Information Rules: A Strategic Guide to the Network Economy Rights Management Carl Shapiro Hal R. Varian Modified by Kapil Kondapally & Sreekrishna Jammalamadaka

Information Rules Spring 98 2 Intellectual 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 Is Copyright law hoplessly outdated?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 Rules Spring 98 3 Production 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 costs

Information Rules Spring 98 4 Make 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. Can use product line/versioning (online,hard copy) –National Academy of Sciences Press and MIT –Easy to read, hard to print

Information Rules Spring 98 5 Demand 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 centers

Information Rules Spring 98 6 Media Type Use

Information Rules Spring 98 7 Demand for Similar Views Free samples direct customers back to you Playboy Ex: McAfee Associates –$5 million in first year –$3.2 billion market value by 1997 –Half of virus protection market

Information Rules Spring 98 8 Demand 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 awareness Item being sold Item given away Index Content Complementary

Information Rules Spring 98 9 Illicit 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 detect

Information Rules Spring Lower 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 1

Information Rules Spring Rise of the Library, video - Historical Examples Circulating libraries –1741: Pamela –1000 libraries by 1840 Video stores –Video rental as prelude to purchase –Growing the market

Information Rules Spring “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 Valenti Slide taken from the Week 2 lecture by Terry Harrison & Frank McCown

Information Rules Spring Choosing 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 Rules Spring Transactions Costs Site license v individual licenses? –Who can distribute more cheaply? –How effectively can group aggregate value? Site Licences for Software Office Suites

Information Rules Spring Lessons 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 them

Information Rules Spring Lessons, 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 Rules Spring That's all folks!!