After reading the book “Information Rules” by Shapiro and Varian, I will like to share with you some thoughts that I think are important in the business of software and information management.
First thing what I personally like is the fact that it has and Economic-business view. Actually it starts by describing and showing that regardless of technologychanges, the economic laws prevails, and that funded economic principles can be a baseline to manage current and future information- oriented business environments.
What is information?
Basically everything that can be digitized, codified and-or classified is information, weather data, sports results, stock information etc. All this data is it is useful to someone it has a value and that isinformation.
The cost of information: How to set a price
The cost of information is subjective, it takes it value based how it can be produced and how important is for the user that demands it. Based on this you can manage different approaches for an information business. With current technology Information is costly to produce but cheap to reproduce, once information is processed and presented, it canbe copied, photocopied or reproduce with ease.
So information price is based on its value, not its cost. Once the “first copy” of a product is achieved, the cost for reproducing it is marginal and has no limit in production, this means that a CD of a Book can be copied almost infinitely, a website can be seen simultaneously by many people.
The key to manage price of information is related toyour position in the market, if you are in a dominant position you have more chance to manage price and profit, but even with this advantage you have to take in account that other competitors can be building some similar information and since the first copy is achieved costs are marginal, this could lead to a price-war.
In the other hand, a differentiation in your product lead you tospecialization, also the personalization leads to more value to information.
There are three ways to differentiate your pricing of an information product:
One approach to determine, measure and offer in this way are met using test accounts (free account for a limited usage, or beta apps that anyone can use and test so then you can start charging. This has to do with “Network effect”, you make more value ifmore people uses your product, even if most of the users are using it for free (Ex: Flickr, Gmail etc. Both have a paid account or premium account).
This free-sample approach also create a “Lock-in” with the user since once is adopted or acquired, switching can be costly. Examples could be so simple as changing an email address can cost to loose contact with some people or the cost the let itknow the change, other cost can be switch database platforms and have considerable downtime in the process.
One way to get to know how your information is used is to present your users with a menu of different versions of your information service, and see what they choose.
Select and define the aspects of your product that are important depending of the users and depending of thekind of information. Here are some versioning strategies:
• Delay. In the case of realtime data you can have cheap or free version for delayed data, vrs real time data and interaction with your customer for a paid fee. Examples: Stock quotes, weather information, traffic information, sports information.
• Better user interface for paying customers, add-free sites, a pleasant, efficient experience.• Image Resolution. Examples: Stock photo sites. • Flexibility to do better things or other thing for a different version of same product. • “Nagware” - the case of shareware software that can be downloaded it for free, but the
software interrupts with registration popups or reminder, if it is useful it could worth to pay
the registration. • Support, users will expect to pay for free software...