Information Rules: A Strategic Guide to the Network Economy | List Price: $38.00
Discount Price: $10.83
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Binding: Hardcover
Easy introduction to the Economics of Information [Posted on 2008-01-20]
This text deserves to be updated. The economic principles described are still as relevant as ever, but the examples provided are a decade out of date.
What lock-in, price discrimination, and network externalities can do for businesses [Posted on 2008-03-05]
I don't know if it's really intentional, but Shapiro and Varian make a funny throughout Information Rules. If you're a company selling an information product, say Shapiro and Varian, you should pay attention to three big aspects of information goods:
* Comparatively easy price discrimination: because you can gather so much more information about your customers than non-Internet businesses typically can, you can get much better estimates of how much your customers are willing to pay. You can then charge them accordingly.
* Lock-in. Once you've trained your entire company to use, say, Microsoft Word, the costs of switching to another word processor are prohibitive. Add in the difficulty of converting from the latest Word format to another word processor's format and the costs are even higher.
* Network externalities. The more people who sign on to Verizon, the more value each Verizon customer gets. Verizon deliberately builds this externality by making in-network calls free to its members.
To some extent these all exist in non-information goods. Airlines guess how much you're willing to pay based on whether you buy at the last minute; grocery stores know whether you're price-conscious if you clip coupons. The airlines also furnish a good example of lock-in: they joyously lock themselves into massive many-years-long contracts with, say, Boeing, in order to cut down on the number of brands that their employees have to learn how to repair. As for network externalities, fashion goods are probably a decent example (each pair of Nike shoes almost certainly grows more valuable the more people own them), as is any product where standardization is important: the more of us who use standard-size doors and windows in our houses, the more the companies that make them can exploit economies of scale and produce them more cheaply.
So these economic quirks of information goods have been around for a long time, even if they play a much larger role on the Internet. Shapiro and Varian's point is that the basic economic logic controlling information goods hasn't changed much in a long time; the Internet isn't the end of economics. They apply the three bullets above to a large number of examples, and very specifically lay out how businessmen can exploit these principles to make more money.
Where it gets funny is that one businessman's loss is another's gain. Shapiro and Varian tell one group of businessmen how to lock customers into their products, then tell another group how to avoid lock-in, how to extract contractual concessions in exchange for lock-in, etc. They're not exactly talking out of both sides of their mouth; it's more like they're addressing one side of the room, then the other, then back and forth and back and forth until their necks snap.
Two minor critiques:
1. Yes, the economic principles espoused in Information Rules are comparatively long-lasting, but the examples seem a bit dated by now: I stopped being interested in Ashton-Tate and WordPerfect a long time ago. As for Yahoo! and Excite, which Shapiro and Varian also mention, they are not nearly as relevant now as they were in 1998 when this book was written. Varian is Google's chief economist now, humorously enough. An updated edition of Information Rules that adds some new examples would be helpful. This book almost entirely misses the open-source movement; in 2008 that's rather glaring.
2. Since this book's point is to help businessmen develop strategies, it is not a book that can step outside and watch the whole system. It would not be able to tell you, for instance, whether regulations that enforce openness, or government contracting that requires open-source software, is good. It would only be able to tell you, as a businessman, how to react to or preempt that kind of regulation.
It is entirely successful in its aims, though: examine the particular opportunities in the information economy, then very specifically lay out what makes businesses survive or die in that environment.
Explains the information economy! [Posted on 2008-03-08]
This book is a brilliant analysis of the information economy. If more business leaders would have picked it up in 1998 when it was published a lot less money would have been invested in internet business schemes that did not work!
Very good book [Posted on 2008-04-15]
"Information Rules" is easy and very intersting to read.
I recommend it to people who are interested in internet and it's information flows.
Foundational text on a future economy [Posted on 2008-06-24]
This book is the basis for so much that we already know - or should know. Re-reading it this year (2008) after so long was a shock to my senses. It showed me how on target the economic principles expressed between the covers were.
Of course, that is one of the points of the book: old economic principles still hold in "new" economies. The strategies of the most successful firms today can be held up against the principles of this book as a standard - and they will be in synch.
If you've never read it, I highly recommend it - especially if you are in or planning to enter the tech economy. Do not be fooled by some of the "dated" material, since some time has obviously passed since its first publication. There are comments about technological developments held in suspense for the authors at that time - the outcome of which we are already well aware. For example, the authors make much of Netscape's stardom of that time. Now, of course, it is a different story. Regardless, such examples do not diminish the fundamental economics lesson in this book.
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