"Information Rules: A Strategic Guide to the Network Economy" is a very useful reference in understanding the fundamental forces at work in today's -- and tomorrow's -- information economy. Written by two professors of economics at UC Berkeley, this book provides an excellent strategic overview in understanding the changes in the business landscape. By applying traditional economic thought with modern information businesses, the book is able to provide a commonsense blueprint for pricing, protecting, and planning new versions of information products.
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Forget about economics being a being a dull and highly theoretical subject.
By stripping away the technical jargon of economics, the book succeeds in
coming down from the academic totem pole to argue compellingly that
traditional economics still apply in evaluating the Amazons and Yahoos of
our generation. Information goods-from movies and music to software code and stock quotes-may have replaced industrial goods as the key drivers of world markets, but the economic principles of yesterday still hold true in this
"new economy."

The authors' main argument is: "Ignore basic economic principles at your own risk. Technology changes, economic laws do not." The fastest road to
business demise is to abandon the classic lessons of economics, and rely
instead on an ever-changing roster of trends, buzzwords, and hype that
promise to guide strategy in the information age. Instead, this book provides an analysis of the new strategies designed to succeed in the information age, based on solid economic and business rules.

Filled with case studies, historical examples and simple explanations of key
economic concepts, Information Rules shows how to:

• Develop value-maximizing pricing strategies

• Plan product lines of information goods

• Manage intellectual property rights

• Understand the strategic implications of lock-in and switching costs

• Recognize and exploit the dynamics of positive feedback

• Evaluate compatibility choices and standardization efforts

• Factor government policy and regulation into strategy

The book provides an approach to finding ways to differentiate one's product
from all the others, and a how-to guide to simplify and improve customer
interface. The authors emphasize the idea that managing intellectual
properties to maximize value is infinitely superior to just protecting them
from competitors. Some of the information delves into building positive
feedback for the product, and every businessperson probably needs to know
some of the legal ins and outs of building alliances and the ramifications
of competition.

Summarized below are some of the book's interesting conclusions:

• Information is the gold of this new era -- costly to produce but inexpensive to reproduce. The goal therefore is to match appropriate pricing models with the 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, intellectual property rights protection becomes a key determinant of information good's economic success.
  

• Information is an "experience good," which is to say that customers
  must use and experience the product to put value on it. The authors cite Netscape's initial success in giving away the browser to see the value of leveraging the "experience" factor.
  

• Products that can achieve "lock-in" will benefit from the "switching
  costs" that prevent 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. Types of lock-in include contractual commitments, durable purchases, brand-specific training, information and databases, specialized suppliers, search costs, loyalty programs. 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.
  

• 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 end users
  participating in its "network." Real-life business examples of leveraging your installed base include: focus on selling complimentary products (), selling access to your installed base (Yahoo), setting differential prices to achieve lock-in (Adobe's Photo Deluxe for beginners, for eventual upgrading to full version of product, Adobe PhotoShop).
  

• How standards change the game: Expanded network effects, reduced
  uncertainty, reduced consumer lock-in, competition for the market vs.
  competition in the market, competition on price vs. features, competition to offer proprietary extensions, component vs. systems competition.
  

• In waging a standards war, the key assets include (a) control of an installed base; (b) intellectual property rights; (c) ability to innovate; (d) first mover advantages; (e) manufacturing abilities; (f) presence in complimentary products; and (8) brand name and reputation. The war of the browsers is a perfect example: Netscape had a huge first-mover advantage over . However, was able to neutralize Netscape's advantage by preempting new users through a number of strategies, including bundling on OS, signing deals with OEMs, bundling content with the browser and giving links to ISPs for making Explorer the preferred browser supported. Both vendors used penetration pricing to set a low bar to using their products. Both vendors also leveraged the expectation management and alliances trump cards to win their places in the market.

This book develops excellent frameworks for a systematic analysis of the
information economy. Information Rules will help business leaders and policy
makers-from executives in the software, online retailers, publishing, hardware, and telecommunication industries to lawyers, finance professionals, and writers-make intelligent decisions about their information assets. It is a valuable guide to thinking through your decisions about information-based businesses. The reader will emerge with a thorough understanding of the information economy.

Buy the book from Amazon.com. Click here!

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