Information Rules: A Strategic Guide to the Network Economy

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Summary: Superb insights on how to market intellectual property
Review: This is a superb book. It's aimed at people who must decide how to market software and technology-related products & services, but it applies equally well to the full range of intellectual property, including consulting services. The writing is crystal clear and the book is highly structured. My only quibble is that the authors have bulked it up a bit by being more repetitious than they need to be. Even so, it's not a weighty tome, and it's as enjoyable as it is enlightening.

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Summary: Sloppy and out of date research
Review: What a disappointment. Shapiro and Varian use examples about things like network externalities that have been throughly debunked. For example, their claim that dvorak keyboard being superior to the qwerty keyboard is based upon a study done the department of the Navy when Dvorak headed the study! When this study was first referenced this wasn't understood, but at least since 1990 researchers in the area have known this. Unfortunately, a lot of this book is a decade or more behind the times.

Their discussions on price discrimination do the lay reader a disservice because they ignore that many (or most) of the differences in price are actually cost based and have nothing to do with monopoly power. Some of these firms that follow their belief that significant monopoly power is everywhere will be in for a very rude awakening. The story is a lot more complicated than Shapiro and Varian let on.

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Summary: A helpful primer on the new economics of the information age
Review: This book is a very strong and accessible primer on the underlying economics of the information and network economy. It is NOT a bunch of speculative conjectures on the next new hyped up techno-babble concept and/or technology that will soon revolutionize the world. If you're looking for spin, whether to guide you in business choices or co-op for you own marketing, you won't find it here. The point of the book is to clearly communicate economic theories that can help one make sense of the economic of the computer/internet/information economy. As such, it may seem a bit academic (though I found the real world examples provided very grounding).

I would heartily recommend it -- if you are interested in learning some concepts to help you make sense of the *NEW* economy. The authors do a great job of avoiding the typical economic jargon that makes these sorts of ideas opaque. However, like any academic book, it requires that you take the concepts you learn from it and apply them YOURSELF to the business world around us. Unlike a lot of HYPE TECHNO books, these concepts will not go OUT OF STYLE. They are basic, fundamental and informative, if you're willing to think a little bit about them.

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Summary: Well done
Review: As an economic student at Oxford, I had read this book just before reading Trading Online (FT Pitman) by Alpesh Patel. As the song goes, "I can see clearly now..." The two books reveal the massive impact of the internet and more importantly - why?

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Summary: Prescient rules for winning in the Internet economy
Review: Information Rules: A Strategic Guide to the Network Economy by Carl Shapiro and Hal Varian takes a look at the emerging Internet economy, and argues compellingly that traditional economics still apply in evaluating the Yahoos of our generation. In fact, history provides a pretty good guide for evaluating network-centric businesses. One only has to look at the evolution of the railroad, telephone and television networks. The book reaches some interesting conclusions, summarized here:

1.Information is costly to produce but inexpensive to reproduce (i.e., has a high fixed cost but a low marginal cost). This translates to a lot of latitude, challenges and opportunities in coming up with pricing models and corresponding versions of a product to create both the maximum revenue opportunities and establish the largest number of members of the product's network of users. Also, given the low cost of reproduction, it stands to reason that protecting intellectual property is a key determinant of information good's economic success. 2.Information is an "Experience Good," which is to say that customers must use and experience the product to put value on it. One only has to think about Netscape's initial success giving away the browser to see the value of leveraging the "experience" factor. 3.Products that can achieve "lock-in" will benefit from the "switching costs" that preclude customers from switching-over to competing (even superior) solutions. In other words, products that get a user to commit time, knowledge and/or resources to them are likely to continue to be used even in the face of superior products given the cost of switching to alternative products. An interesting point the book makes is to look at lock-in and switching costs not only in terms of your product, but your collaborators and complementors as well. 4.Fundamental to success is leveraging the power of positive feedback, or network effects. What this means is that the value of your product is a function of the total number of vendors, partners and endusers participating in its "network."

Some specific strategic considerations:

1.Versioning: create different versions of your products tailored to the need of different groups of customers. This allows customers to select the version that best meets their needs and enables you to pick up as wide a base of customers as possible (e.g., Quicken, Quicken Deluxe, QuickBooks). Specific mechanisms for accomplishing same are: delay, user interface, convenience, image resolution, speed of operation, flexibility of use, capability, features and functions, comprehensiveness, annoyance, support. 2.The total cost of switching = cost the customer bears + costs the new supplier bears. Types of lock-in: contractual commitments, durable purchases, brand-specific training, information and databases, specialized suppliers, search costs, loyalty programs. 3.The lock-in cycle: brand selection, product sampling, entrenchment, lock-in. Needless to say, the more successful you are at getting customers more locked-in to your products (e.g., taking advantage of proprietary features), the more successful you will be in keeping customers at peak prices. 4.Leveraging your installed base: focus on selling complimentary products (Micorsoft), selling access to your installed base (Yahoo), setting differential prices to achieve lock-in (Adobe's Photo Deluxe for beginners is a low-end product that is often bundled with scanners and gets users hooked on product. Many ultimately upgrade to full version of product, Adobe Photoshop), exploiting first-mover advantages (Ticketnmaster locks customers into long-term contracts). 5.Market adoption dynamics in positive feedback markets tend to evolve along the lines of an S-curve, with the initial adoption period being flat (while the market winner is in doubt). Once an apparent market winner emerges, the adoption rates takes off dramatically continuing until market saturation. In other words, popularity in positive feedback markets is the ultimate metric of success. Hence, perception becomes reality in these markets. Those expected to win in the market do win because second place or third place is tantamount to last place (i.e., having to bear the switching cost of moving to the winning vendor in the market). This is a zero-sum game, where both vendors must proclaim themselves the ultimate winner, and the success of getting out the message is as important as the technical attributes of the product. 6.Evolution vs. Revolution: there are two paths for unseating an incumbent. One is evolution, which is akin to providing an adapter to a legacy technology. The other is revolution, which disregards legacy in favor of improved design (CDs as a replacement for records). Both paths have technical, creative, systemic, performance and legal considerations. 7.Openness vs. Control: This is a key tightrope in the age of open standards. The more open your solution, the lower the bar to positive feedback. With control comes a hedge against commoditization and low margin pricing. Four key vectors are represented: Controlled Migration (Windows 98), Performance Play (Iomega Zip), Open Migration (fax machines), Discontinuity (records to CDs). 8.How standards change the game: Expanded network effects, reduced uncertainty, reduced consumer lock-in, competition for the market vs. competition in the market, competition on price vs. features, competition to offer proprietary extensions, component vs. systems competition. 9.Tactics in formal standard setting: If you can follow a control strategy, you are better off organizing an alliance outside of the formal standards bodies. Search carefully for blocking patents of competitors in the standard definition. Consider building an installed base pre-emptively. 10.Waging a standards war -The key assets in such a battle are: 1. Control of an installed base, 2. Intellectual property rights, 3. Ability to innovate, 4. First mover advantages, 5. Manufacturing abilities, 6. Presence in complimentary products, and 7. Brand name and reputation. Example: Netscape vs. Explorer: Netscape had a huge first-mover advantage over Microsoft that Microsoft was able to neutralize by preempting new users through a number of strategies, including bundling on OS, signing deals with OEMs, bundling content with the browser and giving links to ISPs for making Explorer the preferred browser supported. Both vendors used penetration pricing to set a low bar to using their products. Both vendors also leveraged the expectations management and alliances trump cards to win their places in the market.

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Summary: The Ideal Combination of Relevance and Rigor
Review: This book fills a critical need for rigorous analysis of the issues facing managers in the emerging information economy.

Information technologies have advanced rapidly but business knowledge has not kept up. That's why I am glad that Shapiro and Varian have taken the time to make the insights from economics more broadly accessible and relevant with this book.

This book should be required reading for business managers working with the Internet or related information technologies. I am including it on the reading lists for my MBA classes MIT.

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Summary: Wow! Finally a book that explains information economy
Review: This book is chalked full of valuable lessons and great examples! I highly recomend it!

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Summary: Reads like a good textbook
Review: Overall, I found Information Rules to be a very good textbook on the economics of the Internet. I have read many (if not most) of the "new economy" books and I found this one to be right up there in terms of the quality of the information.

This will probably become a classic in MBA technology courses.

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Summary: Information Rules Is Good If You are A PhD Economics Student
Review: My best advice for anyone even thinking about buying this book is .... click on and delete the wasteful and useless business concepts this book presents. Shapiro and Varian have some good "economics classroom" ideas and if that's where you do business the book is ok. But, if you are doing business in the "real world classroom", as most of us are, this book is far from having pragmatic business reality in it. To sum it up, just another ivory tower "academic lesson" book which some Masters or Doctoral Business student can cite in their thesis. This is certainly not a book that a Warren Buffet would come within a mile of.

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Summary: Not Particularly Insightful
Review: This book says nothing new that has not been said before - such as increasing returns by Brian Arthur. The book looks at the problem of selling digital goods from the perspective of economic theory such as theory of complements and network externalities. The book is useful as a primer on economic theory with examples from the Internet space. However, there is little insight for a budding entrepreneur about how to create new value or how to create differentiation in the web marketspace. From the marketing hype that has enveloped this book, I definitely expected more. The book was quite dry and could have used more contemporary examples.