Information rules

Shapiro, C. and Varian, H. R. (1999) Information rules. Boston: Harvard Business School Press.

Goal: establish economic principles at play in information economies. Should be visible in telecomm since 19th c.

Chapter 1

"Technology changes. Economic laws do not." (2)

Information

• Anything that can be digitized (3)

Cost of producing information

• High fixed costs: Costly to produce
• Low marginal costs: Cheap to reproduce (3)
• Pricing must be done according to consumer value
• Natural connection to differential pricing
  • because info has diff value to diff consumers (3)
  • Delay
  • Versioning (4)

Managing intellectual property

• Maximize value, not protection (5)

Information as an 'experience good'

• Experience good must be experienced to be valued (5)
• Can be hard to convince people to pay for something upfront
  • e.g. a new product from a new company
• Overcome with branding, reputation (5)

The economics of attention

• Herbert Simon, "a wealth of information creates a poverty of attention" (6)
• Challenge is to attract and hold the attention of consumers
• They value filtering, sorting, curating, recommending very highly
• Attention is also re-sold in the form of advertising that accompanies information

Technology, infrastructure

"Content providers cannot operate without infrastructure suppliers, and vice versa." (9)

Systems competition

• Firms must focus on collaborators along with competitors (10)
  • e.g. Microsoft/Intel: "commoditize complementary products without eroding the value of its own core strengths" (10)
  • (They suggest that Wintel was the better choice "in the long run" because Apple became too expensive and lost competitive advantage (11))

Lock-in and switching costs

• Classic example: music consumers own a ton of LPs, how do you convince them to switch to a new format?
  • New format (CDs) offer significant advantage at manageable cost (11)
• Costs include: transferring data to a new format, purchasing new hardware, and training humans

Positive feedback, network externalities, and standards

• When the value to one user depends on the number of other users (13)
• Tend to follow long lead times followed by explosive growth (13)
  • Due to positive feedback
  • e.g. Fax machine more or less invented in 1843 but niche til 1980s
• These "networks" need not be tangible and may be virtual
  • e.g. the "network" of mac users
  • Creates conditions for significant demand side economy
• New standards require strategic timing, compatibility choices
  • Openness
  • Licensing
  • "Standards battles", Betamax/VHS, 56k modems

Policy

• Antitrust (17)
  • Mergers, acquisitions
  • Cooperative standard setting
  • Monopolization

How we differ

This book is...

• Not about trends
• Not about vocabulary
• Nor analogies

"Seek models" (18)