In this topsy-turvy world, Skype represents the competitive extreme, wielding a weapon that few others are willing or able to match: Using peer-to-peer architecture, it claims it can offer its software service for free to tens of millions of people, and still make boatloads of profits by persuading only a fraction of its users to upgrade to paid premium services.
For those unfamiliar with Skype, it is a peer-to-peer software program that enables users to use existing landlines and computers to make phone calls for next to nothing, using Voice-over-IP technology.
Skype offers the software for free yet makes money off of additional services; just as King C. Gillette did by offering safety razor’s at reduced prices and profit off of the replaceable blades (a ‘loss-leader‘). Note: Robert X. Cringely suggests that it may or may not be the same case for Apple and iPod/iTunes.
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I always think that razor blades are a very poor example of the “razor-blade model”. The thing about a safety razor handle is that it’s just a small stick. It’s sold cheap because it’s cheap to manufacture. The blades are made of higher-quality materials and need finer manufacturing techniques, and are bound to be most of the expense.
I agree with Andrew. Also it is not accurate to say that Gillette sold the razor at a reduced price. The first Gillette razors were silver-plated and sold for $5.00 in 1904, equivalent to about $20 today. Not cheap. Of course, during the depression they did reduce the razor price, but they had lots of competition after their 1904 U.S. patents expired.
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