Thursday, December 1, 2005

Minimal Marginal Cost

It seems like all companies with products where the marginal cost to serve is minimal are struggling with their business models -- look at drug companies, film companies, music companies. It costs quite a bit to develop the product upfront, either through R&D or costs to film. But once the product is developed, the cost to distribute another item is pretty inconsequential.

That's why you get 90% margins on some drugs or 90% margins to print another DVD. But the cost of creating the product isn't encapsulated in the physical components of the product -- it's in the intellectual content needed to make the product.

Is there a solution to this dilemma?

External link:
Through Charities, Drug Makers Help People - and Themselves [WSJ]