One thing that business principles revolve around is the basic idea of providing value. All businesses revolve around the exchange of value.
Cost then, is merely the determination of value. If I price something at fifty dollars, that means that I am determining that the value of my product is worth the value of fifty dollars. In fact, by selling something for fifty dollars, that means that the value of fifty dollars is more valuable to me than the value of my product to me.
However, as Seth Godin comments, the internet age is now throwing a curveball into the game.
“In a competitive, undifferentiated market, the price will generally be lowered by competitors until it is just above marginal cost. Think about that… If it costs a dollar to make something, and your competitor is selling for $1.10, then in an efficient market, you have every incentive to sell your item for a penny less than that. It’s better than not selling it.
There are many implications of this, the first being the explanation of why so much stuff online is free. Free is a magical concept, the place where trial and virality live. If the marginal cost of a new user is virtually zero (and in an ad supported business, a new user is actually profitable, not a cost) then it’s no surprise that it’s hard to charge for your app when there are other apps that do precisely what yours does.
Big, established companies have traditionally had a difficult time understanding this concept. The market for ebooks, for example, ended up in Federal court because otherwise smart people in book publishing couldn’t get their arms around the idea that their marginal cost of an ebook delivered by Amazon was precisely zero. No paper, no shipping, no ink.” – Seth Godin
The reason that Facebook is able to offer a social network for free is because there is nearly no marginal cost for adding another user, and by adding another user, they have a larger collection of users that they can leverage for advertisements, publicity, etc.
As a new experiment on diplateevo, I have decided to give away one free book every month through a random drawing. It is called polyglot, and you can check it out here. I am doing this for a number of reasons.
- I want to provide a resource for people to learn more. By providing a free book, hopefully someone will be able to benefit from the wisdom written in the book. This will hopefully also be a way for my readers to expand their knowledge of what people are currently publishing.
- I want to experiment with the idea of giving away free books and see how people respond. I am interested to see what kind of community I can build by giving away free books, and have a better feel for what people need.
- I want to see how knowledge gets passed around. As part of the polyglot program, books that have been given out for free are encouraged to be continually given away and passed around for free. I am interested to see where my books will end up.
So go ahead and let all your friends and family know, and I will be picking the first winner next Wednesday!