This might be said of any good piece of expository prose. But the tone is one of ``whatever it takes, so long as it won't get you in trouble''. (See, for instance, the recommendation to build up as much data on your customers, without their knowledge, as possible, pp. 36--37.) The goal is, quite explicitly, to screw as much money out of your customers as possible. There is some consideration of what to do when you are a customer, but mostly the perspective is that of the screwer rather than the screwed. Even the final chapter on law and policy is mostly about how to keep out of trouble, rather than about what policy should be.
The leading ideas of Information Rules are three: lock-in and switching costs; supply-side economies of scale; and demand-side economies of scale. Let us examine them in turn.
``Lock-in'' refers to situations in which, once somebody starts using a given good, there are obstacles to switching to another. In perfect-competition equilibrium, the price a product can command is equal to the value of what customers would forego by not having it --- the ``opportunity cost'' of doing without it. In the case of lock-in, producers can extract additional rents, whose net present value will (in equilibrium) equal the cost to the customer of switching to some other supplier (plus the difference in the intrinsic value to the customer of the products, if any). Switching costs must be understood broadly here, as opportunity costs: the cost of switching word processors, for instance, isn't just the purchase price of the new software, but also the hassle of learning to use the new software, installing it, converting files, persuading other programs to work with the new files, persuading your colleagues' computers to read your files, etc.
Clearly, there's a tricky balancing act for businesses here. They'd like to have lock-in with substantial switching costs --- the size and value of their ``installed base'' is a major corporate asset --- but customers, at least canny ones, will want to avoid lock-in if at all possible, precisely so that they can avoid having rents screwed out of them.
Supply-side economies of scale are a consequence of high fixed costs and low marginal costs. Producing the first copy of a piece of software is expensive; the second and all subsequent copies are dirty cheap. The right strategy here will depend on how easy it is to sell the product to different customers at different prices. Ideally, from the company's point of view, every customer would pay a different price, exactly matching the value he attaches to the product (plus, potentially, lock-in rent); also ideally, the company would not have to pay for time to haggle to this price with each customer. This can be arranged by creating versions which differ in surprisingly minor ways in timing, features (it's very cheap to remove features from software, for instance), customer support, and so forth. And this isn't a new tactic, especially not in industries which also have fixed costs which are high compared to marginal costs, like book publishing and air travel. (As our authors note, the principle at the heart of the Byzantine complexity of ticket pricing is to get enough cheap seats filled to cover the cost of getting the 777 from Denver to O'Hare, and then squeeze the business travelers who absolutely have to be on the flight. Whether an appreciation of the rational essence of the process makes it any less awful is not, of course, for me to say.)
If switching costs are substantial, it can pay to give copies of your product away at-cost or even gratis, since you'll make money by extracting rents afterwards. This is especially important if demand-side economies of scale are large, bringing us to the third of the three main ideas.
In many cases, the utility of a pruchase to a consumer is independent of what other people decide to buy: when you're buying fruit, you don't care whether most people are buying apples or oranges or guavas. But in many other cases people do care very much what other people are buying: they want to fit in, or stand out, or fit in with a certain crowd, and that's much of the difference between cotton shirts which cost $20 and cotton shirts which cost $200. Even if one is oblivious to fashion, however, there are still times when you need to coordinate your purchases with others. Classical industrial examples have to do with interchangable parts, coordinating railroads and the like; in the case of computing and communications, with compatible formats and code. In these cases, the value of a product grows with the number of people who use it --- the size of the network of users. (It's sometimes argued that it grows as the square of network size, but the argument is very dubious, and not really that important.) This has a number of very important consequences.
First, consumers obviously want to be part of the largest network available. If there are several rival networks, then, ceteris paribus, the largest one will grow at the expense of the others.
Second, producers want their product to be in the largest network available. Partly this is straightforward selling where the demand is, but it's also more subtle. Recall that when we talked about lock-in we said that one component of switching cost is the loss of intrinsic value associated with using a different product. Even if your product is comparatively bad in itself, if your network externality is sufficiently large that switching cost could be quite substantial, and you could extract it in rent.
Three emphases:
Either of the two economies of scale would lead to increasing returns and imperfect competition. Supply-side economies of scale are very old, being one of the principle reasons why manufacturing industries tend to be dominated by small numbers of large firms, and they have been treated mathematically by economic theory (with varying degrees of rigor) since the 1930s. (Chamberlin, Robinson.) The principle innovations of recent economic practice are demand-side economies of scale and network effects. I strongly suspect that, now that we've had our noses rubbed in them, economic historians will find network effects in the past, but it's certainly true that they're manifestly of capital importance to doing ``informational'' business.
One point not sufficiently brought out here is that in the case of information as such, where the marginal cost is nearly zero (especially when compared to the fixed cost of producing the first token of that information), markets with free entry simply will not work. Anyone who buys the information can go into business to sell it as well, and doesn't have to recoup the cost of production, so marginal price will equal marginal cost, and the original producer will lose money. Rather than relying on some form of extra-market reward for the producer (patronage, charity, creative compulsions and other sorts of madness), governments make markets work by restricting entry into them, in fact by creating legally-enforcable monopolies in the form of intellectual property rights. But clearly this means that the political debates over the laws governing those monopolies, the various species of intellectual property law, become very important.
Demand-sensitive pricing is easier and more necessary, especially in the form of ``versioning''.
Creating and exploiting network externalities: when to try to extract the network benefits to consumers as rents; open vs. properietary systems (encourage openness and competition in complementary markets); evolution (keeping the network intact) vs. revolution (creating a new network). Standards-setting.
Bonus: these are not unique and utterly unprecedented features, unheard of before circa 1990; good examples from book publishing, airlines, etc.
Problems: what do you do in the face of competition from free software?
Problems: What should policy be --- for the sake of businesses, and for the sake of the general interest? (The Invisible-Hand arguments that the two will coincide fail here because the requirement of prefect, or at least reasonably good, competition is not met; these markets are extremely imperfect.) Perhaps this isn't relevant to a book on business strategy.
If I were to run a high-tech company, I would follow this book's advice religiously. (I'd still make a cock-up of things, of course, but that's another story.) Rather more importantly, if I were to put money into a high-tech company, I'd want to make sure that the people running it had at least read these ideas.