The New Economics of Information

By Stan Gibson  |  Posted 2008-06-25 Print this article Print

With Windows, Gates would promote Microsoft Office, a bundle of Microsoft applications including Word, Excel and PowerPoint. It was a strategy that, MIT's Brynjolfsson said, would guarantee success in the new information economy.

That's because creating the first copy of software is expensive due to all the programming work involved, but additional copies are very cheap to produce. A vendor can further increase its profit margin by bundling a lot of products together. The strategy works particularly well when no single product is best-in-class, which has often been the case with Microsoft applications.

"Selling average products separately would not yield a large market share, but bundling them together makes it more attractive for the buyer," said Brynjolfsson. "It gave [Gates] a big advantage. Even if a new product is better, most people will prefer to stick with the bundle, as they did with Microsoft Office."

This model leads to higher market share and much higher profits. "It's a bit like the McDonald's meal bundles," Brynjolfsson explained.

Check out here Spencer Katt's favorite Bill Gates cartoons. 

The result: "Microsoft products were consistently priced much lower than competitors' products when you adjusted for their capabilities and features," he said. "I think Bill Gates' biggest contribution was in understanding the new economics of information. Most of his competitors didn't get it."

Stan Gibson is Executive Editor of eWEEK. In addition to taking part in Ziff Davis eSeminars and taking charge of special editorial projects, his columns and editorials appear regularly in both the print and online editions of eWEEK. He is chairman of eWEEK's Editorial Board, which received the 1999 Jesse H. Neal Award of the American Business Press. In ten years at eWEEK, Gibson has served eWEEK (formerly PC Week) as Executive Editor/eBiz Strategies, Deputy News Editor, Networking Editor, Assignment Editor and Department Editor. His Webcast program, 'Take Down,' appeared on He has appeared on many radio and television programs including TechTV, CNBC, PBS, WBZ-Boston, WEVD New York and New England Cable News. Gibson has appeared as keynoter at many conferences, including CAMP Expo, Society for Information Management, and the Technology Managers Forum. A 19-year veteran covering information technology, he was previously News Editor at Communications Week and was Software Editor and Systems Editor at Computerworld.

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