Assignment: Economics of Things
Economics of Information versus Economics of Things In their groundbreaking book, Blown to Bits, Evans and Wurster argued that every business is in the information business.8 Even those businesses not typically considered information businesses have business strategies in which information plays a critical role. The physical world of manufacturing is shaped by information that dominates products as well as processes. For example, an automobile contains as much computing power as a personal com- puter. Information‐intensive processes in the manufacturing and marketing of the automobile include design, market research, logistics, advertising, and inventory management. The automobile itself, with its millions of lines of code, has become a computer on wheels with specialized computers and sensors alerting the driver of its health and road conditions. When taken in for service, maintenance crews simply plug an electronic monitor into the auto- mobile to analyze and identify worn parts or other areas in need of upgrades and repair.
As our world is reshaped by information‐intensive industries, it becomes even more important for business strat- egies to differentiate the timeworn economics of things from the evolving economics of information. Things wear out; things can be replicated at the expense of the manufacturer; things exist in a tangible location. When sold, the seller no longer owns the thing. The price of a thing is typically based on production costs. In contrast, information never wears out, although it can become obsolete or untrue. Information can be replicated at virtually no cost without limit; information exists in the ether. When sold, the seller still retains the information, but this ownership provides little value if the ability of others to copy it is not limited. Finally, information is often costly to produce but cheap to reproduce. Rather than pricing it to recover the sunk cost of its initial production, its price is typically based on its value to the consumer. Figure I-8 summarizes the major differences between the economics of goods and the economics of information.
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