How Do Firms Make Money Selling Digital Goods Online?

17 Pages Posted: 6 Dec 2013 Last revised: 28 Apr 2014

See all articles by Anja Lambrecht

Anja Lambrecht

London Business School

Avi Goldfarb

University of Toronto - Rotman School of Management

Alessandro Bonatti

Massachusetts Institute of Technology (MIT) - Sloan School of Management

Anindya Ghose

New York University (NYU) - Leonard N. Stern School of Business

Daniel G. Goldstein

Microsoft Research New York City

Randall A. Lewis

Amazon

Anita Rao

McDonough School of Business, Georgetown University

Navdeep S. Sahni

Stanford Graduate School of Business

Song Yao

Washington University in St. Louis - John M. Olin Business School

Date Written: March 6, 2014

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.

Keywords: revenue models, Internet, online advertising, digital goods, content, information, advertising, cookies

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

Anja Lambrecht (Contact Author)

London Business School ( email )

Regent's Park
London, NW1 4SA
United Kingdom

Avi Goldfarb

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada
416-946-8604 (Phone)
416-978-5433 (Fax)

Alessandro Bonatti

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

100 Main Street
E62-416
Cambridge, MA 02142
United States

Anindya Ghose

New York University (NYU) - Leonard N. Stern School of Business ( email )

44 West 4th Street
Suite 9-160
New York, NY NY 10012
United States

Daniel G. Goldstein

Microsoft Research New York City ( email )

641 Avenue of Americas
New York, NY 10011
United States

Randall A. Lewis

Amazon ( email )

312-RA-LEWIS (Phone)

Anita Rao

McDonough School of Business, Georgetown University ( email )

37th and O Streets, N.W
Washington DC, DC 20057
United States

Navdeep S. Sahni

Stanford Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States

Song Yao

Washington University in St. Louis - John M. Olin Business School ( email )

One Brookings Drive
Campus Box 1133
St. Louis, MO 63130-4899
United States

HOME PAGE: http://www.songyao.org

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