Information, Technology, and Innovation: Resources for Growth in a Connected World

CHAPTER 6

Power Laws and Their Implications

While many people are accustomed to seeing bell curves explaining many facets of everyday reality, these statistical distributions do an extremely poor job of explaining information, or risk, or social network landscapes. Instead, power laws explain both the leviathans of the Internet—Facebook or Google—and the millions of YouTube videos that apparently nobody watches. The behavior of systems that conform to these curves is both predictable and new as compared to scenarios involving physical widgets sold through physical stores in local markets.

A Bit of History

Back at the turn of the century, the Internet sector was in the middle of a momentous slide in market capitalization. Priceline went from nearly $500 a share to single digits in three quarters. CDnow fell from $23 to $3.40 in about nine months ending in March 2000. Corvis, Music Maker, Dr. Koop—2000 was a meltdown the likes of which few investors had ever seen or imagined. Science was invoked to explain this new world of Internet business.

Bernardo Huberman, then at Xerox's Palo Alto Research Center (PARC), and others found that the proportion of Web sites that got the bulk of the traffic fell far from standard market share metrics: As of December 1, 1997, the top 1% of the Web site population accounted for over 55% of all traffic.¹ This kind of distribution was not new, as it turned out. A Harvard linguist with the splendid name of George Zipf counted words and found that a ...