Episode#22 – Information Rules

Information Rules

by Carl Shapiro and Hal R. Varian

 

The book in one sentence

“A strategic guide to the network economy.”

 

My personal opinion

If there is a must-read about information-based products and network economy it is this master-piece!

Definitely take a look at “Information Rules”. To give you a first impressions of the topics which are covered by this great book: pricing, versioning, rights management, lock-in, networks and positive feedback, cooperation and compatibility, standard wars and information policy.

 

To whom I would recommend this book

If you are working with information and data as products, this book is a must read for you. It covers the basics of the network economy and the authors derive strategies and recommendations for certain situations. As a buyer or seller of information (technology) products you have to read “Information Rules”.

According to the authors: “There is a central difference between the old and new economics: the old industrial economy was driven by economics of scale; the new information economy is driven by the economics of networks.”

 

What I learned from this book

  • As an information provider your real value “comes in locating, filtering and communicating what is useful to the customer.”
  • Keep always an eye on your competitors as well as on your partners.
  • Information technology comes always with switching costs and lock-in.
  • Since information as a product is costly to create but cheap to copy, competitors among commodity information will find themselves in a price-battle. Conclusion: “[…] don’t let your information product become a commodity. Do everything you can to make sure there are no close competitors by differentiating your product from others that are available.”
  • To decrease the threat of entry by look-alike information providers, lowering your margin on a short-term can help to make your market look less attractive: “Your sale today reduce demand for similar information in the future. Sales today may also serve the function of locking in customers.”
  • Personalise the price of your information product in regards to your customer habits and characteristics.
  •  “Information is like an oyster: it usually has the greatest value when it is fresh”
  • Since consumer are averse to extreme offers (extremeness aversion), it could make sense to offer three different versions of a product – entry, standard and professional for example.
  • “The important thing is to maximise the value of your intellectual property, not to protect it for the sake of protection.”
  • “To understand lock-in, look ahead and reason back.”
  • Provide brand-specific training to increase switching costs over time.
  • Buyer lock-in, seller lock-in and partner lock-in are based on the same economic principles.
  • Economic patterns which lead to lock-in: contractual commitment, durable equipment and aftermarkets, brand-specific training, information and databases, specialised suppliers, search costs and loyalty programs.
  • Understand and win in your customers of tomorrow.
  • “In the network economy, simply being first to market can generate both differentiation and cost advantages. The key is to convert a timing advantage into a more lasting edge by building an installed base of users.”
  • Win influential buyers (large companies, industry leaders) by leveraging discounts.
  • Turn traditional markets into lock-in markets through artificial loyalty programs. In addition, loyalty programs will reduce price sensitivity.
  • The value of a network for its participants increases with the number of people connected to it.
  • Characteristics of a network to consider: control or openness, compatibility or performance.
  • “The lone cowboy approach rarely works in the information age.”
  • “Sunk costs are sunk – it is future cost that matter.”
  • Always look out for the next generation of technology. Technological progress never stops. That is why you need a roadmap for your product.

 

Want to read this book?

Check it out on Amazon.com – Information Rules by Carl Shapiro and Hal R. Varian

 

Publisher

Thanks to the publisher for printing such a great book!

Harvard Business School Press