Negative marginal cost

Marginal cost is how much extra you’ll need to spend to serve one more customer.

The marginal cost of a hot dog is pretty low–if you don’t have to account for rent and labor and insurance and the rest, one more hot dog might only cost 15 cents to serve.

On the other hand, the marginal cost of a custom pair of shoes is pretty high, because the labor and materials are expensive.

The internet is transformative because so many things have a zero marginal cost. It doesn’t cost anything for WordPress to add one more user. And it doesn’t cost me anything to have one more person read this blog.


When we factor in the magic of the network effect (things that work better when more people are using them) it turns out that the marginal cost isn’t zero. It’s actually negative. That means that it’s expensive for an online service to have fewer users.

Moving from expensive to cheap to free to “it’s a bonus to add one more person” changes our economy and our culture forever.