How do firms make money selling digital goods online?
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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
Published online: 24 June 2014 # Springer Science+Business Media New York 2014
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 This paper draws on discussions from the conference session at the 9th Triennial Choice Symposium in Noordwijk, Netherlands, co-chaired by the first two authors. A. Lambrecht (*) London Business School, London, UK e-mail: [email protected] A. Goldfarb University of Toronto, Toronto, Ontario, Canada A. Bonatti Massachusetts Institute of Technology, Cambridge, MA, USA A. Ghose New York University, New York, NY, USA D. G. Goldstein Microsoft Research, New York, NY, USA R. Lewis Google, Mountain View, CA, USA A. Rao University of Chicago, Chicago, IL, USA N. Sahni Stanford University, Stanford, CA, USA S. Yao Northwestern University, Evanston, IL, USA
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Mark Lett (2014) 25:331–341
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. Keywords Internet . Digital goods . Online advertising . Revenue model . Paywall . Paid content . Crowdfunding . Pricing . Privacy
1 Introduction For digital products delivered online, many firms can charge customers for access to content, sell information about their customers, or sell their customers’ attention in the form of online advertising. 1 Firms can also combine multiple revenue streams, for example, charge customers for a subset of services and generate additional revenues from selling advertising or information. For example, to monetize news online (e.g., nytimes.com), firms have long focused on advertising revenues but are increasingly offering subscriptions. Revenue models for music and movies (e.g., iTunes, Pandora, YouTube, Netflix) range from selling song-by-song to ad-supported and paid streaming. E-books (e.g., Kindle, OverDrive) a
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