How do firms make money selling digital goods online?

Abstract

We review research on revenue models used by online firms who offer digital goods. Such goods are nonrival, 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' revenues models from the increasing importance of the mobile internet.

The consumer production journey: marketing to consumers as co-producers in the sharing economy

“…Firms can benefit from consumer co-production in various ways. For example, firms can commercialize the focused consumer attention that co-production generates by attracting advertising to those consumers, or they can take a percentage of the income that is generated by consumers who are coproducers (Lambrecht et al 2014;Matzler et al 2015;Sundararajan 2016). However, these potential gains can be reduced by additional costs.…”

Retailers' Differentiation Strategy and Pricing in the Rental Market of Digital Content: A Case of E-Textbooks

“…Under the renting model, consumers rent the digital products or services for a certain period of time instead of buying the perpetual ownership. Lambrecht et al (2014) suggested that renting digital goods can be attractive models for consumers [34]. Rao (2015) pointed out that digital rights management (DRM) technology enables retailers to better control their digital goods as it could prevent them from being resold [44].…”

Online Shopping and Platform Design with Ex Ante Registration Requirements

“…Privacy and security concerns have, so far, received only little attention in the literature on market structures and platform design. Lambrecht et al (2014) emphasize the value of user information in their discussion of different business strategies in the context of digital goods. Our analysis of how the value of user information affects registration policies (in Section 5) is closely related to Akçura and Srinivasan (2005).…”

“…7 Brokering consumer information is an important source of revenue for online sellers (see, e.g., Lambrecht et al 2014). Moreover, one reason for consumers' privacy concerns is the sellers' economic incentive to use the information revealed by the customer, either by selling it to third parties or by targeting ads or personalizing offers.…”