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InReview – Issue 14

Information Rules: A Strategic Guide to the Network Economy by Carl Shapiro and Hal R. Varian; Boston, Harvard Business School Press, 1999; x, 352 pp.

Carl Shapiro is Professor of Business Strategy and Hal Varian is Dean of the School of Information Management and Systems at the University of California at Berkeley.

Can you build a successful business by giving things away? How do you lock in a customer and make it very difficult for them to switch to the competitor? Under what conditions do the lock-in strategies fail and your customers walk away? These and many other questions are discussed in Information Rules. Unlike many books on the New Economy, this one contains a minimum of hype and provides significant insight that goes beyond analysis to ideas that can be practically applied in any business.

Reading Information Rules on this side of the “dot com” failures is particularly instructive, because the authors take care to spell out the economic principles and their limits. For example, they suggest it is a good strategy to give away part of your product (p. 86), but it requires careful thought to figure out which part to give away and how to make money on the rest. Many in this marketplace were not so discriminating, to their death.

While this is a modern book about the information economy, it is deeply rooted in history. Many things about the New Economy are indeed new, but most of the principles are rooted in the past. Sound economics are sound economics. “History may not repeat itself, but it rhymes,” the authors say (p.94). The principles in the book are well illustrated, with both contemporary and historical examples.

Shapiro and Varian go to some lengths to avoid cliches, even saying, “We won’t tell you that devising business strategy is like restoring an ecosystem, fighting a war, or making love.” Yet they do tell us “Infrastructure is to information as a bottle is to wine: the technology is the packaging that allows the information to be delivered to end consumers.” Writing a serious book with popular appeal can cause some tension.

A nice feature of Information Rules is the summary of key principles at the end of each chapter, along with an extensive bibliography. If you are running a business, this book is worth studying, not simply reading, because the test happens every day.

Reviewed by Al Erisman

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Making the Cisco Connection: The Story Behind the Real Internet Superpower by David Bunnell with Adam Brate; New York, John Wiley & Sons, 2000; xxi, 218 pp.

David Bunnell, CEO and Editor of Upside Media, former editor of PC World magazine, has written a brief history of Cisco Systems, one of the truly outstanding corporate successes of our time. Cisco (name inspired by nearby San Francisco) was founded in 1984 by Stanford graduate students Sandra Lerner and Leonard Bosack.

Lerner and Bosack founded Cisco when Stanford declined to support their work (developing routers to enable incompatible computers and networks to be linked together into one large system). In the early days Cisco was funded by credit card debt and built by a small group of 100 hour/week enthusiasts. The founders were obsessive about customer service from the start.

In 1987, Cisco was funded by Sequoia Capital (75 other VC firms rejected them before Sequoia agreed!) with $2.5 million (which became $10 billion when Cisco went public in 1990). $1000 invested in Cisco at the IPO in 1990 was worth $100,000 by 1999. Also in 1990, founders Lerner and Bosack left Cisco over irresolvable differences with the management installed as part of the Sequoia deal. John Mortgridge was CEO from 1988-95; John Chambers has been CEO since 1995.

Cisco’s corporate culture and its growth strategies set it apart from many of its competitors. The culture is unusually tight-knit, productive, happy, and driven. The strategy has relied on acquisition and integration of many small, new companies whose technological innovations Cisco wanted to purchase and exploit. Cisco’s capacity to choose these acquisitions wisely and then to integrate the new companies and their people into the Cisco culture has been extraordinarily successful.

Cisco has ridden (and in part created) the tidal wave of interest in the internet. Today, they think big about the possibilities and needs of a truly global communications system. It is difficult to criticize this successful, healthy, and benevolent operation but one concern this book raised for me was that, due to the high demands (and high interest, to be sure) of Cisco, “Local communities have lost the involvement of the employees of Cisco and other similarly high-commitment companies. And many of those communities are falling apart” (p. 100). Is participation in a high-powered, successful business only available to those willing to risk family and friendships and neglect neighbors, community, and nation? If that is the case, it is a very high price now, and will be immensely higher in years to come. It would be great if Cisco could help us find our way here too.

Reviewed by David W. Gill

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The New New Thing: A Silicon Valley Story by Michael Lewis; New York, W. W. Norton, 2000; 269 pp.

Michael Lewis is an editor, author, and a fellow at the University of California, Berkeley. For many of us the “start-up” world is something we read about, but have not experienced day-to-day. We know of the long work-weeks, the high risk, the process of going through the Initial Public Offering, and the small number that come out the other end with billions of dollars. Michael Lewis helps us understand what this feels like in this biography of James Clark, founder of Silicon Graphics, Netscape, and Healtheon.

Lewis is a quality journalist and an outstanding writer, with considerable wit and insight. The result is an outstanding read about a person of incredible energy, ideas, ego, and focus. Along the way, we are taken along inside the startup world, feeling the 80 hour and greater work-weeks and the highs and lows of opportunity and failure. We get to ride on the toys of the very rich, whether a helicopter or a sail boat with a mast whose size is determined by the goal of being largest in the world. We get to experience the failure of technology when it is implemented in an incredibly complicated way.

Anyone in search of a good read, who is starry eyed about the Silicon Valley startup world, or who still thinks that money buys happiness should read this book. This book is funny, sad, quick paced, and insightful. It is free of most of the jargon found in many books about high tech. I highly recommend it.

Reviewed by Al Erisman

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Culture.com: Building Corporate Culture in the Connected Workplace by Peg Neuhauser, Ray Bender, and Kirk Stromberg; Toronto, John Wiley & Sons, 2000; xxii, 359 pp.

Neuhauser, Bender, and Stromberg are business consultants. Culture.com is a very valuable book for at least two reasons. First, it is fully aware of how technology is radically changing business and it embraces this change at a fundamental level. Second, it doesn’t give up on corporate culture even if the transition to e-business poses huge challenges to traditional cultures. “What are the key elements of culture that will function as the glue to hold the organization together? How do you create a strong corporate culture in a virtual organization?” (p. xvi).

“Think of a company’s infrastructure as being composed of hardware, software, and peopleware. The corporate culture is the peopleware in action” (p. 3). Neuhauser, Bender, and Stromberg’s opening chapter defining culture (core values, and assumptions, behaviors and habits, symbols and language) and its importance is one of the best summaries I have seen. They follow with nine chapters on key aspects of the transition to a clicks-and-mortar world: coping with speed and intensity, building culture in a virtual organization where people depend heavily on electronic connections, game plans for transitions from traditional to e-business culture, building teams today, transforming communication patterns, knowledge management and smart cultures, linkages to other organizations, and the nature of leadership in this environment.

If the culture is not in alignment with the business strategy, the latter will not be successful. Culture.com is thus a valuable book for those seeking business success. But the corporate culture is also the locus of a company’s values and ethics. If the ethical values are not embedded in the culture, they will do little good when hauled out (in the form of an ethics code) in crisis situations. The issues raised by this book, and the suggestions made by its authors, are right on target.

Reviewed by David W. Gill

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