Shapiro, Carl, and Hal Varian. Information Rules: A Strategic Guide to the Network Economy. Boston: Harvard Business School Press, 1999.

Shapiro and Varian apply economic principles to the arena of information goods. An information good is anything that can be "encoded as a stream of bits." Such goods have some distinct characteristics:

Shrewd businesses in this economy can do several things to promote their influence and profit:


As a potential consumer of various types of ICT products, Shapiro and Varian provide a number of important lessons for the Kellogg Foundation:

  • Be on the look-out for vendors' attempts to lock customers into their products. Establishing dependency on a specific vendor can be very risky, since that vendor could go out of business or demand upgrades to prohibitively expensive future releases. "Lock-in can be a source of enormous headaches, or substantial profits, depending on whether you are the one stuck in the locked room or the one in possession of the key to the door." There is no way to eliminate switching costs entirely, but some options are much more restrictive than others. In some cases, you may at least be able to "seek an initial 'sweetener,' to compensate you for anticipated lock-in, if you can see it coming.
  • "Remain conscious of potential complementary products and alliances between companies. Committing to a product that does not work well with other popular products is always more risky.
  • Be wary of "vaporware." Just because a company claims it will soon be releasing a product with a given set of features does not mean it will do so on time or even at all. Such claims can be part of the market posturing vendors use to scoop the competition, and using them as a basis for decision making can lead to problems.
  • Think in terms of the business model of your suppliers. How are they planning to make money from you? If some component of a system seems unreasonably inexpensive this may indicate a vendor's plans to charge later for some complementary product.

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