The New Laws of Intranet ROI
How do you define the value of your intranet? The easy return on investment (ROI) of first generation intranets has been realized. Next generation intranets should take a cue from newer models of network value, such as Beckstrom’s Law, where network value is created by producing value for employees.
Those early intranets had it easy.
Don’t get me wrong. I won’t belittle the blood, sweat, and tears that went into building them, not for a second. But that late 1990’s – early 2000’s dream was so easy to explain, so easy to justify, so easy to quantify. That low hanging fruit was so sweet and succulent. Those early intranets dripped value and oozed Return on Investment (ROI).
Going from no intranet or from a hodgepodge of skunk works internal websites to a single corporate intranet brought tons of value to organizations during that era:
- You mean we can post a single “interactive” (remember that word?) copy of the company directory where it can be used by all?
- You mean we can web-enable any flavour of internal application from timesheets to procurement to the payday 50/50 draw?
- You mean we can create e-learning modules that reduce the need for travel?
- You mean everything can link together from one spot?
You could hear the din of CIOs everywhere: “Sign me up!”
Achieving the bullets above were huge victories that delivered real benefits off the backs of TCP/IP networks, HTML, and web browsers. Prescient Digital Media’s Finding ROI White Paper is chock a block full of examples of the terrific value and ROI that was realized during that time. The value was there, even when so many of those early intranets accomplished tasks with atrocious usability and suspect reliability. It didn’t matter that they were only valuable because they did a new trick, not because they did it well – examples of what Allan Cooper (of The Inmates are Running the Asylum fame) calls “dancing bear ware”.
Undeniably, there was a lot of value in linking employees together in that one spot — particularly, it was thought, when those employees were in physically different locations. What was really convenient was the value of connecting all those people together was actually quantifiable using Metcalfe’s Law. It believes that the value of a network lies in the number of possible connections that could be made. Metcalfe’s Law dates back to 1980 but was popularized in 1993 at the dawn of the World Wide Web.
As stated in the Wikipedia definition:
The law has often been illustrated using the example of fax machines: a single fax machine is useless, but the value of every fax machine increases with the total number of fax machines in the network, because the total number of people with whom each user may send and receive documents increases.
(Please don’t get spooked by the math below. Stay with me.)
The formula says that for n number of network users, the number of connections is
n(n-1)/2
Number of Nodes n |
Number of Connections n(n-1)/2 |
2 | 1 |
5 | 10 |
10 | 45 |
The closer n gets to infinity, the more the formula behaves as simply n^{2}.
Later, in 2001, David P. Reed argued that Metcalfe’s Law dramatically understated the value of networks. He believed that the value of a network was fundamentally in its ability to produce sub-groups, particularly in social networks.
Reed’s Law therefore believes that increasing the number of participants produces value much more rapidly than Metcalfe’s Law. For Reed, the utility of a network is expressed as:
2^{n} – n-1
Number of Nodes n |
Utility 2^{n} – n -1 |
2 | 1 |
5 | 29 |
10 | 1013 |
The closer n gets to infinity, the more the formula behaves as simply 2^{n}
In their eloquent piece titled Metcalfe’s Law is Wrong, Bob Briscoe, Andrew Odlyzko, and Benjamin Tilly take aim at Metcalfe and Reed, arguing that the euphoria of these calculations contributed to the “build it and they will come” and growth before profits logic that characterized the dot com bubble. They fear that while that bubble is long burst, the thinking that led to it lies just under the surface:
Remarkably enough, though the quaint nostrums of the dot-com era are gone, Metcalfe’s Law remains, adding a touch of scientific respectability to a new wave of investment that is being contemplated, the Bubble 2.0, which appears to be inspired by the success of Google. That’s dangerous because, as we will demonstrate, the law is wrong. If there is to be a new, broadband-inspired period of telecommunications growth, it is essential that the mistakes of the 1990s not be reprised.
Briscoe, Odlyzko, and Tilly propose a much more sober formula than Metcalfe and Reed. They draw on Zipf’s law, commonly associated with the long tail concept and surmise that the second most important person in your network will have half as much correspondence with you as the most important person, the third most important person will have one third the correspondence, and so on. Extrapolated out their value of the network formula is:
n log (n)
Number of Nodes n |
Benefit n log(n) |
2 | 0.60205999132 |
5 | 3.4948500217 |
10 | 10 |
In 2008, Rod Beckstrom, former Chairman of open source wiki supporter TWIKI.NET, co-author of The Starfish and the Spider, and former Director of the National Cyber Security Center (NCSC), added his own approach to the heap.
His formula appears complex, but is actually quite simple. It states:
The value of a network equals the net value added to each user’s transactions conducted through that network, valued from the perspective of each user, and summed for all. (Wikipedia)
In his presentation available on Slideshare, he starts with the value for a single user
V = ΣB – ΣC
Value = the sum of all benefit value of transactions – the sum of all transaction costs.
He gives the example of a book purchase:
V = $26 – $16
V = $10
If one could purchase a $26 book online for $16 including all costs, the network value provided is $10.
If we are able to add up the user value of all transactions for all users for a given time frame, we will have quantified the network value according to Beckstrom’s Law. The final formula looks like this:
Vi,j = net present value of all transactions of k = 1 through n to individual i with respect to network j
i = one user of the network
j = identifies one network or network system
Bi,k = the benefit value of transaction k to individual i
Ci,l = the cost of transaction l to individual
rk and rl = the discount rate of interest to the time of transaction k or l
tk or tl = the elapsed time in years to transaction k or 1
Just to sum up, comparing all of the formulas, we might get a table like this:
Formula n= number of participants |
Value of 10 participants | Value of 20 participants | |
Metcalfe’s Law (c. 1980, popularized 1993) |
Value is in the number of possible connections n(n-1)/2 |
45 | 190 |
Reeds Law (1999) |
Value is created by the ability to form groups. 2^{n} – n-1 |
1013 | 1,048,555 |
n (log n) Rule [Bob Briscoe, Andrew Odlyzko, and Benjamin Tilly] (2006) |
To an individual, the value of each ranked participant is ~ 1/rank # n log (n) |
10 | ~26.02 |
Beckstrom’s Law (2008) |
Network value is the sum of benefits – costs for each individual in the network |
Depends on the total value derived by each participant added together |
So, why am I off in these weeds? What does any of this have to do with the value of the intranet?
While the difference in values found by the formulas above is somewhat interesting, what’s FASCINATING is the change in philosophy that the two newer models represent. Almost uncannily, they parallel the push towards Enterprise 2.0 capabilities.
The n log (n) rule and Beckstrom’s Law:
- Look at the network from the edge rather than the centre
- Calculate value from the user’s perspective, rather than the enterprise’s
- Quantify actual value rather than potential value
For many companies, Intranet 1.0, based on that 1990′s vision, has been built. Success has been achieved perhaps by making it available to all within the company or perhaps by migrating it to a stable CMS platform. From a Metcalfe perspective, mission accomplished. All that low-hanging fruit has been harvested.
From a Beckstrom perspective, however, your intranet may still be a primitive wasteland. Usage of the intranet may no longer provide utility. We are finding that the “why do you use the intranet?” question that we like to ask as part of intranet visioning research is eliciting more and more incredulous responses. Use of the intranet, contrary to how it is commonly positioned, is no longer an optional activity. In today’s corporate environment, the intranet is now often the ONLY available way to perform certain tasks, such as use the corporate directory. Our interviewees tell us that they use the intranet because they have to.
Indeed, recent Watson Wyatt survey results shared on Prescient Digital Media’s blog, reflect a similar sentiment:
- 80% believe intranet navigation needs improvement
- 50% don’t actually use their intranet on a daily basis
- 50% find search ineffective
They are using their intranet because they have no other choice.
Put simply, if employees can’t find what they are looking for or can find no reason to use it, your intranet is worthless. If your organization has yet to shift your intranet’s focus on to your employees, on building value for them, on helping them perform true collaboration within its confines, on helping them build the connections that they never knew they needed, then it is time.
Whether you blow up your intranet and call ThoughtFarmer, or work on improving the intranet you have, you must step into the shoes of your employees and see value through their eyes. The challenge will be great, because following the new laws of intranet ROI requires a significant change in thinking.
Emanuele Quintarelli
Hi Bryan,
I think you forgot the sum for i=1 to n of all the Vi,j in the first term.
Cheers,
Emanuele
Emanuele Quintarelli
Ops sorry, now I see it’s the formula inside the slideshare deck probably missing the sum. Too late to think
bryanr
Hi Emanuele, Thanks for your watchful eye. I’ll admit that I’d be out of my league if I were to attempt to correct any formulas.
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[...] published a must-read article on the New Laws of Intranet ROI. It discusses how the mathematical models used to describe social network effects have [...]
Network Value on the Edge « Infovark
[...] published a must-read article on the New Laws of Intranet ROI. It discusses how the mathematical models used to describe social network effects have [...]