How do firms make money selling digital goods online?

We review research on revenue models used by online firms who offer digital goods. Such goods are non-rival, have near zero marginal cost of production and distribution, low marginal cost of consumer search, and low transaction costs. Additionally, firms can easily observe and measure consumer behav...

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Bibliographic Details
Published in:Marketing letters 2014-09, Vol.25 (3), p.331-341
Main Authors: Lambrecht, Anja, Goldfarb, Avi, Bonatti, Alessandro, Ghose, Anindya, Goldstein, Daniel G., Lewis, Randall, Rao, Anita, Sahni, Navdeep, Yao, Song
Format: Article
Language:English
Subjects:
Advertising
Advertising research
Advertising to sales ratios
Brands
Business and Management
Consumer advertising
Consumer behavior
Consumer behaviour
Consumer information
Consumer policy
Consumers
Crowdfunding
Customers
Electronic commerce
Internet
Marketing
Marketing research
Modeling
Online advertising
Pricing
Privacy
Production costs
Profits
Revenue
Revenue stream
Studies
Subscriptions
Willingness to pay
Working papers
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Summary:We review research on revenue models used by online firms who offer digital goods. Such goods are non-rival, have near zero marginal cost of production and distribution, low marginal cost of consumer search, and low transaction costs. Additionally, firms can easily observe and measure consumer behavior. We start by asking what consumers can offer in exchange for digital goods. We suggest that consumers can offer their money, personal information, or time. Firms, in turn, can generate revenue by selling digital content, brokering consumer information, or showing advertising. We discuss the firm's trade-off in choosing between the different revenue streams, such as offering paid content or free content while relying on advertising revenues. We then turn to specific challenges firms face when choosing a revenue model based on either content, information, or advertising. Additionally, we discuss nascent revenue models that combine different revenue streams such as crowdfunding (content and information) or blogs (information and advertising). We conclude with a discussion of opportunities for future research including implications for firms' revenue models from the increasing importance of the mobile Internet.
ISSN:0923-0645
1573-059X
DOI:10.1007/s11002-014-9310-5