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Digital Products 101: What Is a Digital Product?

To begin with, a digital product is basically any product you sell online that doesn’t have any physical form or substance.  However, you can turn digital products into physical products. For instance, many people buy e-books in a .PDF digital format and then print them manually. Also, digital product can be many things, but the most important one is to satisfy the customer and business owner at the same time.

Digital product satisfies the customer's needs and the business goals

Six principal ways in which digital product satisfies the needs of customers and the goals of business are: to make, to find, to exchange, to play, to sense and to respond.

We use a digital product to make new things

Firstly, it is an undeniable fact that nowadays, we create and communicate more and more digitally. As a matter of fact, the creation of internet enabled us to write, talk, comment, calculate or even draw to put a message across. As such, the internet enables us to do all of these at virtually no cost. The great examples of all these would be all the apps from the most influential IT companies, ranging from Google Docs and Slack, to Facebook and even YouTube.

We use a digital product to find the information

Secondly, what we used index, catalog, directory, map, timetable and out-of-home advertising for has been vastly replaced by infinite world wide web. To find the information is nowadays the most valuable and the number one reason Google is winning the internet. Consequently, we spend more of our time searching for people, places, events, services, material things and other digitized information. Also, in e-commerce, store shelves have become infinite. It goes without saying, Google Search is taking the spotlight in that category.

Google on the phone
Google.com

We use it to exchange the data

Moreover, having discovered or been matched with what we want, we need to purchase, subscribe, sign up, reserve, have it delivered, and gain access to.

 

Like the search, a direct access to goods and service is increasingly an integral component of a digital product. From general advertising in apps to subscription-based upgrades and buying tools in suites. For example, using an app to sign-on for a new bank account, is slashing the time, effort and therefore cost involved of the both: the bank and the customer.

 

Needless to say, service automation is a significant component of exchange. It makes businesses’ and certain customer interactions more efficient. It does that by gradually removing the people and bureaucracy (through smarter use of data) from the process.

We use a digital product to play

This is the class of networked software that involves consumption, entertainment and some aspects of education. We account passive actions like watch, listen and learn into that category. The value mainly derives from the content rather than tools, but because this is software, play products actually slide into discovery, sensing and making, not least through individual competition with machines or other people. Duolingo is a great example of such an interaction.

And we use it because IoT is able to sense and respond

The internet of things is vastly emerging. The interface between the logical and physical worlds involves sensing and measurement as well as control, tracking everything that we (and machines) do on the internet or in physical space. For instance, with a little help of AI algorithm, software and electronics easily recognize faces.

 

They can also sense, measure and record temperature, store and manipulate sound, detect and manage machine performance; analyse physical forces. Internet is powerful enough to open and close switches, adjust settings, illuminate displays, set off alarms, respond to touch, authenticate people and their money.

 

The most important and ubiquitous connected device today is the mobile phone. It enables us to combine an understanding of physical context with knowledge of past behaviour, thereby amplifying our ability to predict intention and desire.

Characteristics of a digital product

Mobile apps are one of the most popular digital products

Many people consider a digital product to be the only good model of today’s business philosophy, which is not necessarily the case. There are numerous and very important pros and cons of both, digital and physical products.

Advantages and disadvantages of a digital product

On one hand, a digital product offers great profit margins and low distribution costs. Compared to physical products, it also scales well and offer an instant delivery. Also, it provides a decent analytical feedback on customers using your product. however, the rate of product returns is quite low and so are the minimal costs associated with returns.

 

On the other hand, consumers are much less likely to pay for the software compared to a physical product. We usually use the freemium model as a method to attain a large user base and convert a small percentage to paying customers. However, a product must be extremely popular to succeed as a consumer product. If a product is a B2B SaaS, you will need to educate your staff to sell to your clients. Product should always provide increasing value the longer user uses it. This also increases the lifetime value of a customer and cuts the overall churn rate.

Characteristics of a physical product

Bellabeat bracelet
Bellabeat bracelet that's also an activity tracker

Advantages and disadvantages of a physical product

Regarding physical products, users are more likely to pay for those. They have a higher perceived value of the product because they can hold it in their hands. Ability to sell limited runs of products can be used as a leverage for the scarcity principle as a means of marketing. If the product is sold through a huge marketplace like Amazon, much of the traffic/marketing can be driven organically with minimal ad spend. That also means more perceived value when sending promotional units for reviews to bloggers and influencers. The latter also applies to running giveaway contests, which results in promotion that can drive a lot of traffic per dollar spent.

 

Physical products require high distribution costs, mostly due to costly shipping fees. Also, if the customer needs to repair, replace or return the item, it needs to be shipped once again which costs extra. Profit margins for the utilitarian products are lower, so the products need to be produced at scale to maintain them. Contrary, the premium margins are still usually healthy. Moreover, in order to promote the product, you need to pay an extra fee too. It is also much harder to get feedback about how customers are using your product.

So, should you go with a digital, a physical or both types of products?

As you have just seen, both products have its opportunities and drawbacks. According to the article by Darell K. Rigby on HBR, they can even co-exist in a form of a mash-up.

 

Want to read more about digital products? See the following posts on Clover Labs blog:
 

 

Not sure which combination is right for your business? Let’s see how we could help you with your decision.

 

Luka Mlakar

Luka Mlakar

Product designer and co-founder, working with startups and established businesses to create great products or redesigning existing ones so they perform better.