Marginal Cost

Matthew Yglesias makes a point about marginal cost of information, and how it should affect pricing of online content. His point? Marginal cost for a widely read article should be near zero, so should its price.

Incidentally, somebody made a similar point about software a while back.

Hefty prices being charged for content are unsustainable, as traditional publishing giants trying to extend their former pricing models to the net are finding out the hard way. Microsoft is facing a similar situation as free web-based software tools threaten its pricing model.

So, if you can't charge a hefty price for content (or software), how do you survive? As a provider, your marginal cost is near zero, but not zero. If you serve content completely for free, your success will drive you to bankruptcy in a jiffy. So, you need to find a way to make a marginal amout of money with every incremental serving of content or software.

There are two commonly known (read, known to the Hatter) ways in which a "near-zero" price can be charged. One is the Google Way, where a zero price is charged, and advertising is used to gain minor incremental revenue per view. It works for Google, and a lot of others, but is unappealing to many. Selling ads seems so plebian, so 20th century Old Media.

The other is micropayments - allowing a very small (fractions of a cent) price to be charged efficiently. Micropayments have been historically ineffective, and criticized as fundamentally flawed. Attempts to refute the criticism, and make the concept work, have mostly failed.

There has to be a better way to do it!