Metcalfe’s Law and the Hydrogen Economy

Metcalfe’s Law states that the value of a telecommunication network is proportional to the square of the number of users. If there were only one fax machine in the world, it would be useless. Two fax machines can have some use, but three allow twice as many connections as that, and so on.

A more modern example is that of social network sites. One’s choice of social network site is not determined by the colour scheme or the correctness of the technical implementation but by the number of friends that one has on the network. One result of this is that social network sites are forced to be free to use in order to drive adoption. This results in a rather curious business model: give away the product for free, hope that there is explosive growth, pray that you can somehow make a little money from your millions of users once they are in place.

Fuel distribution has a parallel problem. It might be possible to replace petrol and diesel cars with ones fuelled by hydrogen, methane, alcohol, ammonia, compressed air, electricity, deep-fat-frier oil or even cow dung. The problem is that drivers will not buy cars that uses one of these fuels, unless they can buy that fuel ubiquitously. Conversely, nobody’s going to finance the fuel distribution network, until there are the cars to burn the fuel.

A new car company, Riversimple, is trying to break this chicken-and-egg problem by leasing their cars.

Leasing certainly makes more sense for a customer entering a market that has no guaranteed future.

On top of this, part of the design of the car is being released as an open source project:

The hope seems to gain an economy of scale and allow the car to adapt to local conditions. The company is working with BOC, who presumably would do very well from a hydrogen economy. The situation is similar to Google, Mozilla and Chrome. Google want to make money from increasingly sophisticated web applications, so they finance open source projects to build better browsers. Financing a closed source browser would not achieve their aims as efficiently. What is more, as soon as they pulled the plug on a closed source browser, the project would finish. Opening up the source provides a multiplier effect. I imagine that BOC are hoping for a similar multiplier effect with open source fuel cells.

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