(The following is lightly edited and reprinted from Doug Erickson's blog with permission)
…the marginal cost of digital products, or the cost of delivering one extra copy, is approaching zero. The fixed cost of producing the first copy, however, may be as high as ever. All those servers and transmission lines, as cheap as they may be per gigabyte, require large initial investments. The articles still have to be written, the songs recorded, the movies made. The crucial business question, then, is how you cover those fixed costs. As many an airline bankruptcy demonstrates, it can be extremely hard to survive in a business with high fixed costs, low marginal costs, and relatively easy entry. As long as serving one new customer costs next to nothing, the competition to attract as many customers as possible will drive prices toward zero. And zero doesn't pay the bills…Obscured by the breezy tone of Free is a sobering message. 'Everybody can use a Free business model,' Anderson admits, 'but all too typically only the Number 1 company can get really rich with it.'
And there is money to be made in (1) being the trusted filter, and (2) providing such remarkable content that it is worth paying a premium to get it. Hulu gets this. Seth Godin gets this. The Louvre gets this.
What can I hear on your frequency (or stream) that I can hear nowhere else? And, is that exclusive content remarkable enough to sustain itself through a premium subscription, or by building a large enough tribe of enthusiasts that you can monetize it and still make an acceptable profit margin after paying the talent that produced it?
