March 15, 1999

Pricing on the Internet: Part One As we make this rocky transition from brick-and-mortar business models to those of the information economy, we will need to be flexible in our thinking, even about the most basic ideas. Pricing is one of them. As Varian and Shapiro say in their new book (which I highly recommend) Information Rules (www.inforules.com), one of the distinctions of this era is that information goods are expensive to create—think of the costs associated with producing a movie, a CD, or the original manuscript of a book, etc.—but very cheap to reproduce and distribute. So in the online economy, price can no longer be keyed to actual costs–it must be tied more closely to the value of the product as perceived by the customer.

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