Classroom Companion: Business

Private goods
Common-pool
resources
Wikipedia
Gmail
Spotify
Internet access
Netflix
World of
Warcraft
Club goods
Public goods
. Fig. 6.4 Classification of digital goods. (Authors’ own figure)
 
Chapter 6 · Digital Goods and Services

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6
the digital economy even though digital goods and services are non-rival by 
nature. Since digital goods and services have zero marginal cost and, therefore, 
close to unlimited supply, the tragedy of the commons takes different appear-
ances in the digital economy, resulting in publishing of unwanted and illegal 
information and content, spam, denial of service attacks, and service abuse 
(Gapper, 
2017
).
6.4 
 Zero Average Revenue per User
Average revenue per user (ARPU) is an important financial indicator in economics. 
The ARPU states how much revenue an average user is generating over a specific 
period of time. For instance, the monthly ARPU for mobile subscribers in the 
USA is about $40. Total revenue for a mobile service provider is the ARPU multi-
plied by the number of subscribers. The mobile service provider will focus on 
increasing its total revenue by increasing both the ARPU and the number of sub-
scribers.
In the digital economy, several companies operate with zero average return per 
user (ARPU = 0), in which case the company does not receive any revenue from the 
consumers at all. Since the marginal cost is zero, the cost to attach users is also 
zero. This applies to all competitors offering the same service so that, to compete, 
goods are offered for free to the consumer by all of them. The suppliers do not 
compete on price but on user experience. In this economy, supply-demand curves 
are meaningless.
The main challenge for many companies in the digital economy is, therefore, to 
get revenue for its operations from sources other than consumers. A few companies 
have succeeded in this effort, for example, Facebook, Google, and Twitter. Their 
main source of revenue is advertisements: the more they know about their consum-
ers, the more attractive they are as marketing channels.
Note that ARPU = 0 is not a universal rule applicable to all digital services. 
Netflix, for example, has an ARPU >0 because consumers pay to access the 
service.