# Marginal Price of Software One of the things I miss the most about the early 2000s on the internet was zero-marginal-cost software. Back then, you could go on SourceForge or any other .exe repository, download a file and be on your merry way. For the creators of these applications, distribution cost almost nothing: just whatever they had to pay to host the downloadable files, or, if they used peer-to-peer, nothing at all. (This model is being revisited today by Jason Fried and DHH at Once.) That ease of reproduction made software an incredibly lucrative business opportunity, becoming a cornerstone of the high-tech industry we know today. Things changed as software became capital-S Software as a Service. When your apps are hosted in the cloud, zero-marginal-cost becomes low-marginal-cost. Still low enough to enable explosive growth. Certainly low enough that the subscription revenue makes up for the additional costs. But still, more expensive to reproduce: each user jacks up cloud utilization by just a little. LLMs are changing this equation again. Unlike other types of cloud infrastructure, LLMs have non-negligible costs associated with every API call. This leads to something I haven’t seen before - usage-based pricing not as a niche business model, but as a financial necessity for many software companies.