Minor case of reality intruding into the web: a hardheaded Business Guide outsells an ebullient New Economy paean. Krugman discounts latter and recounts worrying cases in the former.
In a mild case of man bites dog, Carl Shapiro and Hal Varian's ''Information Rules: A Strategic Guide to the Network Economy'' is apparently outselling Kevin Kelly's ''New Rules for the New Economy: 10 Radical Strategies for a Connected World.'' Both books purport to be manuals for business in the Internet age. However, not only is Kelly the executive editor of Wired, but he also writes in the best Tom Peters style, a rapid-fire blur of neologisms and breathless declarations that all the rules have changed, that there are limitless opportunities for those who have the courage to let go of old assumptions. Why, then, is he being outsold by a couple of economics professors who rather primly declare that ''we seek models, not trends; concepts, not vocabulary; and analysis, not analogies''?
Of course, the chemistry of publishing success is mysterious. But this particular sales competition may mark a turning point in the way business -- and the public at large -- perceives the Internet and, for that matter, the whole ''new economy.'' For while Kelly, true to his Wired roots, offers us a sort of New Age meets Horatio Alger vision -- in this brave new world, he tells us, entrepreneurs will do well by doing good -- Shapiro and Varian are hardheaded, even Machiavellian. To make money from information, they suggest, you have to find clever, in some cases dastardly, ways to outmaneuver your competition and exploit your customers.
Consider my own sad story. As a thoroughly modern professor, I post many of my writings on a personal Web site. It might seem only reasonable to ask people to pay for the privilege of downloading my wisdom. But on the other hand, once a piece is written it costs me nothing to have another person access the site; if I were to charge for access, some potential visitors would be deterred, hurting both them and me. What's more, my readership is at least partly sustained by word of mouth; the fewer readers I have, the fewer potential new readers will be led to check out my site. So how can I make any money off this thing?
If I knew the answer to that question, of course, I would add ''.com'' to my name, launch an initial public offering and become an instant millionaire. But my dilemma is essentially the same as that facing many firms.
The information industries in general -- Internet ventures, software developers, even many hardware manufacturers -- all have in common the combination of high ''fixed costs'' (the one-time cost of writing articles, developing software or designing a new chip), low ''marginal costs'' (it costs nothing to let another person read your article or use your program, and not much to produce another copy of your chip) and ''network externalities'' (the more people use your idea/program/chip, the more widespread it becomes, and therefore the more people will find it worth buying). How are they supposed to make money?
Kelly's answer is, essentially, not to worry about it. His ''new rules'' for modern business include mottoes like ''follow the free'' (give stuff away, because it will help you sell other stuff) and ''feed the Web first'' (shift from ''maximizing the firm's value to maximizing the Web's value''). In other words, cast your bread upon the cyberwaters, and it will be returned to you a thousandfold.
Shapiro and Varian insist that ''information rules'' are simply exaggerated versions of the rules that have always applied to high-fixed-cost, low-marginal-cost industries like, say, airlines. Now, airlines, in case you haven't noticed, don't follow the free. They find clever ways of charging what the traffic will bear. Buy your ticket well in advance and stay over Saturday night, and it will be pretty cheap -- not because serving you costs the airline less, but because the restrictions screen out business travelers, who can then be held up for a ransom.
Similar strategies can be applied to the information sector. Shapiro and Varian approvingly note the example of I.B.M.'s inexpensive home-office-oriented Laser Printer Series E. (Remember, this is a guide to business strategy, not ethics.) It was slower than the premium-price Series F, they note, not because it was of inferior quality but because it contained a special chip to slow it down. They also mention the Windows NT Workstation, which is apparently identical to the much more expensive NT server except for a few minor code changes designed to reduce its capabilities. In short, according to Shapiro and Varian, the new economy is a place where it often pays to play ugly.
All of which brings us, of course, to politics. Not too long ago, the dominant ideology of the cyberelite -- led, in particular, by Louis Rosetto, one of Wired's founders -- was strongly libertarian; all the digerati wanted from Government was to be left alone. I don't know whether Kelly shares that view, but his book does seem to describe a world in which Government intervention is unnecessary, maybe even irrelevant.
By contrast, the new economy described by Varian and Shapiro (who was the Justice Department's chief antitrust economist in 1995 and 1996) sounds like a prime candidate for Government intervention, rife with probable market failures and with opportunities for firms to play ugly in ways detrimental not just to their competitors but to consumers too. ''Don't expect the Government's role to diminish,'' they warn; and their book concludes not only with some prescriptions about what the Government should do but also with some advice about how companies can avoid getting into antitrust trouble. Too bad Bill Gates didn't get an early draft.
Maybe I'm reading too much into book sales, but it seems to me that the success of Shapiro and Varian is, like the Microsoft case, an indicator that the Information Age has lost its innocence. Information technology is no longer something idealists do for fun; not only has it become big business, it has also become a business whose underlying rules practically invite antisocial practices like price discrimination and predation. In short, say goodbye to the geeks in their garages, and say hello to the new railroad barons -- and by the way, see you in court.