by Carl Shapiro & Hal R. Varian. 1999, 352 pages, $29.95, ISBN 0-87584-863-X. Published by Harvard Business School Press

The arrival of the Internet and the information explosion it created has made it possible for inventors and entrepreneurs to build a business from scratch to worldwide marketing capability in a very few years. The authors of this book take the position that all too often we are deluded into thinking certain tried-and-true economic principles have been abolished by the new Internet economy. They argue their position without jargon and with examples taken from the real world.

While the old pricing ratios and old pricing strategies may not apply in the information age, new pricing ratios and new strategies have taken their place. Information goods can be costly to produce but cheap to reproduce. For example, a copy of a 100 million dollar movie on videotape costs a few cents to make. So pricing cannot follow, say a 20% markup rule, when the unit cost is essentially zero -- "you must price your information goods according to customer value, not according to your production cost".

Several chapters cover pricing strategies and how to maintain control when some "view the Internet as one giant out-of-control copying machine". These strategies involve methods for differentiating your product from your competitors, avoiding sky-high initial pricing that encourages competition and customizing. Interestingly, they note that the first "one-to-one" marketing strategy was "first described by economist A.C. Pigou in 1920".

Sometimes literally giving a product away works. The book describes how the former school teacher (Sheryl Leach) that created Barney gave free videos to day care centers and others located near the stores selling the Barney tapes. A note inside told parents where the stores were. It worked magnificently and Barney is now one of today's icons.

The development of digital watermarks has provided one tool for controlling piracy of your web presented material.

An important information-age problem is recognizing and dealing with "lock-in". The writers compare cars with computers. You can switch from a Ford to a Chevy with no trouble -- but changing computers may obsolete your present software. How do your convince customers to switch to your product or service when a switching cost is involved? The authors discuss several strategies.

Problems with "lock-in" and "switching costs" also often occur when you purchase durable equipment and service contracts. The authors advise you to carefully consider the costs of being locked-in to your supplier's parts and services. They especially caution regarding "evergreen contracts" which automatically renew.

Many interesting historical examples are used to drive home points. Edison, for example, with regard to establishing standards, invented the word "Hello" for answering the phone. He was hard of hearing and the English "Hallow" didn't grab attention as well. Incidently, Alexander Graham Bell pushed for "Ahoy". The battles for standardizing railroad gauges and the classic standard battle that established AC power of DC power are detailed. (No mention of Tesla -- a shame.)

The enormous role "blocking patents" can play when a formal standard-setting process is taking place within and industry is discussed. Most people think of industry standards as being dictated by the mighty corporations, but if the small guy is not invited to the table, his firm "is not required to license its patents on fair and reasonable terms". The government may also monitor a standard-setting procedure with regard to monopoly considerations. When the steel electrical-tubing people attempted to stack the deck, the plastic electrical-tubing people cried foul and won.

Yet another interesting historical example is given in the discussion regarding how the concept of reasonable royalties and "just price" arose. It goes back to medieval times -- "the just price of a horse was the price that would prevail at the open market at the annual fair, not the price that happens to emerge from a traveler in desperate need of a horse".

Like most growing fields, the Internet has generated many unique and delightful terms. Vaporware is one such term. That is the promising of a new product and not delivering or delivering very late. This business tactic has been used by even the biggest (IBM, Microsoft). but as the authors note, it has often boomeranged.

While promising too much too soon is dangerous, the book makes the point that in this age of rapid technology progress "rigidity is death". The French became world leaders in the 1980s with their Minitel system, but today only 3% can access the Internet. A case where success also resulted in a high switching cost.

Each chapter of the book concludes with "Lessons" which are capsule summaries of the chapter's main points. Like the rest of the book, legalese and the jargon of academic economic courses are completely avoided.

The book is so readable and practical one can only hope other professors will use it as an example of how to write without arcane technobabble.