In a perfect internet market, marginal cost is zero for digital products. In other words, the cost of producing to serve an additional user will be zero. This is possible because distribution cost and transaction cost – two components of marginal cost – will disappear. This has a huge implication on the trajectory of digital firms: because distribution within internet is unbounded and unconstrained [limited gatekeepers], the friction for distribution tends towards zero, opening huge opportunities for new business models.
Under this circumstance, two things happen:
- There is limited value in owning digital products if you can stream the same content. The low marginal cost makes streaming more cost-effective over time, especially when you consider more product choices stream triggers for you. Yes, you can stream more contents over just buying and owning rights.
- There is limited value in outright purchase of digital products when you can do subscription for the same reason as noted in #1 above.
These factors are the reasons why owning music is no more a smart choice: streaming pays better. Apple iTunes had to go for its era is fading for Apple streaming business to take over. The future belongs to streaming as that cost will keep dropping per value compared with buying and owning music. Simply, if marginal cost drops, users win, and asking them to own the digital product is offering a non-optimal choice to them.
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So is owning music becoming a thing of the past?
Streaming made up 75% of the music industry’s revenue last year. It’s so lucrative that music streaming is where one of the fiercest battles against Apple’s alleged monopoly is being waged
LinkedIn Comment on Feed
In this era of abundance, we have overwhelming contents of written works, audio or video on the web, such outright purchase and ownership is no longer a smart choice.
Our day hasn’t been increased to 40 hours, still the same 24 hours, so we barely have time for a repeat on those media contents we own, we simply read, listen or watch, and then move on. We can always go back for references, if such time is available.
Apple had to take down its iTunes, else it would be scoring a sort of own goal, the Apple Music and its subscription business needed a breathing space, having iTunes around is a distraction.
This emerging sharing economy will get to a point where no one would like to own anything again, just use and move on.
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