July 2001 Archives

My comments on "Versioning: The Smart way to Sell Information" (Carl Shapiro and Hal R. Varian, Harvard Business Review, 1998) written July 29, 2001 for Kokuryo-sensei's class.

Information Is a Service, Not a Product

By Joichi Ito
July 29, 2001

In their article "Versioning: The Smart Way to Sell Information" (Shapiro and Varian) suggest that by creating different versions of software and information products, priced differently with slightly different features, publishers can provide products for each of their customer segments and use the segmenting to allow some versions to be highly priced. They explain that prices should be based on the value to the customer rather than cost of production.

Although I found the article useful in thinking about the current models of versioning, especially from a market segmenting perspective, I believe there is a much more important lesson to be learned in the information distribution business model.

Treating information as a static product capable of being packaged and distributed or of being stored and protected in a server has many difficulties. Copyright will become exceedingly difficult to enforce and people who understand the nature of information will see through the segmenting as in the case of airline tickets, which they mention.

I believe the only robust model for information in the future is a services model. People will pay for live contact or highly customized information. People will see value in information as it is produced. I think that non-customized, already-produced packages of information will continue to drop in value.
As long as people continue to be familiar with old marketing and media models, many of the strategies in the article will continue to produce results. However, all businesses should assume that customers will not be willing to pay more just because it is 努orth more to them.・We must try to find business models that allow pricing to reflect both the value to the customer and the work done to deliver the value to the customer.

Services such as support, community, customization, live audio and video streams and other less scalable aspects of information distribution are the easiest to charge for. I believe that
servers that store the information and software that allows users to search the information (New York Times and Business Week) to a lesser extent are still 電elivery services・ We should focus our attention on the point that the company is providing a storage and search service, rather than focusing on the point they are providing more 妬nformation・to paying customers.

As peer to peer networks become easier to use and the cost of hard disks plunge, just having a lot of storage and search capability will not be enough. In addition, although the law can try to prevent the copying of music, software and other digital assets, I believe that it will become quite difficult. Companies and artists will have to come up with models which do not rely on their ability to control copying.

Another way mange this dilemma is to receive payment up front before delivering or even working on the software or information product. 典he Wall Street Performer Protocol・(Chris Rasch, 2001) describes a software completion bond mechanism for funding open source software development. Other ways to do this might be for fans to pre-pay for first rights to receive a new music track from an artist, or for artists fund recording by integrating this with paid performances.

Although I believe that copyright will continue to cost more and become more difficult, it is important to note that it will take time for the current information infrastructure to make it obsolete. Also, buying habits are strongly influenced by media, and although I believe that the Internet will create a new much more active media, mass media still has the most impact on the public. Therefore, I believe all companies and artists should keep in mind that long term trend is away from packaged information distribution, there is still a great deal to be gained short term from finding creative solutions for copyright, versioning, and marketing.

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