Social mobile and local marketing

How Has E-Commerce Transformed Marketing?

How has e-commerce transformed marketing? Explain how social networking and the wisdom of crowds help companies improve operations. Research and discuss two examples of social networking.

QUESTION : How has e-commerce transformed marketing? Explain how social networking and the wisdom of crowds help companies improve operations. Research and discuss two examples of social networking.

Your submission must be in MLA format. This includes:

at least 2 full pages

1-inch margins

12-point Times New Roman

double-spaced

references and citations as necessary

BOOK

Management Information Systems, 16th Edition

ISBN: 9780135192047

By: Kenneth C. Laudon; Jane P. La...

Kenneth C. Laudon; Jane P. Laudon

10-1 What are the unique features of e-commerce, digital markets, and digital goods?

In 2019, purchasing goods and services online by using smartphones, tablets, and desktop computers is ubiquitous. In 2019, an estimated 224 million Americans (about 92 percent of the Internet population) will shop online, and 195 million will purchase something online, as did millions of others worldwide. Although most purchases still take place through traditional channels, e-commerce continues to grow rapidly and to transform the way many companies do business (eMarketer, 2018h). E-commerce is composed of three major segments: retail goods, travel and services, and online content. In 2019, e-commerce consumer sales of goods ($598 billion), travel and services ($213 billion), and online content ($23 billion) will total about $830 billion. Sales of retail goods alone will be about 11 percent of total U.S. retail sales of $5.9 trillion, and are growing at 12 percent annually (compared with 3.3 percent for traditional retailers) (eMarketer, 2018e; 2018c). E-commerce is still a small part of the much larger retail goods market that takes place in physical stores. E-commerce has expanded from the desktop and home computer to mobile devices, from an isolated activity to a new social commerce, and from a Fortune 1000 commerce with a national audience to local merchants and consumers whose location is known to mobile devices. At the top 100 e-commerce retail sites, more than half of online shoppers arrive from their smartphones, and 48 percent of e-commerce sales are now mobile, while 52 percent of purchases occur on the desktop. The key words for understanding this new e-commerce in 2019 are “social, mobile, local” (eMarketer, 2018d).

E-commerce Today

E-commerce refers to the use of the Internet and the web to transact business. More formally, e-commerce is about digitally enabled commercial transactions between and among organizations and individuals. For the most part, this refers to transactions that occur over the Internet and the web. Commercial transactions involve the exchange of value (e.g., money) across organizational or individual boundaries in return for products and services.

E-commerce began in 1995 when one of the first Internet portals, Netscape.com, accepted the first ads from major corporations and popularized the idea that the web could be used as a new medium for advertising and sales. No one envisioned at the time what would turn out to be an exponential growth curve for e-commerce retail sales, which doubled and tripled in the early years. E-commerce grew at double-digit rates until the recession of 2008–2009, when growth slowed to a crawl and revenues flattened (see Figure 10.1), which is not bad considering that traditional retail sales were shrinking by 5 percent annually. Since then, offline retail sales have increased only a few percentage points a year, whereas online e-commerce has been a stellar success.

Figure 10.1 The Growth of E-commerce

Retail e-commerce revenues grew 15–25 percent per year until the recession of 2008–2009, when they slowed measurably. In 2018, e-commerce revenues grew at an estimated 12 percent annually.

Sources: Based on data from eMarketer, “US Retail Ecommerce Sales, 2018–2022,” 2018c; eMarketer, “US Digital Travel Sales, 2018–2022,” 2018a; and eMarketer chart, “US Mobile Downloads and In-App Revenues, 2013–2017,” 2017a.

Figure 10.1 Full Alternative Text

The very rapid growth in e-commerce in the early years created a market bubble in e-commerce stocks, which burst in March 2001. A large number of e-commerce companies failed during this process. Yet for many others, such as Amazon, eBay, Expedia, and Google, the results have been more positive: soaring revenues, fine-tuned business models that produce profits, and rising stock prices. By 2006, e-commerce revenues returned to solid growth and have continued to be the fastest-growing form of retail trade in the United States, Europe, and Asia.

Online consumer sales (including travel and digital content) will grow to an estimated $830 billion in 2019, an increase of more than 12 percent over 2018 with 195 million people purchasing online and an additional 224 million shopping and gathering information but not purchasing (eMarketer, 2017b). The Internet influences more than $2 trillion in retail commerce that takes place in physical stores, about 40 percent of all retail sales.

The number of individuals of all ages online in the United States is expected to grow to 279 million in 2018, up from 147 million in 2004. In the world, more than 3.7 billion people are now connected to the Internet. Growth in the overall Internet population has spurred growth in e-commerce (Internet World Stats, 2018).

Approximately 106 million U.S. households will have broadband access to the Internet in 2018, representing about 82 percent of all households.

About 232 million Americans will access the Internet by using a smartphone in 2019. Mobile e-commerce has begun a rapid growth based on apps, ringtones, downloaded entertainment, and location-based services. Mobile e-commerce will account for about $267 billion in 2019, 44 percent of all e-commerce. Mobile phones and tablets are becoming the most common Internet access device. Currently, more than 80 percent of all mobile phone users access the Internet using their phones, although they also use their desktops (eMarketer, 2018b).

B2B e-commerce (use of the Internet for business-to-business commerce and collaboration among business partners) expanded to more than $7.7 trillion. Table 10.1 highlights these new e-commerce developments.

Table 10.1 The Growth of E-commerce

Business Transformation

E-commerce remains the fastest-growing form of commerce when compared to physical retail stores, services, and entertainment. Social, mobile, and local commerce have become the fastest-growing forms of e-commerce.

The breadth of e-commerce offerings grows, especially in the services economy of social networking, travel, entertainment, retail apparel, jewelry, appliances, and home furnishings.

The online demographics of shoppers broaden to match that of ordinary shoppers.

Pure e-commerce business models are refined further to achieve higher levels of profitability, and traditional retail firms, such as Walmart, JCPenney, L.L.Bean, and Macy’s, are developing omnichannel business models to strengthen their dominant physical retail assets. Walmart, the world’s largest retailer, has decided to take on Amazon with a more than $1 billion investment in its e-commerce efforts.

Small businesses and entrepreneurs continue to flood the e-commerce marketplace, often riding on the infrastructures created by industry giants, such as Amazon, Apple, and Google, and increasingly taking advantage of cloud-based computing resources.

Mobile e-commerce has taken off in the United States with location-based services and entertainment downloads, including e-books, movies, music, and television shows. Mobile e-commerce will generate more than $267 billion in 2019.

Technology Foundations

Wireless Internet connections (Wi-Fi, WiMax, and 4G smartphones) continue to expand.

Powerful smartphones and tablet computers provide access to music, web surfing, and entertainment as well as voice communication. Podcasting and streaming take off as platforms for distribution of video, radio, and user-generated content.

Mobile devices expand to include wearable computers such as Apple Watch and Fitbit trackers.

The Internet broadband foundation becomes stronger in households and businesses as communication prices fall.

Social networking apps and sites such as Facebook, Twitter, LinkedIn, Instagram, and others seek to become a major new platform for e-commerce, marketing, and advertising. Facebook has 2.2 billion users worldwide and 214 million in the United States (Facebook, 2018).

Internet-based models of computing, such as smartphone apps, cloud computing, software as a service (SaaS), and database software greatly reduce the cost of e-commerce websites.

New Business Models Emerge

More than 70 percent of the Internet population has joined an online social network, created blogs, and shared photos and music. Together, these sites create an online audience as large as that of television that is attractive to marketers. In 2018, social networking will account for an estimated 15 percent of online time. Social sites have become the primary gateway to the Internet in news, music, and, increasingly, products and services. (eMarketer, 2018f)

The traditional advertising industry is disrupted as online advertising grows twice as fast as TV and print advertising; Google, Yahoo, and Facebook display more than 1 trillion ads a year.

On-demand service e-commerce sites such as Uber, Lyft, and Airbnb extend the market creator business model (on-demand model) to new areas of the economy.

Newspapers and other traditional media adopt online, interactive models but are losing advertising revenues to the online players despite gaining online readers. The New York Times succeeds in capturing more than 2.8 million subscribers, growing at 25 percent annually and adding 400,000 new digital subscribers in 2018. Book publishing continues to grow slowly at 5 percent because of the growth in e-books and the continuing appeal of traditional books.

Online entertainment business models offering television, movies, music, and games grow with cooperation among the major copyright owners in Hollywood and New York and with Internet distributors such as Apple, Amazon, Google, YouTube, and Facebook. Increasingly, the online distributors are moving into movie and TV production. Cable television is in modest decline, as some viewers cut or reduce their cable subscriptions and rely on Internet-based alternatives such as Roku or YouTube TV.

The New E-commerce: Social, Mobile, Local

One of the biggest changes is the extent to which e-commerce has become more social, mobile, and local. Online marketing once consisted largely of creating a corporate website, buying display ads on Yahoo, purchasing search-related ads on Google, and sending email messages. The workhorse of online marketing was the display ad. It still is, but it’s increasingly being replaced by video ads, which are far more effective. Display ads from the very beginning of the Internet were based on television ads, where brand messages were flashed before millions of users who were not expected to respond immediately, ask questions, or make observations. If the ads did not work, the solution was often to repeat the ad. The primary measure of success was how many eyeballs (unique visitors) a website produced and how many impressions a marketing campaign generated. (An impression was one ad shown to one person.) Both of these measures were carryovers from the world of television, which measures marketing in terms of audience size and ad views.

From Eyeballs to Conversations: Conversational Commerce

After 2007, all this changed with the rapid growth of Facebook and other social sites, the explosive growth of smartphones beginning with the Apple iPhone, and the growing interest in local marketing. What’s different about the new world of social-mobile-local e-commerce is the dual and related concepts of conversations and engagement. In the popular literature, this is often referred to as conversational commerce. Marketing in this new period is based on firms engaging in multiple online conversations with their customers, potential customers, and even critics. Your brand is being talked about on the web and social media (that’s the conversation part), and marketing your firm, building, and restoring your brands require you to locate, identify, and participate in these conversations. Social marketing means all things social: listening, discussing, interacting, empathizing, and engaging. The emphasis in online marketing has shifted from a focus on eyeballs to a focus on participating in customer-oriented conversations. In this sense, social marketing is not simply a new ad channel but a collection of technology-based tools for communicating with shoppers. The leading social commerce platforms are Facebook, Instagram, Twitter, and Pinterest.

In the past, firms could tightly control their brand messaging and lead consumers down a funnel of cues that ended in a purchase. That is not true of social marketing. Consumer purchase decisions are increasingly driven by the conversations, choices, tastes, and opinions of their social network. Social marketing is all about firms participating in and shaping this social process.

From the Desktop to the Smartphone

Traditional online marketing (browser-based, search, display ads, video ads, email, and games) still constitutes the majority (58 percent) of all online marketing ($107 billion), but it’s growing much more slowly than social-mobile-local marketing. Mobile marketing now constitutes 70 percent of all online marketing. The marketing dollars are following customers and shoppers from the PC to mobile devices (eMarketer, 2018g)

Social, mobile, and local e-commerce are connected. As mobile devices become more powerful, they are more useful for accessing Facebook and other social sites. As mobile devices become more widely adopted, customers can use them to find local merchants, and merchants can use them to alert customers in their neighborhood of special offers.

Why E-commerce Is Different

Why has e-commerce grown so rapidly? The answer lies in the unique nature of the Internet and the web. Simply put, the Internet and e-commerce technologies are much richer and more powerful than previous technology revolutions such as radio, television, and the telephone. Table 10.2 describes the unique features of the Internet and web as a commercial medium. Let’s explore each of these unique features in more detail.

Table 10.2 Eight Unique Features of E-commerce Technology

E-Commerce Technology Dimension

Business Significance

Ubiquity. Internet/web technology is available everywhere: at work, at home, and elsewhere by desktop and mobile devices. Mobile devices extend service to local areas and merchants.

The marketplace is extended beyond traditional boundaries and is removed from a temporal and geographic location. Marketspace is created; shopping can take place anytime, anywhere. Customer convenience is enhanced, and shopping costs are reduced.

Global Reach. The technology reaches across national boundaries, around the earth.

Commerce is enabled across cultural and national boundaries seamlessly and without modification. The marketspace includes, potentially, billions of consumers and millions of businesses worldwide.

Universal Standards. There is one set of technology standards, namely Internet standards.

With one set of technical standards across the globe, disparate computer systems can easily communicate with each other.

Richness. Video, audio, and text messages are possible.

Video, audio, and text marketing messages are integrated into a single marketing message and consumer experience.

Interactivity. The technology works through interaction with the user.

Consumers are engaged in a dialogue that dynamically adjusts the experience to the individual and makes the consumer a participant in the process of delivering goods to the market.

Information Density. The technology reduces information costs and raises quality.

Information processing, storage, and communication costs drop dramatically, whereas currency, accuracy, and timeliness improve greatly. Information becomes plentiful, cheap, and more accurate.

Personalization/Customization. The technology allows personalized messages to be delivered to individuals as well as to groups.

Personalization of marketing messages and customization of products and services are based on individual characteristics.

Social Technology. The technology supports content generation and social networking.

New Internet social and business models enable user content creation and distribution and support social networks.

Ubiquity

In traditional commerce, a marketplace is a physical place, such as a retail store, that you visit to transact business. E-commerce is ubiquitous, meaning that it is available just about everywhere all the time. It makes it possible to shop from your desktop, at home, at work, or even from your car, using smartphones. The result is called a marketspace—a marketplace extended beyond traditional boundaries and removed from a temporal and geographic location.

From a consumer point of view, ubiquity reduces transaction costs—the costs of participating in a market. To transact business, it is no longer necessary to spend time or money traveling to a market, and much less mental effort is required to make a purchase.

Global Reach

E-commerce technology permits commercial transactions to cross cultural and national boundaries far more conveniently and cost effectively than is true in traditional commerce. As a result, the potential market size for e-commerce merchants is roughly equal to the size of the world’s online population (estimated to be more than 3 billion).

In contrast, most traditional commerce is local or regional—it involves local merchants or national merchants with local outlets. Television, radio stations, and newspapers, for instance, are primarily local and regional institutions with limited, but powerful, national networks that can attract a national audience but not easily cross national boundaries to a global audience.

Universal Standards

One strikingly unusual feature of e-commerce technologies is that the technical standards of the Internet and, therefore, the technical standards for conducting e-commerce are universal standards. All nations around the world share them and enable any computer to link with any other computer regardless of the technology platform each is using. In contrast, most traditional commerce technologies differ from one nation to the next. For instance, television and radio standards differ around the world, as does cellular telephone technology.

The universal technical standards of the Internet and e-commerce greatly lower market entry costs—the cost merchants must pay simply to bring their goods to market. At the same time, for consumers, universal standards reduce search costs—the effort required to find suitable products.

Richness

Information richness refers to the complexity and content of a message. Traditional markets, national sales forces, and small retail stores have great richness; they can provide personal, face-to-face service, using aural and visual cues when making a sale. The richness of traditional markets makes them powerful selling or commercial environments. Prior to the development of the web, there was a trade-off between richness and reach; the larger the audience reached, the less rich the message. The web makes it possible to deliver rich messages with text, audio, and video simultaneously to large numbers of people.

Interactivity

Unlike any of the commercial technologies of the twentieth century, with the possible exception of the telephone, e-commerce technologies are interactive, meaning they allow for two-way communication between merchant and consumer and peer-to-peer communication among friends. Television, for instance, cannot ask viewers any questions or enter conversations with them, and it cannot request customer information to be entered on a form. In contrast, all these activities are possible on an e-commerce website or mobile app. Interactivity allows an online merchant to engage a consumer in ways similar to a face-to-face experience but on a massive, global scale.

Information Density

The Internet and the web vastly increase information density—the total amount and quality of information available to all market participants, consumers, and merchants alike. E-commerce technologies reduce information collection, storage, processing, and communication costs while greatly increasing the currency, accuracy, and timeliness of information.

Information density in e-commerce markets make prices and costs more transparent. Price transparency refers to the ease with which consumers can find out the variety of prices in a market; cost transparency refers to the ability of consumers to discover the actual costs merchants pay for products.

There are advantages for merchants as well. Online merchants can discover much more about consumers than in the past. This allows merchants to segment the market into groups that are willing to pay different prices and permits the merchants to engage in price discrimination—selling the same goods, or nearly the same goods, to different targeted groups at different prices. For instance, an online merchant can discover a consumer’s avid interest in expensive, exotic vacations and then pitch high-end vacation plans to that consumer at a premium price, knowing this person is willing to pay extra for such a vacation. At the same time, the online merchant can pitch the same vacation plan at a lower price to a more price-sensitive consumer. Information density also helps merchants differentiate their products in terms of cost, brand, and quality.

Personalization/Customization

E-commerce technologies permit personalization. Merchants can target their marketing messages to specific individuals by adjusting the message to a person’s clickstream behavior, name, interests, and past purchases. The technology also permits customization—changing the delivered product or service based on a user’s preferences or prior behavior. Given the interactive nature of e-commerce technology, much information about the consumer can be gathered in the marketplace at the moment of purchase. With the increase in information density, a great deal of information about the consumer’s past purchases and behavior can be stored and used by online merchants.

The result is a level of personalization and customization unthinkable with traditional commerce technologies. For instance, you may be able to shape what you see on television by selecting a channel, but you cannot change the content of the channel you have chosen. In contrast, online news outlets such as the Wall Street Journal Online allow you to select the type of news stories you want to see first and give you the opportunity to be alerted when certain events happen.

Social Technology: User Content Generation and Social Networking

In contrast to previous technologies, the Internet and e-commerce technologies have evolved to be much more social by allowing users to create and share with their friends (and a larger worldwide community) content in the form of text, videos, music, or photos. By using these forms of communication, users can create new social networks and strengthen existing ones.

All previous mass media, including the printing press, use a broadcast model (one-to-many) in which content is created in a central location by experts (professional writers, editors, directors, and producers), with audiences concentrated in huge numbers to consume a standardized product. The new Internet and e-commerce empower users to create and distribute content on a large scale and permit users to program their own content consumption. The Internet provides a unique many-to-many model of mass communications.

Key Concepts in E-commerce: Digital Markets and Digital Goods in a Global Marketplace

The location, timing, and revenue models of business are based in some part on the cost and distribution of information. The Internet has created a digital marketplace where millions of people all over the world can exchange massive amounts of information directly, instantly, and free. As a result, the Internet has changed the way companies conduct business and increased their global reach.

The Internet reduces information asymmetry. An information asymmetry exists when one party in a transaction has more information that is important for the transaction than the other party. That information helps determine their relative bargaining power. In digital markets, consumers and suppliers can see the prices being charged for goods, and in that sense, digital markets are said to be more transparent than traditional markets.

For example, before automobile retailing sites appeared on the web, there was significant information asymmetry between auto dealers and customers. Only the auto dealers knew the manufacturers’ prices, and it was difficult for consumers to shop around for the best price. Auto dealers’ profit margins depended on this asymmetry of information. Today’s consumers have access to a legion of websites providing competitive pricing information, and three-fourths of U.S. auto buyers use the Internet to shop around for the best deal. Thus, the web has reduced the information asymmetry surrounding an auto purchase. The Internet has also helped businesses seeking to purchase from other businesses reduce information asymmetries and locate better prices and terms.

Digital markets are very flexible and efficient because they operate with reduced search and transaction costs, lower menu costs (merchants’ costs of changing prices), greater price discrimination, and the ability to change prices dynamically based on market conditions. In dynamic pricing, the price of a product varies depending on the demand characteristics of the customer or the supply situation of the seller. For instance, online retailers from Amazon to Walmart change prices on thousands of products based on time of day, demand for the product, and users’ prior visits to their sites. Using big data analytics, some online firms can adjust prices at the individual level based on behavioral targeting parameters such as whether the consumer is a price haggler (who will receive a lower price offer) versus a person who accepts offered prices and does not search for lower prices. Prices can also vary by zip code. Uber, along with other ride services, uses surge pricing to adjust prices of a ride based on demand (which always rises during storms and major conventions).

These new digital markets can either reduce or increase switching costs, depending on the nature of the product or service being sold, and they might cause some extra delay in gratification due to shipping times. Unlike a physical market, you can’t immediately consume a product such as clothing purchased over the web (although immediate consumption is possible with digital music downloads and other digital products).

Digital markets provide many opportunities to sell directly to the consumer, bypassing intermediaries such as distributors or retail outlets. Eliminating intermediaries in the distribution channel can significantly lower purchase transaction costs. To pay for all the steps in a traditional distribution channel, a product may have to be priced as high as 135 percent of its original cost to manufacture.

Figure 10.2 illustrates how much savings result from eliminating each of these layers in the distribution process. By selling directly to consumers or reducing the number of intermediaries, companies can raise profits while charging lower prices. The removal of organizations or business process layers responsible for intermediary steps in a value chain is called disintermediation. E-commerce has also given rise to a completely new set of new intermediaries such as Amazon, eBay, PayPal, and Blue Nile. Therefore, disintermediation differs from one industry to another.

Figure 10.2 The Benefits of Disintermediation to the Consumer

The typical distribution channel has several intermediary layers, each of which adds to the final cost of a product, such as a sweater. Removing layers lowers the final cost to the customer.

Figure 10.2 Full Alternative Text

Disintermediation is affecting the market for services. Airlines and hotels operating their own reservation sites online earn more per ticket because they have eliminated travel agents as intermediaries. Table 10.3 summarizes the differences between digital markets and traditional markets.

Table 10.3 Digital Markets Compared with Traditional Markets

Digital Markets

Traditional Markets

Information asymmetry

Asymmetry reduced

Asymmetry high

Search costs

Low

High

Transaction costs

Low (sometimes virtually nothing)

High (time, travel)

Delayed gratification

High (or lower in the case of a digital good)

Lower: purchase now

Menu costs

Low

High

Dynamic pricing

Low cost, instant

High cost, delayed

Price discrimination

Low cost, instant

High cost, delayed

Market segmentation

Low cost, moderate precision

High cost, less precision

Switching costs

Higher/lower (depending on product characteristics)

High

Network effects

Strong

Weaker

Disintermediation

More possible/likely

Less possible/unlikely

Digital Goods

The Internet digital marketplace has greatly expanded sales of digital goods—goods that can be delivered over a digital network. Music tracks, video, Hollywood movies, software, newspapers, magazines, and books can all be expressed, stored, delivered, and sold as purely digital products. For the most part, digital goods are intellectual property, which is defined as “works of the mind.” Intellectual property is protected from misappropriation by copyright, patent, trademark, and trade secret laws (see Chapter 4). Today, all these products are delivered as digital streams or downloads while their physical counterparts decline in sales.

In general, for digital goods, the marginal cost of producing another unit is about zero (it costs nothing to make a copy of a music file). However, the cost of producing the original first unit is relatively high—in fact, it is nearly the total cost of the product because there are few other costs of inventory and distribution. Costs of delivery over the Internet are very low, marketing costs often remain the same, and pricing can be highly variable. On the Internet, the merchant can change prices as often as desired because of low menu costs.

The impact of the Internet on the market for these kinds of digital goods is nothing short of revolutionary, and we see the results around us every day. Businesses dependent on physical products for sales—such as bookstores, music stores, book publishers, music labels, and film studios—face the possibility of declining sales and even destruction of their businesses. Newspaper and magazine subscriptions to hard copies are declining, while online readership and subscriptions are expanding.

Total record label industry revenues fell nearly 50 percent from $14 billion in 1999 to about $7.7 billion in 2016, due almost entirely to the rapid decline in CD album sales and the growth of digital music services (both legal and illegal music piracy). But revenues increased in 2017 by 16 percent to $8.7 billion primarily through the growth of paid subscriptions (RIAA.com, 2018). The Apple iTunes Store has sold more than 50 billion songs for 99 cents each since opening in 2003, providing a digital distribution model that has restored some of the revenues lost to digital music channels. Yet the download business is rapidly fading at Apple, down more than 25 percent in recent years, as streaming becomes the dominant consumer path to music. Since iTunes, illegal downloading has been cut in half, and legitimate online music sales (both downloads and streaming) amounted to $5.7 billion in 2017. As cloud streaming services expand, illegal downloading will decline further. Digital music sales, both digital download and streaming, account for more than 80 percent of all music revenues. The music labels make only about 32 cents from a single track download and only 0.5 cents for a streamed track. Although the record labels make revenue from ownership of the song (both words and music), the artists who perform the music make virtually nothing from streamed music. Artists’ earnings on a streamed song on an ad-supported platform like Spotify are pennies per million streams.

Hollywood has been less severely disrupted than the music industry by illegal digital distribution platforms, because it is more difficult to download high-quality, pirated copies of full-length movies and because of the availability of low-cost, high-quality legal movies. Hollywood has struck lucrative distribution deals with Netflix, Google, Hulu, Amazon, and Apple, making it convenient to download and pay for high-quality movies and television series. These arrangements are not enough to compensate entirely for the loss in DVD sales, which fell 60 percent from 2006 to 2017. Digital format streaming and downloads grew by 20 percent in 2017 and, for the first time, consumers viewed more downloaded movies than DVDs or related physical products. As with television series, the demand for feature-length Hollywood movies appears to be expanding, in part because of the growth of smartphones, tablets, and smart TVs, making it easier to watch movies in more locations.

In 2019, about 258 million Internet users are expected to view movies, about 82 percent of the adult Internet population. There is little doubt that the Internet is becoming a major movie distribution and television channel that rivals cable television, and someday may replace cable television entirely (see the chapter-opening case).

Table 10.4 describes digital goods and how they differ from traditional physical goods (eMarketer, 2018i)

Table 10.4 How the Internet Changes the Markets for Digital Goods

Digital Goods

Traditional Goods

Marginal cost/unit

Zero

Greater than zero, high

Cost of production

High (most of the cost)

Variable

Copying cost

Approximately zero

Greater than zero, high

Distributed delivery cost

Low

High

Inventory cost

Low

High

Marketing cost

Variable

Variable

Pricing

More variable (bundling, random pricing games)

Fixed, based on unit costs