Customer Reviews

Re-Thinking the Network Economy: The True Forces That Drive the Digital Marketplace

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"Re-thinking the Network Economy" is an almost deceptively simple book, and that is all to the good for readers. Stan Liebowitz is a highly skilled economist with the ability to make his professional work accessible to interested laymen. Even more interesting to me, as a small businessman, is his intuitive grasp of the entrepreneurial process. His work just has a natural fit to the business world I know, and that is rare among academics, in my experience.

Though some of his humor can make a businessman wince at times, say his: "And of course, once computers are taught to bend the truth, they can replace salesmen of all sorts".

I once observed a young American woman, on a sunny July day in 1974, practicing her college Italian in one those street bazaars in Florence. I think it must have been written in some Intelligent Woman's Guide to Tourism in Cute Mediterranean Countries, that haggling was expected. When the woman responded to a merchant's price quote with a lower offer, he said in perfect English: "Look lady, it's hot, I'm hungry. If you insist on haggling, come back after lunch, but you're going to pay the price I just gave you anyhow."

She bought the dress, but you can find the reason for the merchant's attitude in chapter 4 of this book.

Also, I'm old enough to have been attended to, as a child, by a doctor who made house calls. The reasons why doctors no longer do so are to be found in Liebowitz's explanations of the efficiencies of supermarket shopping: Customers prefer to substitute their uncompensated time for the paid time that delivered groceries would necessarily entail.

So, why did so many smart people lose billions of dollars trying to make viable businesses out of delivering ice cream, chicken, and orange juice? Liebowitz hazards a few guesses, not all of which are going to sit well with some of his colleagues who gave advice that may have inadvertently encouraged such nonsense. Those of us with first-hand experience of how expensive it is to operate trucks and pay their drivers, who were scratching our heads watching refrigerated trucks drive through our neighborhoods, wondering how this could possibly be a cost effective way for consumers to shop, can have a lot of fun reading about it though.

The penultimate chapter, "Copyright and the Internet" has some, perhaps, counterintuitive arguments to make about digital reproduction and transmission of copyright materials. Including a novel explanation (to me) of how charging libraries for photocopying articles from scholarly journals actually increased the importance of those journals to scholars. This seems to me a major lesson to be learned in the current contentious copyright debates.

In short, Re-Thinking the Network Economy, packs a lot of useful information into its 224 pages. It's erudite, witty, and might have saved the New Economy, and its investors, tens (and maybe hundreds) of billions of dollars had it been published even five years earlier.

From Economic Focus Column:
IN THE late 1990s, firms bet billions of dollars on a theory that turned out to be wrong. It said that in e-commerce, what mattered most was being first. Don't worry about being best, if that slows you down. Sell your product at a loss, give it away, pay people to take it: just build your base of customers fast. Why? Because the weird economics of the Internet-network effects, enhanced economies of scale and lock-in-gave a decisive advantage to first-movers. Now that something approaching 100% of the Internet economy's first-movers have gone bust, this theory looks less plausible. Yet the logic once seemed persuasive. Where exactly did Internet economics go wrong?

A new book by Stan Liebowitz, a professor of economics at the University of Texas at Dallas, and a long-time sceptic of the view that the Internet changes all the rules, gives the most thorough answer so far.

"Re-Thinking the Network Economy" explains what the Internet did change and what it did not, so far as economics is concerned-and it does so in a witty and accessible way. Dr. Liebowitz covers a lot of issues: the exaggerated advantages of Internet retailing over conventional retailing; the false claim that the Internet's lower costs would give Internet firms bigger profits; the inadequacies of the broadcast -television model of advertising revenues; the poorly understood questions of copyright and digital-rights management.

It is the best book to date on the fallacies of the e -commerce craze.

The internet offers incredible opportunities, provided businesses and their advisors do not lose sight of the traditional, fundamental concepts of commerce and economics.

The old rules still apply is the message of author Stan Liebowitz, economist and professor of managerial economics at the University of Texas at Dallas. The Internet creates value by lowering the costs of information transmission. Internet boosters went wrong when they sought to re-write the foundational laws of economics practiced by their bricks-and-mortar competitors. The impact of economies of scale depends on the industry, not on whether the company is internet-based or not.

The author also debunks three other "new" economy myths:
* The first mover advantage. Many internet companies mistakenly rushed to market with inferior products and services - and paid the ultimate price.
* Not everything can be sold on the Internet.
* Customer service still counts.

Liebowitz argues network effects, economies of scale; instant scalability and winner-take-all strategies provide advantages and disadvantages to the consumer. To know which products are likely to succeed on the Internet, the business person must consider:
* Size and bulk of the product relative to its value.
* Immediate gratification factor.
* Perishable items are not meant to be shipped over long distances.
* Some products need to be experienced.

This well-written, often witty book is the first I have come across that seeks to salvage lesions from what is commonly thought of as the "Internet Bubble." The impact of the Internet on our society is not to be trivialized. Information is now available in abundance. Discovering the lessons the media's boosters ignored, Liebowitz argues, if one seeks to learn what the media's "boosters" ignored to their peril, will benefit the reader.

I found much of this content to be very interesting and intelligent reading. Unfortunatly, I found Stan Liebowitz to be a pompus author who I was not nearly as impressed with as he seems to be with himself. He strikes me as the type who speaks to hear the sound of his own voice, and writes in much the same style. Many of the examples he used were innaccurate and were out of date, even when this book was published in 2002. It doesn't change the theories that are presented, but it sure makes reading this book unpleasent. Hopefully in future editions, Mr. Liebowitz will write this more like an academic journal and keep some of the first person references and broad generalizations out. People who buy cars on impulse have a "personality disorder"? I'm not a psychiatrist, but that seems very broad and unfounded. If you make a statement like this, you should clarify it or back it up with evidence. "....as I write this book", "...as I discuss below", "I have to admit....". Get over yourself. First person references have their place, and are used in the appropriate context many places within this book, but examples like the above show up on almost every page. It elevates the book to a level of arrogance that I find difficult to ignore while reading.

Back Cover Blurbs:
Absolutely the best book I've read on e-commerce. Liebowitz looks at all the claims made for how "the Internet changes everything" and shows, persuasively, that it changes only a few things. If you want to know how to integrate the Internet into your business or how to judge the future success of Internet-based firms, or if you just want a master economist's understanding of the Internet's impact on the economy, Re-Thinking the Network Economy is the book for you. --David R. Henderson, author of The Joy of Freedom: An Economist's Odyssey, former columnist, Red Herring.

Stan Liebowitz's book brings a breath of fresh air to popular Internet debates. This lively and informative discussion exposes many of the Internet-related myths about network externalities, technology lock-in, and first-mover advantage. Managers would do well to understand his point that tried-and-true business strategies continue to apply-Daniel F. Spulber, Elinor Hobbs Distinguished Professor, Kellogg School of Management, Northwestern University.

"Prof. Liebowitz's analysis is sharp, reflecting an impressive combination of economic theory, history, and just the right amount of geekiness. Whether you are a businessperson plotting your next move or an individual simply curious about why the dot com bust happened, buy this book. The Internet will still be important. Professor Liebowitz tells us why." Sonia Arrison, Director, Center for Technology Studies, Pacific Research Institute

In Rethinking the Networked Economy, Stan Liebowitz dissects the faulty business case that helped fuel the Internet hysteria. The autopsy yields important insights. Liebowitz explains why some businesses suit the Internet economy and some don't, why some industries are winner-take-all contests but most aren't, and why a few industries offer first-mover advantages but most don't. The result is handbook for e-commerce that is grounded in simple but powerful economic reasoning that is fully explained within, and supported by an abundance of real world evidence.-Stephen E. Margolis, Chairman, NC State U Economics.