Classroom Companion: Business

Digital Goods 
and Services
Contents
6.1 
 Definitions – 74
6.2 
 Zero Marginal Cost – 78
6.3 
 Classification
of Digital Goods – 80
6.4 
 Zero Average Revenue
per User – 83
6.5 
 Digital Commodities – 84
6.6 
 Transaction Costs – 85
6.7 
 Bundling – 85
6.8 
 Conclusions – 86
 References – 89
6

---

74
6
 
n Learning Objectives
After completing this chapter, you should be able to:
5
Explain the concepts of marginal cost, exclusivity, commodities, and transaction 
costs for digital services.
5
Explain why some digital goods and services can be offered free of charge.
5
Understand why service bundling is particularly simple for digital goods and 
services.
6.1 
 Definitions
Everything in the digital economy can be mapped down to the production, circula-
tion, trade, and use of digital goods and services. The definitions of digital good 
and digital service are related and sometimes overlapping concepts but are also 
different in several aspects.
Definition 6.1
A digital good is a networked zero marginal cost virtual object having value for some 
individuals or organizations.
A digital good has, in addition, the following properties (Fournier, 
2014
):
5
The virtual object is intangible but can be stored as data on a digital medium, 
e.g., the consumer’s hard disk or smartphone or in the cloud.
5
The virtual object can be replicated without any incurred cost; that is, the mar-
ginal production cost of the object is zero as explained in 
7
Sect. 
6.2
.
5
The format of the virtual object must be such that it can be delivered to con-
sumers over the Internet, or in other words, the virtual object is networked.
5
The virtual object must have financial, psychological, or other value for the 
consumer (individuals or organizations). Virtual objects without value for any-
one are not included in our definition.
Examples of digital goods that satisfy this definition include Microsoft Word doc-
uments, music tracks on Spotify, webpages on the Internet, apps on iPhone, Wiki-
pedia articles, e-mails, data stored on electronic bank accounts, private data stored 
on Dropbox accounts, and the list of apartments on an Airbnb web page. These 
goods are all virtual objects; they have value for someone; they can be replicated 
without any cost; and they can be delivered to consumers over the Internet. Exam-
ples of non-digital goods are computers, mobile phones, and mobile base stations. 
These goods have value for someone, but none of them are virtual objects; they 
have non-zero marginal cost and cannot be sent over the Internet.