How Do Firms Make Money Selling Digital Goods Online?
London Business School
University of Toronto - Rotman School of Management
Massachusetts Institute of Technology (MIT) - Sloan School of Management
New York University - Leonard N. Stern School of Business
Daniel G. Goldstein
Microsoft Research New York City; London Business School
Randall A Lewis
University of Chicago - Booth School of Business
Stanford Graduate School of Business
March 6, 2014
Rotman School of Management Working Paper No. 2363658
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.
Number of Pages in PDF File: 17
Keywords: revenue models, Internet, online advertising, digital goods, content, information, advertising, cookiesworking papers series
Date posted: December 6, 2013 ; Last revised: April 28, 2014
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