If it’s a Product make is Premium, If it’s a service make it free…

Mark Zuckerberg and Jeff Besos both own platforms which deliver something of value to you. Yet, they don’t charge you a dime to shop in their sites.

Unlike, the era of Bill Gates, technology today is free. Software has entered and era of ubiquitous disposition where with prices have dropped to reach to a point, that they are free now. Take for eg the latest programming language. Google launched GoLang and Apple launched Swift. Both as open source, which is a euphemism for FREE.

Take the case of a brick and mortar company likeWalmart. It doesn’t produce anything thus it choose, the best way to survive in a market by reducing price. You can only reduce price when you grow. Walmart’s Chairman Sam Walton quotes in his book “ Made in America” that, their cost of operation is 8% of profits and 22% of revenue.

Compare this to Apple The market price for a 32GB iPhone 7 is $649, yet the phone reportedly costs Apple just $225 to build. That’s 3x or 300% of profit over cost of production. As a product company your, aim should, always be to the produce products which are of premium quality, rather than catering to the mass market. Premium phone makes make lot more profit than mass market phone makers. Also premium phone maker have less hassle managing their supply chain and their customers. They can thus provide their customers with better quality of service, compared to mass market providers, because they have to deal with a lesser number of people to begin with.

However, when you are appealing to the public through a service, then your segment is large and reach is infinity. A 5 star hotel doesn’t make as much profit as a McDonald’s. The game here, is exactly opposite as to the product segment. In service always try to be the mass market player, expanding your service at a low cost base. Starbucks, Mcdonalds, subway, 7 eleven, all these folks are operating on a mass market basis. There cost will always remain close to the service they provide.

In this space software service player have a huge advantage. They can provide the service for almost free yet they don’t need to have any sort of infrastructure space of a kind. This is why most software companies provide their service, for free. The internet is their highway.

So if you are planning to start a Business and someone tells you that you can start a speciality niche restaurant Business in a the heart of the city, tell them to take a hike. Likewise if you are starting a software company then never start by thinking profit. Start by thinking sales, meaning traffic, meaning more customers. Your company should run out of storage space rather than make profits.

And if you plan to start a product company always start it in the highest end of technology where mass market will not play a role. This may sound counter intuitive, however in the longer run players who provide service for free and product for a premium make the most mark.

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