Friday, March 02, 2007

Economics of Abundance

Mike at TechDirt wrote a series on how economics works when something is not scare, but is in abundance. We know that the price of a commodity tends to equal its marginal cost. But digital music and literature have marginal cost of zero. So this tells us you can't make a living by selling them (for nothing), right? Wrong. His essays are short, so he moves slowly. I assume he does that so his audience picks up the basics and keeps the lesson. He gets lots of comments, so he has readers. The key is not the selling price of zero; we know that is not selling, but giving away. But the cost of zero. It's an opportunity, not a loss. So: Design products that people value - that they will pay for - that utilize the free digital content. Focus on the customers and make up such products then you can have a very good living from zero marginal cost products. The most recent essay has links to all the others. At the bottom of this essay click on the first essay, then the second, etc.

Saying You Can't Compete With Free Is Saying You Can't Compete Period

Along the way he makes several visits to those who most fear zero - the recording and movie industries. His sympathy of them approaches zero. They don't understand the market they are in. George Gilder would have given the same lesson in 800 words. But it's best to have many teachers for different audiences. Kudos to Mike.

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