Pricing ahead

This is an excerpt from the book Free by Chris Anderson. He's the one who coined the term Long Tail and wrote a book about it.

In the early 1960s, Fairchild Semiconductor was selling a specialized early transistor, called the 1211, to the military. Each transistor cost $100 to make. Fairchild wanted to sell the transistor to RCA for use in their new UHF television tuner. At the time RCA was using traditional vacuum tubes, which cost only $1.05

What they did was the unthinkable. They lowered their price to $1.05 from the start, banking on the fact that once production volume increases, the cost of each transistor will fall dramatically. Two years later they were able to sell the transistors at 50 cents a piece and still make a profit.

We were going to make the chips in a factory we hadn't built, using a process we hadn't yet developed, but the bottom line was: We were out there the next week quoting $1.05, we were selling into the future - Jerry Sanders

As stated by Moore's law, the number of transistors that can be placed inexpensively on an integrated circuit doubles approximately every two years. This also applies to hard disk capacity and network bandwidth which both gets cheaper and cheaper in a faster rate than transistors.

Knowing this, it is not hard to see why Google paid 1.6 billion dollars for Youtube a few years ago. Even though, at that time the service was burning milions a month for bandwidth and lacks a proper business model. Google banked on the fact that eventually the cost of storage and bandwidth will get cheaper and cheaper.

The ability to price your product way ahead of the price decline curve can be extremely disruptive. This is the very nature of the web and software. After all, they are just bits of information and eventually the only factor that determines the price of your product is not its cost but the value it creates.


As someone who prefer to do something by myself, I tend to avoid working in teams. The reasoning is that if it's something that matters, you can only rely on yourself to get it done. Obviously, I need to embrace teamwork and understand the value it brings. It's good to be independent but there are times that you have to realize that you are going to need help from others. The most obvious reason is the scale of the task at hand. Hosting a party at your house can be a solo effort but organizing a fund raiser event is entirely different. Whenever you feel like you want clones of yourself to get things done, that's when you need a team.

Some environments have a preference for teamwork. If you played any multi-player game, you will realize that some stuff simply can't be done alone. Players plan and organize to meet up in game (sometimes skipping sleep/work) to raid dungeons. A well planned and executed raid can be very fulfilling and addictive. Teamwork is fun when done right.

Teamwork is also critical when everyone have something at stake. Each member is accountable for the performance of the team. The most common issue here is that in real world situation, it's virtually impossible for everyone to have the same stake. This lead to situation where only those who care about the result doing the bulk of the work.

Although sometimes working in a team can seem to slow down progress with unnecessary procedures, meetings and conflicts, teamwork is invaluable for tackling tasks thats too big for us to handle alone. If you think you can do everything by yourself, maybe the things you do are too small to matter. And if it matters, others will volunteer to join your team.