SMART Letter #32
January 6, 2000



             SMART Letter #32 - January 6, 2000             

             Copyright 1999 by David S. Isenberg            
 -- "the user-to-network interface"    -- -- 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, 

Boston, 1999). 

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.


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 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]

[Don and I, and the rest the Merrill Lynch Technology Research 

Advisory Board very, very warmly welcome its newest member -- 

Hal Varian!]

['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 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 ( 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?]


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 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 or 

contact Anne Bacon Blair, 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.  


COPYRIGHT NOTICE: Redistribution of this document, or any part 

of it, is permitted for non-commercial purposes, provided that 

the two lines below are reproduced with it: 

Copyright 2000 by David S. Isenberg -- -- 1-888-isen-com  


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David S. Isenberg      , inc.            888-isen-com (inside US)          908-654-0772 (from abroad) 


     -- The brains behind the Stupid Network --