WHEN 'RULES' DON'T APPLY
January 6, 2000
SMART Letter #32 - January 6, 2000
Copyright 1999 by David S. Isenberg
isen.com -- "the user-to-network interface"
email@example.com -- http://www.isen.com/ -- 1-888-isen-com
> When 'Rules' Don't Apply: A Review of 'Information Rules'
> Smart Remarks from SMART People:
Don Norman on 'Information Rules'
Name Withheld by Request on Newbridge
Company Policy at Teleglobe on Teleglobe
A 'bot at F* Magazine on Buzzwords
Dave Hood on Telco navel-gazing
> Conferences on my Calendar, Copyright Notice, Administrivia
WHEN 'RULES' DON'T APPLY: 'Information Rules' only partly
explains the economics of the communications revolution.
By David S. Isenberg
If you want to understand the boundary between monopolistic
behavior and aggressive competition, or if you need a concise
review of how standards shape business strategy (and vice
versa), then you should read 'Information Rules' by Carl
Shapiro and Hal R. Varian (Harvard Business School Press,
If you need to understand the phenomenon of lock-in, or why
competition in networks so often trends toward winner-take-
all, or how Microsoft fends off attackers like Netscape,
reading 'Information Rules' will help, too. Economists Shapiro
and Varian have crafted a useful book that "is based on
durable economic principles [and seeks] models, not trends;
concepts, not vocabulary; analysis not analogies." (Page 18)
But there's something hinky about 'Information Rules'. Maybe
it is the authors' complete absence of humor - "If all else
fails, sue. No, really." (Page 288)
FCC commissioner Harold Furchtgott-Roth, an economist himself,
tells a joke about two economists who go tiger hunting: one
shoots right, the other shoots left, and an intact snarling
tiger leaps out of the jungle right in front of the hunters.
The two overjoyed economists celebrate, "We got it!"
Maybe it is that the authors barely acknowledge - and never
confront - the limits of their so-called durable economic
principles. 'Hunters kill tigers,' might be a durable
principle, but in the above joke there's much, much more going
The authors' approach to versioning is illustrative. They
present several cases in which businesses bring different
versions of a virtually identical product to market at
different prices according to different customers' willingness
to pay - this despite the fact that "with information, it
generally costs as much to distribute the fancy version as the
plain version. In many cases, in fact, production of the low-
quality version incurs additional costs, since it is often a
degraded form of the high-quality version." (Page 63)
The authors call this process "value-subtracted." They all but
say, 'See how little you can sell to those ignorant suckers
and how much you can get them to pay.' They ignore that ever-
so-durable version of economics in which the customer gets
honestly valuable goods for radically reduced prices. They're
light on explaining key processes of the networked economy,
such as economic growth and positive elasticity. To them, it's
a zero, zero, zero-sum world.
Shapiro and Varian seem unimpressed by the special moment in
which we live, in which unprecedented abundances of
computational power and information transmission and storage
amplify human reach by cascading factors of ten, seemingly
overnight. Nor do they appreciate that these improvements
reduce costs so radically that they enable entirely new ways
of doing business.
They do discuss how advertising and the collection of
demographic information support free e-mail and online news.
But there is no perspective on how advertising has shaped
media so far, nor is there any treatment of the privacy issues
raised by online personal-data-driven advertising.
MISSING THE POINT
Furthermore, there is little appreciation of the kind of
versioning that first builds a relationship based on "free"
which, once established, motivates people to buy the book or
record, subscribe to the publication, or attend the conference
or concert. Nor do the authors acknowledge that customers and
suppliers that enter into such relationships tend to hire each
other, invest in each other and solve each others' problems.
This love affair between customer and supplier, based on
pleasing each other in ways that supercede money, has been
part of small business for longer than money has existed. Now
it can evolve online so that larger businesses can relate to
more people in more ways. The authors miss this point so
completely that they discuss the Amazon.com associates program
as if it were a customer loyalty program like airline miles or
Green Stamps. The Amazon associates program is not about
customer loyalty - it allows book enthusiasts (customers or
not) to become sales agents, extending Amazon's reach in a way
that would be impossible without information technology.
I admit to pushing the envelope of the authors' intent, which
is to show how incumbent, mainstream economic thinking
translates to the information age. Nevertheless, Shapiro and
Varian are simply wrong to assert that "Technology changes.
Economic laws do not." (Pages 1-2) The appearance of money
itself changed economic laws. So did double-entry bookkeeping.
Today, sophisticated data-driven modeling is adding new
dimensions of understanding - perhaps, even, control - to
economics. Economic laws, like the laws of every living
science, do indeed change.
[The article above originally appeared in America's Network on
January 1, 2000. Copyright 2000 Advanstar Communications.]
Smart Remarks by SMART People:
Don Norman on 'Information Rules':
"I felt more and more disturbed as I read the
book . . . The reason? The complete lack of
morality . . . There is no sense that the customers
so blithely talked about are more than economic
numbers . . . Whatever happened to doing right
because it was right, not because the economics
worked out? . . . Thus, if you have loyal, dedicated
customers and you are about to introduce a new product
that will make all their investments obsolete, what do
you do? Answer -- soak them -- after all, those dummies
are loyal -- they will follow you no matter what you
do to them . . . So if you do read 'Information Rules',
then please read the Cluetrain Manifesto afterwards to
get that bad taste out of your mouth."
[Don's complete review is at http://jnd.org/dn.pubs.html/.]
[Don and I, and the rest the Merrill Lynch Technology Research
Advisory Board very, very warmly welcome its newest member --
['The Cluetrain Manifesto' (the book), and 'Information Rules'
(also the book) are now available at one-click, multi-click
and immersive experience bookstores everywhere.]
Name Withheld By Request writes:
I've made it only to the second paragraph, first
article of SMART Letter #30 thus far because I was
stopped in my tracks. "And the Canadians have some
apparently great companies like Newbridge."
1. Blown early leadership position in US ATM
market continues to erode.
2. Zero-return partnership strategy.
3. Inability to sell at executive level in
service provider accounts.
4. Resources drained by ill-advised attempts
in enterprise space.
5. Close to zero for the category with the CLEC
market (e.spire only).
6. Stock is in toilet and 10% staff cuts currently.
You did put the word "apparently" ahead of the word "great".
[I also got a note from a PR person at Teleglobe reacting to
my "apparently great . . . Teleglobe (I think)" comment. He
wouldn't let me quote him because Teleglobe only wants
quotes from officers of the company to go on the record.
Hmmm . . . reminds me of another big telco I used to know.
Our dialog was followed by email from Bob Collet (a
Teleglobe officer who is one of the reasons why I *do* think
that Teleglobe is apparently great) that outlined Teleglobe's
Internet strategy. It's a pretty good strategy. But why'd
Teleglobe buy Excel (the long distance company)?]
A bot (working the mailbox of a SMART Person who writes for a
major business magazine that is named 'F' followed by several
letters) reacted to SMART Letter #30 as follows:
"Your email was rejected by the system's email filter
for the following reason(s): Too many buzzwords.
(ex. scalable, best-of-breed, robust.) Please consult
www.buzzkiller.net for more information."
Then, when I sent exactly its own words back to it as a
test, it rejected them too. Buzzkiller, kill thy scalable,
robust, best-of-breed self.
Dave Hood (firstname.lastname@example.org) writes:
"I'm surprised you haven't taken aim at the OSI stacks
that emerged from thousands of monopoly-protected man-
years of navel-gazing in ITU, versus the IP stacks
that have evolved pragmatically over the years. The
established players in the telecom industry are still
bent on going OSI, which has such complexity that it
is a route to lifetime employment. In addition, OSI
offers more restricted choices of software and a far
smaller pool of expertise. Seems like an opportunity
for one of your commentaries. (Or did you already
do this one and I missed it?)
[Dave, you did a great job above -- whadaya need me for?]
CONFERENCES ON MY CALENDAR
March 1-3, 2000. Singapore. Internet World.
__I__NEED__SPONSORS__ to cover travel and living expenses;
Internet World might invite me to speak, and I might want to
go, but there's no big fat corporation behind me anymore, so I
can't just slap a business class ticket on my Corporate AMEX.
SMART People of the world unite -- help globalize the message
of the Stupid Network -- send isen.com to Singapore. Act
fast, while Sponsorship Opportunities are still available!
March 9-10, 2000. Washington DC. Legg Mason Investor Workshop
on "Investment Precursors (tm) in Telecom, Internet, and
Electronic Commerce." I'll be on a 'technology visionarys'
panel with SMART People Bob Lucky and Michael Powell. The
other two panelists, Royce Holland and James Crowe, haven't
gotten with it and signed up for the SMART Letter yet -- but
they will. For more information, contact the Legg Mason
Precursor Group at 202-778-1972.
TELECOSM ASIA (originally March 12-15) has been POSTPONED. As
soon as I have more information, I'll post it here.
March 20-23, 2000. Orlando FL. IBC "Unified Communications
Conference." It's not just "Unified Messaging" anymore! I
think I'm giving the keynote at 8:45 AM on March 21st.
Nothing on the web yet, but watch http://www.ibcusa.com/ or
contact Anne Bacon Blair email@example.com, 508-481-6400
May 7-12, 2000. Birmingham UK. World Telecommunications
Congress. I am an invited speaker for the session entitled,
"What's your network IQ?" Answer: Too high. For info, see
May 23-26, 2000. Laguna Niguel CA. VORTEX. Metcalfe has
invited me to speak this year! Cool, but what I really want
to do is run a session on "The Network We Really Want to Have,
and Why We're Not Building It." Nothing on the web yet. Stay
June 7-10, 2000. Toronto ON. TED CITY. My only role here is
as a paying member of the audience, but I think that Richard
Saul Wurman does a real job with his TED conferences -- every
one I have been to has had deep lasting impact. You can't
shoehorn yourself into his regular Monterrey CA stand in
February, but there are still a few spaces for June, and I
would like SMART People to be there if they can.
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Copyright 2000 by David S. Isenberg
firstname.lastname@example.org -- http://www.isen.com/ -- 1-888-isen-com
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-- The brains behind the Stupid Network --