Information Rules: A Strategic Guide to the Network Economy [Hardcover]

Chapter 1 of Information Rules begins with a description of the change brought on by technology at the close of the century--but the century described is not this one, it's the late 1800s. One hundred years ago, it was an emerging telephone and electrical network that was transforming business. Today it's the Internet. The point? While the circumstances of a particular era may be unique, the underlying principles that describe the exchange of goods in a free- market economy are the same. And the authors, Carl Shapiro and Hal Varian, should know. Shapiro is Professor of Business Strategy at the Haas School of Business at the University of California, Berkeley, and has also served as chief economist at the Antitrust Division of the US Justice Department. Varian is the Dean of the School of Information Management and Systems at University of California, Berkeley. Together they offer a deep knowledge of how economic systems work coupled with first-hand experience of today's network economy. They write:

Sure, today's business world is different in a myriad of ways from that of a century ago. But many of today's managers are so focused on the trees of technological change that they fail to see the forest: the underlying economic forces that determine success and failure.

Shapiro and Varian go to great lengths to purge this book of the technobabble and forecasting of an electronic "woo-woo land" that's typical in books of this genre. Instead, with their feet on the ground, they consider how to market and distribute goods in the network economy, citing examples from industries as diverse as airlines, software, entertainment and communications. The authors cover issues such as pricing, intellectual property, versioning, lock-in, compatibility, and standards. Clearly written and presented, Information Rules belongs on the bookshelf of anyone who has an interest in today's network economy--entrepreneurs, managers, investors, students. If there was ever a textbook written on how to do business in the information age, this book is it. Highly recommended. --Harry C. Edwards, Amazon.com

In a marketplace that depends so thoroughly on cutting-edge information technology, can classic economic principles still offer any real strategic value? Yes! say Carl Shapiro and Hal Varian. In Information Rules, they reveal that many long-standing economic concepts can provide the insight and understanding necessary to succeed in the information age. Shapiro and Varian argue that if managers seriously want to develop effective strategies for competing in the new economy, they must understand the fundamental economics of information technology. Whether information takes the form of software code or recorded music, is published in a book or magazine, or even posted on a web site, managers must know how to evaluate the consequences of pricing, protecting, and planning new versions of their information products, services, and systems. The first book to distill the economics of information and networks into practical business strategies, Information Rules is a guide to the winning moves that can help business leaders-from writers, lawyers, and finance professionals to executives in the entertainment, publishing, and hardware and software industries--navigate successfully through the information economy.

The book is clearly written, and easy to read
If you think you can apply traditional economics to the new information economy, then you are ... right. That is the message from the economist authors of this informative and readable book from Shapiro and Varian.

The book uses a range of products from the network economy to outline strategies for pricing information goods. These range from the obvious (introductory pricing, competitive upgrades, basic versus deluxe) through to more complex strategies such as versioning (producing different versions of a product for different groups of customers - and charging different prices accordingly).

The book is full of examples, ranging from HDTV and railroads through to the computing industry. For me, some of the most interesting examples come from the content side, and this includes Encyclopaedia Britannica's move to supplement its hard copy business with digital delivery.

In fact, there is a lot of overlap in the book between the very different markets of software, hardware and content, and this can make it difficult sometimes to apply the rules to the area in which you are interested (probably "content" if you bought the book after the hype). Also, I'm not convinced that there really is a direct comparison between these very different industries. For instance, there is much talk about network economies and lock-in (with companies using closed standards) which I believe isn't directly applicable to the information content industry as I would define it.

However, all of the examples are suitably analysed and each chapter ends with a summary of the rules learned. This is a good way to make you think about the interesting issues raised.

The book is clearly written, and easy to read with little jargon. Much of this material you will probably have read something about elsewhere (first mover advantage, network effects and externalities, economies of scale, etc.) but it is nice to have it clearly summarised in one place.

This is not, however, a "How to make money by selling information on the Internet" book for Net entrepreneurs. Also, it may not contain much new material for those who already work in the industries covered. However, even though it may tell you some things you already know, it is well worth a read for bringing it all together and getting you thinking about the important issues raised.

FreePint - June 1999

Carl Shapiro is the Transamerica Professor of Business Strategy, Haas School of Business and Department of Economics, UC Berkeley. From 1995 to 1996, he served as Deputy Assistant Attorney General of Economics, Antitrust Division, U.S. Department of Justice.