Insights from Information Rules

Ann H. S. Nicholson

Information Rules is a great manual for those interested in playing in today’s information technology arena because it very simply states rules for playing the game based on basic economic theory and illustrates it through numerous examples of other historical technology developments. Probably my greatest insight is the fact that even though the internet is so new (to consumers), the way in which it is emerging along with its required complementary parts is not so new. The authors’ use of historical examples makes it easy to see how competing technologies, government regulations, consumer fears and preferences strongly influence who wins. This being said, the book lays out lessons based on these examples that can help entrants as well as incumbents play the game smarter. There is a lot that can be learned from the history of other technologies.

One very simple foundation for the information economy that I had not given thought to is the fact that while an information supplier invests a great amount to produce information the first time, reproduction is cheap. (The book’s example was the high fixed costs to print the first book, but only variable costs to print the next few to many books.) The book then explained the advantages of this and gave some ideas and historical examples for leveraging these costs in the form of pricing schemes.

I thought it was also noteworthy to talk about going beyond business strategy to be successful in the information economy. Strategy, as we have defined it at Darden and as the authors have defined it, will not ensure success because of the influence of governments and the creation of standards, the high rate of change, and other factors. The authors also gave a list of seven assets needed for a technology to win a standards war. I’m not sure that any list is all-inclusive, but the list does make one think beyond the traditional strategic inputs to things like alliances, joining forces to set standards (or against setting standards, depending on which side of the positive feedback curve you are one), first-mover advantages, etc.

My last point of note is the authors’ significant portion of the book on lock-in. The insight that I gained from this part of the reading is that lock-in is not a “yes or no” concept. Their thought is that lock-in is a good thing and a bad thing and both incumbents and entrants need to manage the level of lock-in that they obtain with their consumers and suppliers. Its almost as if you want to get lock-in early, but keeping it for too long without refreshing technology is like becoming entrenched and you can end up losing to new entrants.

In sum, the first eight chapters of the book were an enjoyable read and I learned a lot about information technologies as well as introducing any new technology, and I would reserve that last two for those truly getting into the information-selling business.