely different network (i.e., the PSTN) to significantly enhance the UC network effect by leveraging the PSTN network effect. Gaining access to the PSTN was a key determinant for UC gaining any kind of adoption. An interesting side note is that this proves a key element of Metcalfe's Law, in that small networks do gain disproportionately by attaching to large networks.

On the other hand, the more esoteric UC modalities such as data collaboration and application sharing (and, to some extent, video conferencing) are subject to the more negative aspects of network effect because few industry standards exist, and therefore they tend to be developed in a proprietary fashion. Even among vendors that offer similar features, these services are not interoperable, and therefore the utility that customers find in these features is limited. This will impact the ability to establish these modalities as mainstream forms of communication.



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