A strange thought came over me this weekend. Overhead drives profit. Yeah, that seems kind of obvious right. Well, I was thinking about it in a different light. If you are in a business where you can reduce your overhead to basically nothing, then you can afford to fight price wars with the competition and win.
On the opposite end of the spectrum we have businesses where overhead is kind of fixed (it will always take some people somewhere to turn a bunch of materials into a car). Then, price wars hurt everyone.
This thought hit me as I was browsing the sales on the online game distribution service Steam this weekend. I ended up picking up a game pack for $50 that would in all fairness have at one point in time probably cost north of $500-600 dollars. There are some games in there that I don’t really want, but there was enough for me to warrant a purchase.
Now, think of it this way, this is like getting a bunch of GM cars from the last 5 years or so (never driven mind you) for the cost of one mid-size car. Even in their darkest days last year, GM always sold cars for discounts that would make digital distribution retailers scoff.
We will always need physical things and the overhead on those is always going to exist. But on the flip side, digital distribution of software and media will not only help drive down the cost of older products, but also cut down on pollution due to manufacturing of physical media and and transportation thereof to the end users.
So here’s me, giving kudos to the digital distribution model and encouraging all of you to try it and see if you like it.
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