Pay-Per-X and Subscription Models in a Manufacturing Economy

Pay-per-x (Micro-Payments) and Subscription models (periodic Micro-Payments) are widely used in the digital economy, for example buying a newspaper article versus a newspaper subscription. However, this cannot easily be transferred to the manufacturing industry and the main reason for this is marginal costs.

Marginal Cost

In the production of industrial goods, the production-independent costs (fixed costs) are allocated to all units produced. Fixed costs are, for example, rents, salaries and costs for machinery and equipment. These costs also exist if no unit is produced. If goods are now produced, additional costs, e.g. for the raw material, must be invested. In economics, marginal costs are those costs that arise for the production of an additional unit. In this example, the amount for the raw material. If an additional unit is produced, the costs for the material have to be paid once. If 10 more pieces are produced, it is ten times the material costs.

Due to discounts and learning curves, “economy of scale” effects dominate this industry. This means the more units produced, the lower the fixed costs. At the same time, however, fixed costs cannot be lower than marginal costs, which is why there is a trade-off that has been limiting industrial production for years.

Digital goods, on the other hand, have no marginal costs. If a newspaper article is published on the publisher’s website, theoretically no further costs arise for the download of the article by an additional reader. This means that fixed costs can be reduced completely, since no marginal costs limit the fixed cost degression. The advantage of digital products is that it can be particularly low-cost for the customer and at the same time the margins can be particularly high for the producer.

Zero Marginal Costs in Manufacturing?

The challenge now is to enable zero marginal cost models in the industry that has historically been managed exclusively on the basis of fixed cost degression for years. This zero marginal cost, considered as digital transformation or disruptive transformation, is the real challenge of industry 4.0 and the Internet of Production. The AWK is one of the largest production technology congresses in Germany and Europe. While most conferences present the current state of the art, the AWK aims to shape the future of production technology with pioneering work. More than 1000 guests from industry and politics are expected to attend on May 13–14th, 2020. Until then, the WZL x GCX x IOTA PoC is to be developed into an integral use case with real business models, focusing on the first zero marginal cost infrastructure for manufacturing of fine-blanked parts.