Peter Drucker, on Xerox:
One reason why the patents on a copying machine ended up at a small, obscure company in Rochester, New York, then known as the Haloid Company, rather than at one of the big printing-machine manufacturers, was that none of the large established manufacturers saw any possibility of selling a copying machine. Their calculations showed that such a machine would have to sell for at least $4,000. Nobody was going to pay such a sum for a copying machine when carbon paper cost practically nothing. Also, of course, to spend $4,000 on a machine meant a capital-appropriations request, which had to go all the way up to the board of directors accompanied by a calculation showing the return on investment, both of which seemed unimaginable for a gadget to help the secretary.
The Haloid Company—the present Xerox—did a good deal of technical work to design the final machine. But its major contribution was in pricing. It did not sell the machine; it sold what the machine produced, copies. At five or ten cents a copy, there is no need for a capital-appropriations request. This is “petty cash,” which the secretary can disburse without going upstairs. Pricing the Xerox machine at five cents a copy was the true innovation.
People don’t buy copy machines. They buy copies.
Bottom line: people don’t pay for products. They’re always buying something else.
photo credit: if winter ends on Flickr