A Reaction Paper to the Article “Versioning: a Smart Way to Sell Information” by Carl Shapiro and Hal Varian
“Information Technology is changing the way companies operate. ” Porter, et al. discussed the value of information and how its acquisition, processing, and transmission brought different dimensions of pricing and cost reduction for buyers and sellers around the world.
Because information is valuable, diversity in strategies were employed to outperform one business from another. Incorporating IT is not just one way but the best stratagem, so far. IT integration offers wider possibilities on how to facilitate information extensively.
Much more opportunities arrived when the web, the greatest source for data transfer and possession began its service through internet. The use of internet has transformed the way information is to be manipulated, acquired, and transferred easily from one user to the next. This concept of transfer became the foundation of businesses to invest more on IT aiming on earning using information shift through the so-called versioning. Versioning is supposed to mean as an upgrade, or a reproduction of an improved copy of product/s.
Like books, version or more known as edition defines how valuable a book is judging from reprints it has gone through and the copies sold out from every reprint; and normally the cost of the first edition varies from the value to the strength of requested copies demanded by the public. Digital information versioning however, does not confine to an upgrade only. Because internet has provided several sources of acquiring information, capitalists reengineered the idea of versioning by looking at digital information as valuable goods to sell electronically.
The business logic of selling also would not just conform to traditional and manual sides, but also begun pursuing global scale to outrun competitors. This is where strategy comes in. To strategically sell information goods, you need to determine its economic valuable first. According to Shapiro, et al. , there is a distinctive cost structure that first copy is often expensive and subsequent copies become very cheap. We are talking about production costs here – the same perception taken from editions of books also.
Because of this, the more information is reproduced, the lower the average of cost production. With the speed of internet aiding the transfer, variable cost of production disappears almost completely. (Shapiro, p 108) Incorporating business strategy has then changed the interpretation of versioning. The basis of its purpose revolves in the possibilities of revenues that it may bring forth to entrepreneurs selling these goods. Now, versioning has several intentions that feature how important information is being sought through the internet.
With the correct pricing, customer’s ability to purchase software and downloadable data in the market is determined and assessed. Understanding Strategic Risks in Versioning: A Smarter Way to Sell Digital Goods The objective of versioning is to continuously present an upgrade or development of an earlier adaptation as perceived in the concept of technology innovation which is expounded in the time of its release and use, as presented by International Standard ISO 861. While technology advances, industrialists found a better way of expanding the purpose of versions also.
Versioning becomes the idea of goods marketability in the internet. For example, free version is offered for try outs. Most net users are attracted by freeware. The range of website providers is getting larger to offer such promotions. The logic of free version is to offer a “taste” of the product being sold. These “teasers” are very common in antivirus software which provides just enough of main service of the item. However, they are also a prelude to buying the higher or upgrade version which provides full service of the merchandise at a certain price.
Whether a user will purchase the item remains to be seen on how imperative it is for him to obtain it. AVG 2011 free edition, for instance is antivirus software that offers security components like resident shield, license, identity protection, anti-spyware, email scanner, anti-rootkit, link scanner, update manager, and PC analyzer. After downloading the free edition, the AVG dashboard or dialog box contains an ad pertaining to another type of AVG software that offers larger scope of protection, named AVG Internet Security 2011 and downloading it would mean urchasing at $54. 99 for 1-year subscription. AVG Internet Security 2011 also offers an unlimited and complete virus protection that includes faster scanning (meaning the free version is time-consuming? ), enhanced firewall and system tools support. Taking a tour at their website, another lead does not offer free edition but a regular price of the AVG antivirus at $34. 99, and several other offers like Home Security, Business Security, and Trial versions. Versioning becomes a form of customer and information segmentation.
It is easier to classify the customers who need information depending on the coverage (speed, quality, and technical services). The higher the quality and comprehensiveness of a software, the more expensive it becomes and the fewer the chances are of its availability of being downloaded, printed or copied, unless for a biddable price. And so the higher or lower the price a customer is willing to pay for getting the information, the best way of identifying bidder/customers’ “class”.
Categorizing different types of user enable business owners to understand trends, forecast future version launches and expansions that include revenue projectile and cost calculations. Versioning is also business intelligence per se because it is a form of gathering information from customers who reveal how much they are willing to pay for information they sought. Business Intelligence is knowledge about customers, competitors, business partners, competitive environment and internal operations of the organization that gives the ability to make effective important and strategic business decisions.
With the knowledge acquired from classes of versions and types of purchases a customer makes, a business can start raising or dropping prices consequently from the analysis that a “professional” or frequent computer user will value the latest upgrades more than a simple home user. Consequently, once a customer starts bidding or showing interest on a product or information, he/she also willingly gives personal data regarding his work, his contact info (email or phone numbers and sometimes even home addresses) as a form of registration.
The truth is the customer’s data goes on into a database as company’s resource for forecast, future product offers and other customer related transactions. While this strategy is good, there is a downbeat side some organizations normally neglect to respond to. For some companies who do not play fair, moral principles are ignored. Whereas, business intelligence through versioning provides competitive edge to the company, the method of acquiring data from customers can sometimes cross the line. The transfer and receipt of information becomes the means of spreading spywares, malwares and adware that are damaging to users and other companies.
Whether it may appear harmless to include spoofing (forging of the return address on an email), and key loggers (Trojan horse that records every keystroke and mouse click) as a means to understand their customers better, it is a malicious form of invasion of privacy of an individual – a crime that is also often not apprehended because of the broadness of the scope of the internet. Crossing the lines could lead to mistrust of customers and future clients further damaging the reputation of the establishment.
Malwares that are incorporated to version download sometimes cannot be entirely blamed to the organization who seeks competitive advantage. Internet is full of hackers, either a participant of the rival or simply an individual who enjoys making pranks to others. An unprotected website can be easily hacked and integrate viruses to the system even with the assurance of the host’s protection. Ensuring that the website is protected from getting data stolen and damaged can preserve company integrity. Information goods sellers should also not traverse the code of ethics to gain competitive edge.
While seemingly technology reacts positively to the interest of the business, businessmen must hang on to not just building trust with their customers but also protecting the trust given to them so as to build long-lasting customer relationships with them. On the other hand, versioning can either upgrade or downgrade the quality impression of information goods, too. While free version clicks in the market, there are risks on premium quality versions of information goods. Oestreicher-Singer, et al stated that technologically savvy customers especially the non ethical, support-independent advanced users) view digital goods as being of higher value, and possibly as better substitutes than physical goods subjecting digital goods to piracy and therefore affecting the demands of emerging ones. Piracy is the unauthorized reproduction of digital goods under copyright, infringing the holder’s exclusive privileges to his property.
It happens “because the copy of a copy typically does not deteriorate in quality” and “copying products can become a wide-spread phenomenon – as illustrated by the surge of file-sharing networks. (Peitz, 2003) Piracy usually occurs because “users try to maximize their expected benefit (utility). ” (Ozertan, 2008) Peitz, et al. further concluded that non-authorized copy may either leave the seller’s profit unchanged or reduce it, because of limited supplier’s monopoly to the goods. Then again, versioning with segmentation and monitoring can prevent it from happening by adopting copyright protection and employ resale rights (which offers restrictions on copies and reselling) for every version released.
Espousing lower price for premium versions also decreases piracy because it curbs the edge of can’t-afford notion, therefore allowing the user to aim for the original rather than the pirated copy. In terms of free version, it can have unlimited reproduction since it does not restrict a user from copying and transferring it to another user; however in effect provides an excuse for a non ethical independent user to sell it to another user at a higher price and misleading it as a premium/professional version. This type of piracy often strikes on software copy sold as physical goods (CD,DVD copies).
Information goods versioning, in order to work effectively should be implemented correctly and according to the output of the company. Variable costs may disappear completely (Shapiro, et al. ) upon the reproduction of copies by the seller, but neglecting the end-user assessment of product related to copyright concerns, piracy control, privacy policies and website security can turn these variable costs into steep costs during loss of goods monopoly, corrupted reputations from unsecured websites, and unethical business practices for incorporating malwares in selling information goods.
Even if versioning poses great possibilities of gaining competitive advantage against rivalries, it also carries responsibilities and risks for the vendor during its application. Versioning may be a smarter way of selling online goods, but vendor should be smarter by focusing on the economic structure and welfare of digital goods first and understanding its trends and unpredictability caused by the constant technology enhancement.
What might have worked 5 years earlier could not simply work today. Rather, there is a need to induce another strategy with a strategy to make it work, or replace it completely with another. To date, versioning still applies at present, however more techniques arrived in the picture such as viral marketing, affiliate programs, SEO, collaboration and virtual teams, etc that is in fact a result of studied digital goods selling methods years ago.