The dynamics of the market for digital goods could not be clearer: Internet connections (at broadband speeds) are increasing at a constant rate. More devices are being used for online buying, including game systems, smartphones, MP3 players, tablets and TVs. Online media consumption is up, social interaction online is way up, and therefore spending on digital goods is also going up.
At the same time, worldwide Internet connections are growing steadily, with new types of devices like mobile phones, game systems and TVs being connected to the Internet at the fastest rates. About a billion and a half people are connected to the Internet today. As more users have moved online, they’ve begun making more purchases as well. More than 200 million users worldwide have made an online purchase of digital goods, and that figure will more than double within five years, based on Gartner estimates. In our own forecast for this report, we believe that the value of the digital goods market will jump from $16.73 billion to $36.14 billion by 2014.
The intellectual property owners who participate in the digital goods market — film and TV studios/producers, game publishers, music publishers, social networking sites, book publishers, plus a large number of lifestyle service providers — mostly anticipate a continuously growing demand for their products. Their challenge is to reach an expanding user base equipped with new devices for getting to the content and to have direct user payments supplement other revenue sources (particularly advertising).
News and information publishers face a more difficult challenge in replacing lost advertising revenue from print publications with online revenues. Adopting micropayment technologies or putting a subscription paywall in place does not address the fundamental market reality that there is no evidence of demand for paid-for news content as long as the information is readily available from free sources. Some organizations will test this hypothesis in the next 18-24 months, but a 10-year debate has not revealed any substantial evidence to the contrary.
One business model doesn’t fit all. Music and digital gifts on Facebook sell well using a micropayments model. Video, news, other social networking services, and many lifestyle services will need other kinds of business models to be successful as paid-for digital goods.