Should We Be Giving Away Digital Razor Blades?
from the business-models-a-la-Gillette dept
One of the most famous "business models" ever invented is the Gillette razor blade - which is that you sell the razors at a loss but make up your money by selling the blades. Lots of companies have bought into this concept and have tried offering various "loss leaders" to encourage purchasing other (higher margin) products. In fact, many technology companies have tried to use this strategy (though, they often forgot the second part - the high margin part - and just gave stuff away). Now some economists have taken a look to see what factors make this a reasonable business model. It seems pretty straight forward and obvious. The stuff you're giving away should have a very low marginal cost of production (which basic economics would suggest you should be selling at a price close to zero anyway). Then, the "high margin" component needs to be very closely tied to the give away product. In other words, the free product shouldn't be particularly valuable without the additional (costly) part. It took economists to figure this one out? Seems pretty obvious to me. Still is an interesting read, though.
Thank you for reading this Techdirt post. With so many things competing for everyone’s attention these days, we really appreciate you giving us your time. We work hard every day to put quality content out there for our community.
Techdirt is one of the few remaining truly independent media outlets. We do not have a giant corporation behind us, and we rely heavily on our community to support us, in an age when advertisers are increasingly uninterested in sponsoring small, independent sites — especially a site like ours that is unwilling to pull punches in its reporting and analysis.
While other websites have resorted to paywalls, registration requirements, and increasingly annoying/intrusive advertising, we have always kept Techdirt open and available to anyone. But in order to continue doing so, we need your support. We offer a variety of ways for our readers to support us, from direct donations to special subscriptions and cool merchandise — and every little bit helps. Thank you.
–The Techdirt Team
