Rethinking the Network Economy: The True Forces That Drive the Digital Marketplace [Hardcover]

The old rules still apply is the message of author Stan Liebowitz, economist and professor of managerial economics at the University of Texas at Dallas. The Internet creates value by lowering the costs of information transmission. Internet boosters went wrong when they sought to re-write the foundational laws of economics practiced by their bricks-and-mortar competitors. The impact of economies of scale depends on the industry, not on whether the company is internet-based or not.

The author also debunks three other "new" economy myths:
• The first mover advantage. Many internet companies mistakenly rushed to market with inferior products and services - and paid the ultimate price.
• Not everything can be sold on the Internet.
• Customer service still counts.

Liebowitz argues network effects, economies of scale; instant scalability and winner-take-all strategies provide advantages and disadvantages to the consumer. To know which products are likely to succeed on the Internet, the business person must consider:
• Size and bulk of the product relative to its value.
• Immediate gratification factor.
• Perishable items are not meant to be shipped over long distances.
• Some products need to be experienced.

This well-written, often witty book is the first I have come across that seeks to salvage lesions from what is commonly thought of as the "Internet Bubble." The impact of the Internet on our society is not to be trivialized. Information is now available in abundance. Discovering the lessons the media's boosters ignored, Liebowitz argues, if one seeks to learn what the media's "boosters" ignored to their peril, will benefit the reader.

Though some of his humor can make a businessman wince at times, say his: "And of course, once computers are taught to bend the truth, they can replace salesmen of all sorts".

I once observed a young American woman, on a sunny July day in 1974, practicing her college Italian in one those street bazaars in Florence. I think it must have been written in some Intelligent Woman's Guide to Tourism in Cute Mediterranean Countries, that haggling was expected. When the woman responded to a merchant's price quote with a lower offer, he said in perfect English: "Look lady, it's hot, I'm hungry. If you insist on haggling, come back after lunch, but you're going to pay the price I just gave you anyhow."

She bought the dress, but you can find the reason for the merchant's attitude in chapter 4 of this book.

Also, I'm old enough to have been attended to, as a child, by a doctor who made house calls. The reasons why doctors no longer do so are to be found in Liebowitz's explanations of the efficiencies of supermarket shopping: Customers prefer to substitute their uncompensated time for the paid time that delivered groceries would necessarily entail.

So, why did so many smart people lose billions of dollars trying to make viable businesses out of delivering ice cream, chicken, and orange juice? Liebowitz hazards a few guesses, not all of which are going to sit well with some of his colleagues who gave advice that may have inadvertently encouraged such nonsense. Those of us with first-hand experience of how expensive it is to operate trucks and pay their drivers, who were scratching our heads watching refrigerated trucks drive through our neighborhoods, wondering how this could possibly be a cost effective way for consumers to shop, can have a lot of fun reading about it though.

The penultimate chapter, "Copyright and the Internet" has some, perhaps, counterintuitive arguments to make about digital reproduction and transmission of copyright materials. Including a novel explanation (to me) of how charging libraries for photocopying articles from scholarly journals actually increased the importance of those journals to scholars. This seems to me a major lesson to be learned in the current contentious copyright debates.

In short, Re-Thinking the Network Economy, packs a lot of useful information into its 224 pages. It's erudite, witty, and might have saved the New Economy, and its investors, tens (and maybe hundreds) of billions of dollars had it been published even five years earlier.