Q: What happens when the marginal cost of producing and delivering one more item is zero?

A:  The world changes.

Zero marginal cost changes the economics of many things.  Radically.

I’ve commented previously on the issue of zero marginal cost – Reflections on the zero cost and inconsequential time to deliver a 2500 page book.

If you want to get your arms around the radical change that is in progress at this moment, you really should be reading Seth Godin’s blog and books.

I have published three books in hard copy.  I plan to write several more books and will go with electronic format in the future.  May do a few print-on-demand copies but won’t have a big inventory like I did for my first three books.

It will take as much time, energy, and cost to get an e-book ready to go as a hard copy book.  What will change is the hard costs for production.  There was a lot of cost for the hard copies but there will be nothing for e-books.   Since I will be distributing through Amazon and the other online stores, there will be distribution costs but there are costs to do fulfillment myself.  Will have to see if the costs are the same.  For a big outfit who could bring the web sales in-house or who wants to distribute resources for free, the costs would be even lower.

Overall?  Cost will drop radically.  I looked at the hard costs for my three books.  Physical production was about 70% of my total hard costs.

Anyone can take the path I did.  Anyone.

Let’s look at Mr. Godin’s post last week, The erosion in the paid media pyramid.  He paints a triangle of consumer goods. From top to bottom he describes this layout:

  • Bespoke content – really expensive, limited performance, such as a commissioned painting or having a singer appear personally at an event.
  • Limited content – premium, limited edition.  Picture a leather-bound book or sold out Broadway hit.
  • Mass content – books in print, movies in a theater, DVDs, print newspaper.  Key idea is there are major costs for production and distribution, but the average cost per unit is low.
  • Free content – teasers to get to the mass content.  Mr. Godin points to movie trailers, free chapters of a book, tweets with the ‘big idea’.   I would add blogs to that list.

Marginal production and delivery costs of zero will devastate the mass market, especially entire industries built around delivering mass content: book publishing, music labels, movie studios.

Mr. Godin points to the risk for those industries:

By head count, just about everyone who works in the media industry is in the business of formalizing, reproducing, distributing, marketing and selling copies of the original creative work to the masses. The creators aren’t going to go away–they have no choice but to create.

The middlemen are in serious danger.

Impact on us small fry in my next post.

Leave a Reply

Your email address will not be published. Required fields are marked *