Marginal cost is simply not a useful metric with startups. There are plenty of similar industries, and the notion that this means anything at all is garbage.
The material in a shoe costs a tiny, tiny fraction of what the consumer pays, but that doesn't mean they give them away for free (plus shipping) and slap an ad on the side.
Internet startups may have low marginal cost, but they have disproportionately high fixed costs. Good progammers make 2-3x what a factory worker does.
Moreover, marginal cost is on a sliding scale. One more customer to my Facebook app costs me literally nothing, one more than our current setup can handle may force me to shard my database. So the marginal cost is 0 for a long time, then some really large number for one unit, then 0 again for a while, etc. You really have to average it out.
Also, startups that do have significant marginal costs (YouTube, Pandora, etc.) still don't charge. So while everyone always touts marginal cost as the reason, it clearly is not.
> Marginal cost is simply not a useful metric with startups. There are plenty of similar industries, and the notion that this means anything at all is garbage.
The material in a shoe costs a tiny, tiny fraction of what the consumer pays, but that doesn't mean they give them away for free (plus shipping) and slap an ad on the side.
Internet startups may have low marginal cost, but they have disproportionately high fixed costs. Good progammers make 2-3x what a factory worker does.
Moreover, marginal cost is on a sliding scale. One more customer to my Facebook app costs me literally nothing, one more than our current setup can handle may force me to shard my database. So the marginal cost is 0 for a long time, then some really large number for one unit, then 0 again for a while, etc. You really have to average it out.
Also, startups that do have significant marginal costs (YouTube, Pandora, etc.) still don't charge. So while everyone always touts marginal cost as the reason, it clearly is not.