17 Pages Posted: 6 Dec 2013 Last revised: 28 Apr 2014
Date Written: March 6, 2014
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.
Keywords: revenue models, Internet, online advertising, digital goods, content, information, advertising, cookies
Suggested Citation: Suggested Citation
Lambrecht, Anja and Goldfarb, Avi and Bonatti, Alessandro and Ghose, Anindya and Goldstein, Daniel G. and Lewis, Randall A. and Rao, Anita and Sahni, Navdeep S. and Yao, Song, How Do Firms Make Money Selling Digital Goods Online? (March 6, 2014). Rotman School of Management Working Paper No. 2363658. Available at SSRN: https://ssrn.com/abstract=2363658 or http://dx.doi.org/10.2139/ssrn.2363658