But here's the problem: the very concept of "marginal cost of production" is nearly made obsolete by computers and the Internet. It used to be that the effort to produce the copies was proportional to the number of copies being made. Not any more. (Why else would we have spam?)
Maybe the real measure of value is the total cost of production. It used to be that total cost and marginal cost were pretty closely related. But in today's world, the amount of effort to create a work has stayed the same (apparent quality of said work should be ignored for the sake of this discussion), while the effort to duplicate or distribute said work has gone way down.
This is the same situation created by the printing press in the 1500s: it used to be that monks had to transcribe documents by hand in order to distribute them thus making scrolls and so on highly prized. Suddenly people could make many, many more copies quite easily. However, it still required individual effort to make each copy, so marginal cost of production still applied.
Radio and television upset the balance even further. Someone could broadcast a work just once, and it didn't matter how many people were watching or listening. But the market managed to twist a way to apply the idea of "marginal cost" by figuring out about how many people were tuning in, thus deriving an apparent value. Hence, advertising and the Nielsen ratings.
There's not going to be an easy answer to the problem.
The Zune really was the device you wanted to hate, and it didn't disappoint:
1) Clunky Interface
2) Incompatible not only with Linux and Macs, but apparently Windows as well
3) Bad DRM that doesn't work with Microsoft's other bad DRM.
4) Neutered Wi-Fi.
In management speak for years to come, "Zune" will become a verb, "To Zunify", which will mean "To cripple a cool idea by pandering to interests aligned against the client".
Still, Zune's destiny could be part of some evil, sinister plan. The probable case is just the one I outlined above. Now here's a possible case, just for giggles:
THE MICROSOFT ROKR
Remember that ROKR thing? It was the rumored "Big Project" that kept industry folks guessing and speculating, until it was released with a whimper. Interesting idea: Motorola putting an Apple-cobranded media player on a cellphone and letting it use ITMS. But yeah, it bombed. There are plenty of reasons why it bombed: Cell phones and Media Players recharge and discharge their batteries according to different patterns; people really didn't want to listen to music on their cellphone any. But the important reason the ROKR failed is that it got Zunified before-the-fact.
The good folks who gave us the ROKR weren't just Motorola and Apple: they were working with the cellphone service providers, who notoriously see cellular phones in terms of revenue generation, and confirm/reject mobile phone features based on whether they can charge extra for it. So the ROKR comes out with an artificial 100-song limit, and restrictions on how you can get songs onto the thing. It bombs.
But the conspiracy theorists loved it. They claimed that, by developing a cellphone, Apple was gaining much needed experience in the cellphone field that will help with v. 2.0 (without Motorola). Or, better yet, that by "buying an interest" in the field, they were preventing competitors from going that route: after all, with Apple developing and fielding a Cellphone Media Player, it was no longer an "untapped market" for over-the-horizon threats. At the very least, Apple was hedging their bets.
But, well, what really happened?
The release day for the ROKR, Apple upstaged the Motorola device with their new hat for Malibu Stacy: the iPod Nano (or shuffle, or both, I forget). Motorola managed a hit with their RAZR, and their second generation ROKR (E2) has removed the ITMS support, and the Zunification of the 100-song limit. Apple was able to use the ROKR as a screen to hide what they were really up to; once launched, the ROKR's failure ensured that manufacturers would view Cellphone MP3 players as a niche market. Motorola used the ROKR E1 fiasco to overcome vendor resistance to features that would make the phone actually useful.
So what's my conspiracy theory for the Zune?
The Zune gives the old (and increasingly irrelevant) content companies everything they've asked for:
"HARD" DRM = it won't work even with Microsoft DRM, so owners have to buy a new copy of stuff.
A music store with a variable price structure. Totally sweet -- now you can charge more for some songs. The RIAA has been looking to do this for years.
A "swapping" feature that turns the threat of music sharing into sales: and just to make sure it's not abused, everything gets DRM'd. As a side benefit, those rogue musicians who release their stuff for free won't have an advantage over the oligopoly.
So up and down the list, Microsoft has given the recording industry everything they've asked for. The result? A spectacular failure that leaves everyone scratching their heads and wondering why.
But now think of what the Zune could have been: a cool device that would work on your wireless network, allowing you to stream music across your house, pull tracks off your NAS, endlessly copy podcasts, pointless YouTube videos and yes, even music. What would happen? The RIAA would decry the obvious and willful attempt to destroy its business and civilization in general, and slap a lawsuit on Microsoft that would make the whole Rio thing look tame.
But what if they did everything the RIAA asked, and it failed?
Well, then they'd have a whole stack of marketing surveys, product reviews and slashdot gossip pointing out what a stupid idea it was. As Motorola managed to lift the 100-song limit in v. 2.0, will Microsoft be able to say, "we tried it your way, and it didn't work", and then pull out the stops on the WiFi and wrest pricing control from the record companies?
What about other products? In the hardware world, the CE folks are in a tight spot: content producers are putting the squeeze on for increasingly improbable and expensive devices that largely serve to augment consumer hostility and decrease sales. As probably the largest content producer and content enabler in the world, Microsoft is feeling it at both ends: they really, really want the wipe out "Schoolyard Piracy", but at the same time they're looking at implementing DRM schemes that can only limit their market share: counterintuitively, DRM makes piracy more attractive by decreasing the value of the legitimate product.
So the Zune actually helps matters: it gives Microsoft some fairly convincing arguments why it is a bad idea to implement all that annoying DRM crap the music and movie people want to see. Whereas pre-Zune, they had little response to the Oligopolies' accusations of "facilitating thievery"; now they can make arguments based on "what the consumers want".
But it's a conspiracy theory. We all know what really happened. A cool idea developed down the ranks about schoolyard sharing, Microsoft hedged its bets, and they developed the darn thing. Then upper-mid management screwed the pooch by making sure "no egos got bruised", and the thing matched Microsoft's rapidly changing content protection policy. The very notion of "schoolyard sharing" is so antithetical to a traditional software house that there was no chance a Wi-Fi Media Player from Microsoft would work."