Book review: Information Rules

It's been a while since I posted a book review, as I've been busy with teaching and various research evaluation activities (this year I'm a panellist for both the Royal Society's Marsden Fund, and the Health Research Council). However, recently I did manage to finish reading Information Rules, by Carl Shapiro and Hal Varian. The book was published in 1999, but it maintains currency because information is so central to the modern economy. So, although the examples are dated (although, I appreciated many of the references from a time when I worked in business and internet consultancy), the underlying economic theory, business strategy, and government policy implications remain highly relevant. In fact, some sections, such as those that relate to the 'economics of attention', are arguably even more relevant now than they were in 1999.

Shapiro and Varian are strong on linking economic theory to real-world context. The book doesn't attempt to create a grand theory of the information economy, instead relying on existing economic theory, particular in relation to network externalities, switching costs and lock-in, and engaging with customers and competitors. These are all concepts that would be familiar to my ECONS101 students. Interesting, and perhaps surprisingly for a book on this topic, Shapiro and Varian shied away from making grand predictions of the future of the information economy. The book is all the more readable 24 years later as a result of that choice.

Much of the details in the book were not new to me, although I appreciated picking up some additional ideas on business economics that I can bring into my ECONS101 class. Nevertheless, there were also a few surprising bits, such as this on offering different versions of a product (e.g. software):

Then, when you are ready to develop the product for the lower-end markets, just start turning features off. Take the high-resolution images and produce low-resolution versions. Put wait states in you program to slow it down. Remove the buffering. Do whatever it takes to make the product relatively unattractive to the high willingness-to-pay users but still attractive to the next group down.

This hadn't occurred to me before, but makes complete sense for a firm that wants to price discriminate between consumers with high willingness-to-pay and consumers with lower willingness-to-pay. There are also some humorous bits, such as this:

Although software producers don't hang around outside of schoolyards pushing their products (yet), the motivation is much the same. If you can get someone to use your product when he or she is a student, you've got a good chance of building a loyal customer down the road.

I enjoyed this book, and it's a shame that it hasn't been updated since. It would be really good to have Shapiro and Varian's take on the rise of social media, smartphones, and artificial intelligence. Of course, there are plenty of other books on those topics, but it seems like a natural extension of this one.

Many readers won't get as much out of this book as I did. However, if you want to understand the information economy, then putting aside the dated examples, this is a good book to read.