Research Finds Digital Goods Area a Tougher Sell Than Entrepreneurs Think Human psychology is why people will pay more for a book than an ebook.

By John Boitnott

Opinions expressed by Entrepreneur contributors are their own.

Petar Chernaev | Getty Images

Nobody wants to hear that a startup is doomed from the start. After all, entrepreneurs have to be beacons of hope and positivity to keep going when the going gets tough.

Sometimes, however, the odds are simply stacked too high. Recent research from Boston University and Switzerland has brought the hammer down on one marketplace in particular -- digital goods.

Part of being a successful entrepreneur is balancing optimism with realism. Let this reality check be just what you need to steer your startup in what may be a safer direction.

Related: 8 Pricing Strategies for Your Digital Product

The Real State of the Digital Goods Industry

Digital goods describe any type of product or service that does not have a physical form. Digital goods include music and movie files, ebooks and digital photographs.

Despite the modern world buzzing about the strength and success of the "Digital Era," research is showing quite the opposite effect in consumer purchasing behavior. A study published in the Journal of Consumer Research in October 2017 came to a surprising conclusion -- more consumers are willing to pay for physical goods than digital ones.

It seems everywhere we look there are new technologies and digital devices. Yet perhaps the novelty of the Digital Era exaggerated or distorted its actual effects on consumers, wrongly overshadowing physical good marketplaces. At least, this seems to be the case according to the study.

Despite the widespread digitization of favorite pastimes such as reading and watching TV, the dominant format of entertainment remains print books, DVDs, Blu-ray disks and physical prints of digital photographs, according to the study.

Surprised? You're not alone.

The media has often portrayed the digital goods marketplace as the gold standard for the modern consumer, and so many businesspeople ventured into this industry -- only to fail within the first year.

In five separate experiments, customers valued digital goods lesser than their physical counterparts. In one experiment, tourists were willing to pay 48 percent more ($3.39 compared to $2.29) for physical prints of a photograph instead of the digital version.

This experiment was not a fluke. Again and again, research showed that digital goods do not elicit the same feeling of ownership as physical goods.

Related: 15 Digital Tools and Apps to Jumpstart 2018

Where Did Previous Projections Go Wrong?

For some time now studies and projections have somewhat inaccurately categorized digital goods as a top industry in which entrepreneurs should start businesses. The problem is, traditional measures like consumer spending or GDP underestimate the value of this market now, because digital goods like the music industry for example, are "cannibalizing" assets, such as the CD players or record companies of old.

This digitization is occurring at a faster rate in other industries, like the ride sharing economy, "free" internet services supported by advertising, and others. This is preventing us from truly measuring the health of the digital economy properly. Piracy, copyright infringement, and other issues don't make it any easier.

Therefore, entrepreneurs should take projections that put the digital goods market in a glowingly positive light with a grain of salt. Digital market problems have more weight than many studies give credit.

Related: What are the Major Modules in Digital Marketing

The future of digital goods.

What does all this mean for entrepreneurs? The digital goods economy isn't dead. Trends still indicate significant purchase interest in digital goods such as games and ebooks. Yet the sector is obviously tough to break into and perhaps not as healthy as many entrepreneurs believe.

It comes down to a sense of posession. Buyers value physical goods more highly due to an increased feeling of ownership over the item. Consumers may also undervalue the experience of digital goods because they are more intangible.

As long as this difference exists, businesses in the digital goods sector may be playing catch-up with those in the physical. This latest research sheds new light on the digital goods marketplace and raises important questions about the health of the market that entrepreneurs should keep in mind. As new studies come out, do your research before venturing into the non-physical business realm. It might not be as lucrative as you think.

Wavy Line
John Boitnott

Entrepreneur Leadership Network VIP

Journalist, Digital Media Consultant and Investor

John Boitnott is a longtime digital media consultant and journalist living in San Francisco. He's written for Venturebeat, USA Today and FastCompany.

Editor's Pick

She's Been Coding Since Age 7 and Presented Her Life-Saving App to Tim Cook Last Year. Now 17, She's on Track to Solve Even Bigger Problems.
I Helped Grow 4 Unicorns Over 10 Years That Generated $18 Billion in Online Revenues. Here's What I've Learned.
Want to Break Bad Habits and Supercharge Your Business? Use This Technique.
Don't Have Any Clients But Need Customer Testimonials? Follow These 3 Tricks To Boost Your Rep.
Why Are Some Wines More Expensive Than Others? A Top Winemaker Gives a Full-Bodied Explanation.

Related Topics

Business News

Woman Goes Viral For Brow-Raising Email Signature About Working Moms: 'Everyone Is Feeling This'

The email signature was created in response to pressure to answer emails within 24 hours.

Money & Finance

The Ultimate Guide to Equity Compensation

This is a quick guide for employees to understand and familiarize themselves with the most important aspects of equity compensation.


7 Strategies to Master the Art of Mergers and Acquisitions

By following these best practices, parties can increase the likelihood of reaching a successful M&A deal that benefits all stakeholders.

Business News

California Colleges Are Flooded With 'Ghost Students' Attempting to Steal Financial Aid

About 20% of applications for California community colleges are fraudulent, according to the State Chancellor's Office.

Science & Technology

How AI Is Transforming the Accounting Industry — and What the Future Will Look Like

It's time to harness the power of AI and transform bookkeeping.