How do firms make money selling digital goods online?

Anja Lambrecht*, Avi Goldfarb, Alessandro Bonatti, Anindya Ghose, Daniel G. Goldstein, Randall Lewis, Anita Rao, Navdeep Sahni, Song Yao

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

29 Scopus citations

Abstract

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.

Original languageEnglish (US)
Pages (from-to)331-341
Number of pages11
JournalMarketing Letters
Volume25
Issue number3
DOIs
StatePublished - Aug 2014

Keywords

  • Crowdfunding
  • Digital goods
  • Internet
  • Online advertising
  • Paid content
  • Paywall
  • Pricing
  • Privacy
  • Revenue model

ASJC Scopus subject areas

  • Business and International Management
  • Economics and Econometrics
  • Marketing

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