Slide 1Slide 2Slide 3Slide 4Slide 5Slide 6Slide 7Slide 8Slide 9Slide 10Slide 11Slide 12Slide 13Slide 14Slide 15Slide 16Slide 17Information Rules:A Strategic Guide to the Network EconomyRights ManagementCarl ShapiroHal R. VarianModified by Kapil Kondapally & Sreekrishna JammalamadakaInformation RulesSpring 982Intellectual Property Law•“Intellectual property law cannot be patched, retrofitted, or expanded to contain digitized expression…Information wants to be free.” John Perry Barlow, Vice-Chairman, Electronic Frontier Foundation•Is he right? Is Copyright law hoplessly outdated?Information RulesSpring 983Production and Distribution•Regular Business field The changes in distribution and production costs can be observed through the following examples:–Tape recorder lowers production, but not distribution costs–AM radio broadcast lowers distribution costs, not reproduction costs•Information field (Digital)–e-books lower both production and distribution costsInformation RulesSpring 984Make Lower Distribution Costs Work for You•Information is an experience good•Must give away some of your content in order to sell rest. Ex: Movie trailers,Table of contents.•http://www.cs.cornell.edu/wya/DigLib/•Can use product line/versioning (online,hard copy)–National Academy of Sciences Press and MIT–Easy to read, hard to printInformation RulesSpring 985Demand for Repeat Views•Give away all your content, but only once•Music, books, video have different use patterns Book stores allow people to browse through the content of their books Ex: Borders•Adults Ex: “Good morning Vietnam”, Matrix- movie•Children (prefer repetition.. all formats)–Barney: free videos–Disney: sued day care centersInformation RulesSpring 986012345678910Demand for Repeat ViewsChildren VideosSongsMoviesReferenceNovelsMedia TypeUseInformation RulesSpring 987Demand for Similar Views•Free samples direct customers back to you•Playboy•Ex: http://www.yolatengo.com/audio.html•McAfee Associates–$5 million in first year–$3.2 billion market value by 1997–Half of virus protection marketInformation RulesSpring 988Demand for Complementary Products•Give away index(table of contents) and sell content–Wall Street Journal, New York Times, Economist give away index•Free content, organization/index is what matters –Farcast sells current awarenessItem being soldItem given awayIndexIndexContentContentComplementaryInformation RulesSpring 989Illicit Copying•Timely information: not a big problem Ex: Sports scores, Stock quotes•Cheap information: not a big problem Ex: Wall street journal provides 2 week old info. for free and charges for older archives.•Negative feedback: the bigger you are, the easier to detectInformation RulesSpring 9810Lower Reproduction Costs•Perfection isn’t as important as commonly thought•Digital Audio Tape (DAT)–SCMS inhibits copies of copies•Analog video tapes: –1979: 4 blanks for each pre-recorded–1992: 1 to 1Information RulesSpring 9811Rise of the Library, video - Historical Examples•Circulating libraries–1741: Pamela–1000 libraries by 1840•Video stores–Video rental as prelude to purchase–Growing the marketInformation RulesSpring 9812“Now, these machines are advertised for one purpose in life. Their only single mission, their primary mission is to copy copyrighted material that belongs to other people.” “…(W)e are facing a very new and a very troubling assault on our fiscal security, on our very economic life and we are facing it from a thing called the VCR”- Jack Valentihttp://cryptome.org/hrcw-hear.htmSlide taken from the Week 2 lecture by Terry Harrison & Frank McCownInformation RulesSpring 9813Choosing Terms and Conditions•Revenue = price x quantity•More liberal terms and conditions(a trade-off is needed)–Increases price–Decreases quantity sold•To avoid illicit copying Microsoft introduced the Activation Key(Example)Information RulesSpring 9814Transactions Costs•Site license v individual licenses?–Who can distribute more cheaply?–How effectively can group aggregate value?Site Licences for Software Office SuitesInformation RulesSpring 9815Lessons•Two challenges: cheap production, cheap distribution•Cheap distribution: helps advertise by giving away samples•Cheap distribution: good for bitleggers, but their need to advertise helps control themInformation RulesSpring 9816Lessons, continued•Basic tradeoff in terms and conditions: more liberal terms make product more valuable buy may reduce sales•Site licenses and other group pricing schemes are a valuable tool•The important lesson is to maximize the value of your intellectual property, not to protect it for the sake of protection.Information RulesSpring 9817That's all