Summary of Information Rules by Shapiro and Varian
Information Rules
1 The information Economy
Tech changes, economic laws do not.
INFORMATION
Information – anything that can be digitized.
Info has an unusual cost structure. Costly to create and assemble. Costly to produce but cheap to reproduce. High fixed costs but low marginal costs.
When managing intellectual property, goal should be to maximize the value of your intellectual property, not its protection.
Experience good – must be experienced in order to be valued. Information is always an experience good. Browsing sure, but branding and reputation is how many producers overcome the experience good problem.
The internet is a hybrid between a broadcast medium and point to point medium.
TECHNOLOGY
Improved information infrastructure has vastly increased our ability to store, retrieve, sort, filter and distribute information, thereby greatly enhancing the value of the underlying information itself.
Traditional rules of competitive strategy focuses on competitors, suppliers and customers. In the info economy, companies selling complementary components, or complementors, are equally important. If you sell a component of a system, you can’t compete if you’re not compatible with the rest of the system. Firms must focus also on their collaborators.
Switching costs (LP to DVD for example). Lock-in arises whenever users invest in multiple complementary and durable assets specific to a particular information technology system.
Network externalities/network effects – the value of a product to one user depends on how many other users there are. These technologies tend to exhibit long lead times followed by explosive growth. Positive feedback as the user base grows, and eventually reaches critical mass and takes over the market. Therefore growth is a strategic imperative, and popular systems enjoy a large competitive advantage over less popular systems. Consumer expectations are critical – the system expected to become standard often becomes the standard. So
1 The information Economy
Tech changes, economic laws do not.
INFORMATION
Information – anything that can be digitized.
Info has an unusual cost structure. Costly to create and assemble. Costly to produce but cheap to reproduce. High fixed costs but low marginal costs.
When managing intellectual property, goal should be to maximize the value of your intellectual property, not its protection.
Experience good – must be experienced in order to be valued. Information is always an experience good. Browsing sure, but branding and reputation is how many producers overcome the experience good problem.
The internet is a hybrid between a broadcast medium and point to point medium.
TECHNOLOGY
Improved information infrastructure has vastly increased our ability to store, retrieve, sort, filter and distribute information, thereby greatly enhancing the value of the underlying information itself.
Traditional rules of competitive strategy focuses on competitors, suppliers and customers. In the info economy, companies selling complementary components, or complementors, are equally important. If you sell a component of a system, you can’t compete if you’re not compatible with the rest of the system. Firms must focus also on their collaborators.
Switching costs (LP to DVD for example). Lock-in arises whenever users invest in multiple complementary and durable assets specific to a particular information technology system.
Network externalities/network effects – the value of a product to one user depends on how many other users there are. These technologies tend to exhibit long lead times followed by explosive growth. Positive feedback as the user base grows, and eventually reaches critical mass and takes over the market. Therefore growth is a strategic imperative, and popular systems enjoy a large competitive advantage over less popular systems. Consumer expectations are critical – the system expected to become standard often becomes the standard. So