Information Rules: A Strategic Guide to the Network Economy

You will have to come back to it many times to improve continually your understanding and practices in the network economy... Invest money and time in "Information Economy, a Strategic guide to the Network Economy" is a real good investment as it gives you guide lines to understand deeply the emerging Network Economy but also how to deal strategically with the main encountered issues: pricing, versioning, rights management, lock-in approaches, and information policy.Even if Carl Shapiro and Hal R Varian are saying that: "Technology changes, Economics laws do not" their careful analysis on networks and positive feedback is conducting them to write "Strategy in network markets is distinct from strategy in markets for information content, not to mention traditional industrial markets". In network markets positive feedback based on Metcalfe's Law - the value of a network goes up as the square of the number of users - makes the strong grow stronger ... and the weak grow weaker.To maximize your return you need to find the balance between openness and control, compatibility and performance and to be ready to build alliances, to battle for standardization on your own or with partners... "It is not enough to have the best product, you have to convince customers that you will win" is a crucial idea to apply in the network economy to ignite a positive feedback and reach the critical mass necessary to fuel explosive growth. The authors are presenting, through real-life examples including the Microsoft Netscape browser battle , a complete battlefield with maps of strategies and tactics to win and stay in the network economy. Keep this guide close to your hand, as it will become your better source of knowledge to be at the forefront of the New Economy. Personally I plan to re-read this book on regular basis to make sure to extract all the richness the authors have put in.

Information rules is a brilliant books that gives a framework to think about software and other information goods. Before reading this book, if I were given a software and asked if it will be successful, I would have evaluated its features, compared them to competitors, checked where it added value etc. Now I ask myself, can this product get customer lock-in ? how will it break the lock-in existing products have ? what is the cost of switching from this product to another? are there network effects? Shapiro and Varian point out that since the marginal cost of producing information goods is zero, manufacturers of these products will not make any economic profit, unless they can lock-in their customer through network effects or very high switching costs. They then give several case studies to explain this concepts, as well as the strategies that customers and manufacturers should employ in the network economy. There is also an excellent discussion of the standard setting process and the strategies different players must employ based on their place in the industry.I strongly recommend this book for everyone who plans to work in the information economy. It is a totally excellent book, an eye-opener.

There is a lot of confusion these days in terms of trying to define the rules of success in the new economy. One thing for sure is that the pace of change we are experiencing today is unprecedented and can be ignored at our own peril. But amazingly, the rules of the game have not changed - as argued so powerfully in this book; the pace of the game has increased and it requires greater speed and agility to keep playing.But if the rules are the same and the pace has increased what about the playing field? Well, it is turning bigger and a player who wants to be in the game should know every inch of it.The main theme of the book centers on the concept that while we may adopt new strategies in the information economy the fundamental economic principles still apply. The goods that we are dealing with are information goods that are costly to produce and cheap to reproduce. In such a scenario, what are the cost characteristics, pricing strategies and market structures? Similarly the concepts of Versioning, Rights management, Lock-in, Networks & positive feedback are analyzed in great detail with appropriate illustrations and cases.Highly recommended.

I used this book in an undergraduate business school course and all forty-five of us (me and my students) LOVED it. This book is one of those business classics that comes along once every five years. Unlike hyped marketers with ideas but no evidence, this book is grounded in solid research. If you read this one, make sure you also read the authors' article in the November 1998 Harvard Business Review. The book is highly original, fresh, and very very readable. In conclusion, this book is worth *every* penny.

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 pro