Re: "Bill makes all the important decisions here."
Tue, 20 Jan 1998 16:08:31 -0500 (EST)

On Tue, 20 Jan 1998, Seth Golub wrote:

> Mike Masnick <> writes:
> > Yeah, but what's the difference between the 1 millionth and the 1
> > millionth and first? Zero.
> Unless the system can only handle a million users, then it costs to
> upgrade the system. Obviously they can't charge that one customer
> though. Or is the point that they still can't charge because a
> competitor whose system isn't saturated could take on one more person
> at no cost, and to compete with them everyone must always charge
> nothing?

You bring up a good point. Though, what happens is the second the
upgrade occurs, the marginal cost returns to zero, and so you charge
zero. The object isn't to differentiate across customers here (though
that's a whole different idea), but to charge everyone equally the
marginal cost. You bring up one instance which goes away the second new
capacity is added. So, it's a flicker in time, basically. Such a small
flicker, in fact, that it can be ignored, mostly.

> (For simplicity, I'd like to ignore the possibility of accepting a
> gradual degradation of service, though reality would slap me if I
> tried to do that with a real company.)
> > As for the thing with support, it is often okay to charge for
> > support, since support (in most cases) does cost extra per marginal
> > usage.
> How so? The per-minute charges of their 800 number?

I was thinking of the cost of paying the tech support staff. If someone
calls in with a tech support question, then suddenly one less tech
support person is available to help someone else - making this a
depletable and excludable resource, which can be charged for. It comes
down to checking what exactly the product and/or service is made up of
and whether or not it is depletable and excludable or not. Then look at
the competitive makeup, and you can get a pretty good feel of what makes
sense to be charged for, and what doesn't.

> > How the fuck do companies make money if they should be giving away
> > their product?
> Yeah, that's a good one. Large companies can afford a few loss
> leaders though, just to sink competition that depends on that market.

That's one way of thinking of it, but there's much more behind it. It's
really a form (in some way) of advertising. Advertising is given out for
free, but no one considers that a "loss-leader", right? Advertising is a
way of getting people to buy the product or services you offer (that are
depletable and/or excludable). The same way you give away your
non-depletable, non-excludable goods in order to promote your depletable
and excludable goods...

Example (sorta): Linux is free, right? However, plenty of people will go
out and buy a big book for documentation and a CD-ROM copy to make
installation easier. Linux, the software, is really being given out
free. The book and the CD-ROM are the depletable, excludable goods that
are being sold since they add value to the non-depletable, non-excludable