1. 1 Key Notions of Versioning and the Information Good

2. 2 What is Information? Information is anything that can be digitized e.g. text, images, video, music, data The value of information for the consumer is in itself rather than how it is stored, but how it is stored and distributed can have profound implications for how much consumers pay for information. Information has special production cost characteristics Information also has special demand characteristics

3. 3 Production Cost Characteristics Information is expensive to produce initially, but cheap to reproduce. There is no significant capacity constraints for production There is possibility of economies of scale: Declining average total cost curve.

4. 4 Consumption Characteristics Information goods are usually experience goods Information goods are usually experience goods consumers often cannot evaluate such products without consuming them consumers often cannot evaluate such products without consuming them Network externalities possible Network externalities possible

5. 5 Marketing Information Goods ► If you are selling an information good, you have to differentiate your product and/or seek cost leadership ► customize your product ► sell multiple versions tailored to different customers ► seek first-mover advantages For more on this topic, see C. Shapiro and H. Varian, “Information Rules”

6. 6 Why Differentiate Your Product? ► Market segments exist ► people’s value for information differs ► Product differentiation is a source of market power ► marketing, branding, developing loyal customer base ► Product differentiation is an aid to price discrimination ► charging different prices for similar products

7. 7 Strategies to maintain customers and positive economic profit: Differential Pricing -Personalize the product to the customer Know the customer: collect demographics, track behavior e.g. Amazon’s book recommendations -Version the product Offer a product line and let customer choose e.g. Airline pricing -Group pricing Price based on group membership/identity e.g. New York Times rates

8. 8 Some Dimensions along which to version information goods: - Time (Fed Ex) - User Interface (NY Times on web versus paper) - Speed of operation (Mathematica) - Format (Lexis/Nexis, Victoria’s Secret) - Features (Tech support for software, printer capability) -Etc.

9. 9 Versioning of an Information Good: Key Questions 1)Is the product “versionable” without significant extra cost? 2)Can you find original ways for versioning? 3)Can you version physical goods? How?