IM is an example of a market that involves strong network effects. Like most communication networks, IM is thought to follow Metcalfe’s law: the value of a network as a whole is proportional to the square of the number of participants. In other words, the more people in the network, the more valuable the network. This makes intuitive sense: the value to each participant is driven primarily by how many other people he or she can communicate with. Imagine a world in which you own the only telephone; it would have no value. Only when other people also have a telephone does it become valuable.
