When economists discuss the "network effect," they mean that the value of a product, or service, is dependent on the number of others using it.HT: I though it was Kedrosky but can't find the exact link.
Think telephones or fax machines. If nobody else has them, your fax machine or telephone actually has little value, because you have nobody to call, nobody to receive your fax.
Now, the automotive industry is about to step into a brave new world where the network effect rules. The value of a car you just purchased might soon be determined, not by your car alone, but by how many others also have cars like yours.
Specifically, this phenomenon involves cars with V2V (vehicle-to-vehicle) or V2I (vehicle-to-infrastructure) communication features, ultimately including self-driving cars.
As Egil Juliussen, principal analyst, responsible for Infotainment and ADAS at IHS Automotive, put it in a recent interview with EE Times, cars of the future (V2V, V2I, and self-driving) will be "the first automotive product that depends on Metcalfe's law."
Metcalfe's law, attributed to Robert Metcalfe in reference to the Ethernet, is a theory similar to the network effect. It states that the value of a telecommunications network is proportional to the square of the number of connected users in the system.
Most of the new automotive technologies carmakers and chip suppliers talk about today are those enabling cars of the future to talk to other cars (V2V), while allowing cars to communicate with traffic lights, lamp posts, and any other infrastructure (V2I). The promise of connected cars -- and eventually, self-driving cars -- is driven by such goals as avoiding accidents (safety) and smoother traffic (efficiency) on the road....MORE
Monday, August 26, 2013
"Metcalfe’s Law & the Future of Driving"