David K.H. Begg, Gianluigi Vernasca-Economics-McGraw Hill Higher Education (2011)

12.8 E-products
100
80
60
- - - - - - - - - - -- - ----
CD player _ - - - -
_ _ _ _ .. ...... ...... -::·
-··
- - - -
..·
,
,
Digital television service
.. ·
40
,
•' DVD player
,
20
Figure 12.3
0 -+-
1996/97 1999/2000 2002/03 2005/06
Household use of digital technology
Source: www.statistics.gov.uk. © Crown c opyright 2002-2008.
valued at 2004 prices. Today, the richest people on the planet are in the information business. Bill Gates of
Microsoft (www.microsoft.com) is currently worth about $55 billion. The information revolution is here.
It is big business and it is changing people's lives.
Figure 12.3 shows the rapid rise in digital technology in UK households, for entertainment, communication
and information. The same applies in the corporate world, where 93 per cent of UK businesses had
information and communications technology by 2006 and 70 per cent had a website. UK sales over the
internet - from last-minute plane tickets to used car sales - topped £100 billion for the first time in 2005.
The use of email has led to a collapse in the use of letters and the sale of stamps.
Examples of e-products include music, films, magazines, news, books and sport. Information is expensive
to assemble and produce but very cheap to distribute. The fixed cost of creating a usable product is large;
the marginal cost of distributing it is tiny. This cost structure implies vast scale economies in production.
We discuss the key attributes of information products as viewed by users. These users or consumers of
information are not merely households but businesses themselves.
Consuming information
From the viewpoint of users, e-products have four key features: experience, overload, switching costs and
network externalities.
Experience
Information is an experience product. The first time we try something we find out
how useful it is to us. Most goods and services that we buy are repeat purchases.
We no longer buy them just to find out what they are like. What is different about
information is that it is nearly always new. If we already had the information, we
would not need to buy it. We say 'nearly always' because we all have a DVD that we
like to watch more than once. People buy DVDs of Manchester United's Champions'
An experience good or
service must be sampled
before the user knows its
value.
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