Profiting From The Digital Goods Boom

Ecommerce is mature, but within ecommerce there is an exploding category – digital goods. Digital goods include software, downloadable and streaming audio / video, image files, newspaper and magazine content, online courses, web and mobile applications and e-books. According to analysts at GigaOM, the overall market for digital goods will balloon to $36 billion by 2014 (from $16.7 billion in 2009) – that’s more than 100% growth in 5 years.

Certainly, traditional digital goods e-sellers like software manufacturers and developers, content publishers and telecommunications companies stand to benefit from this boom. But is the opportunity limited to them only? How can traditional retailers tap into the digital goods market? Can digital goods companies find new channel opportunities with traditional retail?

Let’s take a look at how physical goods e-tailers are already playing the digital goods field:

eBooks: Amazon, Barnes and Noble and Chapters Indigo all offer branded eReaders (Kindle, Nook and Kobo, respectively) and have added eBooks to their catalogs.

Music and Video: Walmart and Amazon have entered the mp3 download biz, and Amazon’s also taken on iTunes with Amazon Video on Demand (I suspect Walmart will follow). Cell phone manufacturer Sony Ericsson’s PlayNow Arena doesn’t just offer ringtones, games and wallpapers for download, but full CDs too.

Syndicated Apps: Retail applications are typically offered for free for branding and mobile commerce purposes, but third-party apps can also be added to a retailer's catalog - bundled with physical products, or upsold as complementary virtual goods. For example, Mantis Bible bundles and upsells relevant applications with its Bibles and hymn books.

Syndicated Content: Apparel and home furnishings giant Dillard’s has teamed up with magazine publisher Conde Nast to syndicate content from its magazine websites (Teen Vogue, Style, Glamour, Vanity Fair, Allure, etc), along with licensing its Reddit voting tool. While Dillard’s isn’t selling digital goods, it’s leveraging digital content to build community, and Condé Nast is able to monetize its Web content by licensing it out to Dillard’s.

Traditional retailers could easily upsell subscriptions to popular and niche magazines as a SKU on an affiliate basis, as there is a publication for every whim and fancy. Outdoor gear, cooking, business, health and fitness, parenting, bridal, hobbies and crafts, pets, kids, etc.

Affiliate Offers: Both physical and digital ecommerce companies can participate in the TrialPay program, which allows a seller to offer a product for free, provided the customer signs up for a participating TrialPay advertiser offer. The kickback the seller receives from the TrialPay partner is often more than the price of the item given away, so there's no loss to the seller. For example, Netflix can attract new signups to its subscription service from traditional retail sites.

Playfish gaming members must purchase playing credits, but may earn them for free by signing up with other game sites, credit report services, magazines, Netflix or even flower delivery services.

User-generated Marketplace Cafepress allows anyone to upload their own digital files to be printed on physical goods. Submitted designs become part of the Cafepress catalog, and are fulfilled by Cafepress. Similarly, application stores are leveraged by social networks, software and hardware manufacturers like LinkedIn, Quickbooks and Apple. Allowing developers to build and sell applications to users, these companies can offer better functionality to customers than what they could build internally, and make some money off the sale of apps built by third parties.

In addition to what sellers are doing today, imagine Victoria's Secret partnering with a major cable company to stream its famous Fashion Show for $4.99? Or product manufacturers licensing digital versions of product manuals to sell for $1.99 per access? The possibilities are endless.

Partnering with traditional retail is one way digital goods manufacturers, publishers and media companies can monetize. In our next Elastic Path ecommerce webinar Monetizing Digital Content - The Rocky Road Ahead we'll examine various business models for digital content, along with consumer research on attitudes towards consuming and paying for online content. Click here to read more and register for the webinar, happening Wednesday, December 8 at 9am PST / 12pm EST.