“Information Rules” is a competitive strategy framework articulated by economists Carl Shapiro and Hal Varian in their book of the same title released in 1999. The framework concerns companies in the knowledge industry that produce information products like software, recorded music and proprietary networks. The following aspects help to evaluate a knowledge company’s competitive advantage:
- High up-front, low incremental costs
- Network effects
- Customer lock-in
- Giveaways
- Link-and-leverage
High up-front, low incremental costs
Many knowledge products are costly to come up with for the first time but once in digital form, they are rather inexpensive to replicate and distribute. For example, Microsoft’s costs to create a new Windows disk is high but replicating and distributing that disk is extremely cheap. Windows 2000 cost Microsoft $2 billion to create but subsequently, mass reproducing them was actually inexpensive. Therefore, knowledge-based companies enjoy increasing, and not ...
