ARTICLE REVIEW

Digital Goods and Markets:

Emerging Issues and
Challenges

PGDM 2022-24
GROUP NUMBER ‘2’
SECTION ‘B’

SUBMITTED TO
DR. SUNIL M.V. ASSISTANT PROFESSOR HEAD – ACADEMIC
ADMINISTRATION
 MEET THE TEAM

22637 KAYDAWALA SAIFUDDIN MOIJ- B.SC (BIOTECHNOLOGY)

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22639 MADHAVA N R- B.COM

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22641 OMAR MOHIADEEN BAIG- BBA

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22645 PRASHANTH S - B.COM (TAXATION)

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22647 PRITHISH P- B.COM (FINANCE)

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22649 RAJ SHRI SARAN GUPTA- B. TECH (MECHANICAL ENGINEERING)
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22651 RAMACHANDRA M HEGDE- B.E (COMPUTER SCIENCE ENGINEERING)

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VTU IN THE YEAR 2021. HE IS A FRESHER AND CURRENTLY PURSUING PGDM AT
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22653 RIYAL VIVEK A- B.E (COMPUTER SCIENCE AND ENGINEERING)

RIYAL VIVEK A HAS COMPLETED B.E. IN COMPUTER SCIENCE AND ENGINEERING
AND GRADUATED FROM JSS SCIENCE AND TECHNOLOGY UNIVERSITY IN THE
YEAR 2021
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22655 SACHIN K NAIK- B.COM

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SIRSI AFFILIATED WITH THE UNIVERSITY OF DHARWAD IN THE YEAR 2021. HE IS
A FRESHER AND CURRENTLY PURSUING PGDM AT SDMIMD MYSORE
ABSTRACT

This research commentary examines the changing landscape of digital goods and discusses important
emerging issues for IS researchers to explore. We begin with a discussion of the major technological
milestones that have shaped digital goods industries such as music, movies, software, books, video
games, and recently emerging digital goods. Our emphasis is on economic and legal issues, rather than on
design science or sociological issues. We explore how research has been influenced by the major
technological milestones and discuss the major findings of prior research. Based on this, we offer a
roadmap for future researchers to explore the emergent changes in the digital goods arena, covering
different aspects of digital goods industries such as risk management, value chain, legal aspects, and
transnational and cross-cultural issues.

INTRODUCTION

Digital goods are intangible goods that are sold, delivered, and transferred in digital form. Many of the
most common types of digital goods are media files, such as music files, video files containing movies or
television programming, branded multimedia files, and other similar types of products. These can be sold
and distributed repeatedly online without the need to replenish inventory.

Digital goods can be sold on online marketplaces such as Amazon (e.g., an eBook or a movie). They are
frequently built into subscription monetization models such as Netflix or Disney+.

Finding a platform to sell your digital goods is common for the individual creator or small entrepreneur.

Others will choose to sell digital goods through a store on their website. You can sell your goods as long
as you have a location where customers can find them, pay for them, and gain access to them.

Some examples of digital goods are

NFTs Software’s
eBooks Online Courses

The realm of digital goods is perhaps the most disruptive change that has been experienced. This enabled,

1. The conversion of existing products to digital format

2. The creation of new and innovative digital products
3. The creation of new distribution channels
4. The broadening of markets, both nationally and internationally, whether intentional or unintentional

Unique characteristics of digital goods that set them apart, making market analysis unique and
challenging are: -

1. Digital form
2. Durability
3. No reproduction or distribution cost

Early digital goods tended to be digital forms of familiar physical goods, including music (from vinyl
discs to MP3 files), movies (from reels of celluloid to digital), software, and punched cards. Increasingly,
however, digital goods/services are either products without a clear physical version or ones that little
resemble any earlier physical counterpart. An example of a product type without an earlier physical form
is Massively Multiplayer Online Games (MMOGs).

Digital goods are disembodied goods in the sense that they can exist without embodiment in a physical
form. But to be used or "consumed," a digital good must be reembodied and linked to a physical platform
or device. The precise choices of disembodiment and re-embodiment are critical elements of the digital
good marketplace that set these markets apart.

As technology developed, component elements (articles, stories) were no doubt temporarily in the
disembodied form of digital goods as electronic files sent. But the final product remained a physical good.
As the Internet developed and expanded, the New York Times created a Web form of its product, now a
digital good that had to be reembodied using first a computer platform and subsequently any Web
accessing platform. Most recently, with the advent of the Kindle and the iPad, the New York Times now
has a physical good version and at least three digital good versions with differing re-embodiment forms:
one each for the Web, the Kindle, or the iPad.
This article aims to explore key economic and legal issues about research and challenges for research in
this arena. Now DGM research summary will be presented which will then be followed by Digital goods
research challenges.

BRIEF REVIEW OF DGM RESEARCH TO DATE

Digital goods and Digital Good Market (DGM) are recent phenomena that have roots in the technological
transformation that started sixty years ago. The figure gives a timeline of evolution, a period when
technological changes shifted various landscapes, including evolving of DGM. Development of magnetic
tape in 1928 for sound recording and patent application of Chester Carlson in 1938, for his electrography
process. This event laid a foundation, but their impact took place when the technological change was
incorporated. For magnetic tape, the form was a cartridge and for copying the form was a Xerox
photocopier. Here, the catalyst is technological change followed by the development and implementation
of a delivery platform that enables widespread access which results in market disruption. The first catalyst
was copying which was adopted by photocopying machines in libraries. The copying was mechanical in
nature and earlier it was much lower in quality than the originals.
Technology also played an important role in the history of the consumer accessing music. Earlier
recording devices are in the hands of companies related to the entertainment industry, the consumer was
not directly involved until RCA records developed the 8-track cassette tape device which rapidly gained
consumer interest and use. In 1965, Ford Motor Company offered 8 track players as an option in their
model cars. Though 8-track players didn’t provide disembodiment, they provide early mobility. The
automobile rapidly became a music venue where the consumers could choose the music and be freed
from the restrictive playlist and orderings of radio DJs.

In 1962, Phillips company developed the first “Compact audio cassette”. The main purpose was to enable
a small and portable voice recording device. This device is put in the hand of the customers, and it can
record and mix and match the music at will. This turned out to be the real demand for Phillips innovation.
Soon, dual cassette machines appeared, which enable direct copying from cassette to cassette. The
consumer can now alter the original recording. Compact cassettes were easily portable and rapidly
appeared in cars. Since significant research addressed the impacts of music copying did not develop.

Videotape devices came into commercial use in the 1950s, but it wasn't until the 1970's that any
significant consumer access was possible. Videotaping devices and camcorders enabled altering existing
conterminous (including voice-overs, textual material, and video editing). These technology
developments naturally led to conflicts between content creators and device providers. The presence of
differing standards brought to the fore the important market forces of network externalities and the
divergence of interests of the content and device producers.

When the PC was first released. the number of manufacturers, each with unique, incompatible proprietary
operating systems and standards, quickly increased in the early 1980s. Finally, in the latter part of the
1980s, the IBM and Apple platforms became the two leading platforms due to the desire for application
and file compatibility.

The development of dependable floppy discs made it possible to copy and exchange software. The
software was where a combination of accurate replication. The resulting unauthorized sharing of digital
goods caused revenue losses to sellers. Digital Rights Management (DRM) has been used by sellers to try
and stop piracy, but it could also limit how valuable the product is to actual customers.

Around 1991, a new volcano erupted due to the Internet, which also mobilized a plethora of researchers.
Everyone could now share anything that could be recorded or converted into a digital format. The advent
of the digital music business was facilitated by the development of MP3 standards and MP3 encoder
between 1991 and 1993, peer-to-peer file-sharing websites (such as Napster, 1999), and the expansion of
internet connectivity. The digitization of music and the development of fully mobile consumption devices
(platforms) have reinvigorated interest in content management, pricing, and standards. Since online
activity leaves footprints, researchers began to analyze and debate the extent and impact of such activity
at an unprecedented level of micro-detail. Of note is the emergence of a more nuanced perspective on
piracy, which considered potential benefits such as creating positive word of mouth and sampling
opportunities.

The set of digital goods continues to swell, the term “digital services” to the emerging digital good mix
that now includes smartphone applications, ringtones, and virtual worlds. a focus on software came first,
followed by music, and then movies, the video game market has not yet received much attention from
researchers. then moving to proprietary platforms (Nintendo, Sony PlayStation, and X-Box) and more
recently to multiple players, online-hosted communities. Increasing broadband capacity and access are
fuelling the emergence of Massively Multiplayer Online Games (MMOGs) These are video games
offered as an online service hosted on a Web server and played by hundreds of thousands of players.
Since MMOGs are served from a central server, the impact of piracy is likely less than for other digital
goods.

Digital goods seem like an ever-changing pulsar emitting flashes of light and attention on the latest and
greatest “must-have” digital goods or services.

A ROADMAP FOR FUTURE RESEARCH: A VIEW OF CRITICAL ISSUES IN

DIGITAL GOODS

In every major country, digital goods have already reached multibillion-dollar market levels, employing
hundreds of thousands and serving millions. Seemingly relentless innovation continues to transform
markets and shift industry landscapes. The impact of IT innovation has reshaped the supply chain and
enabled new digital goods and services to levels that stretch our abilities to track and understand the
digital landscape.
DIGITAL GOOD RISK MANAGEMENT

As part of successful business models, risk management has become increasingly important. Risk
management has traditionally included credit risk, operational risk, and market risk in typical business
settings. The typical risks remain for digital goods, but they are supplemented by complicating risks
related to key characteristics of digital goods, such as disembodiment and virtually zero reproduction and
delivery costs.
First, consumers frequently can modify or alter the digital good, which may result in unintended altered
form and use, or unauthorized and unexpected integration with other digital goods. Second, the harm
caused by an altered digital good can spread instantly around the world. Third, digital goods can be easily
sampled and rated, even before they are distributed. Incorrect reviews or misinformation can spread
across the digital world before the product is even officially available for purchase. The combination of
disembodiment, ease of modification, and the potential for fast and widespread dissemination of the
digital good and/or (mis)information related to or contained within that good repaints and complicates the
picture of risk management and risk avoidance. However, for researchers, the picture is one of the widely
available research opportunities. Can researchers discover new low-risk business models, pricing
strategies, and distribution strategies? Given that so many activities occur online and leave digital
footprints, can researchers effectively track and correct or counter inaccurate information on the firm or
its products using rich data availability?
A variety of customer-centric methods can be incorporated into risk mitigation strategies, such as
(1) Pursuing close customer interactions (seeking loyalty in return) through improvements, upgrades, and
support.
(2) Involving users in the creation and improvement of products.
(3) Emphasizing digital goods in which consumption shifts from a special experience to an activity
involving an immersive and interactive environment in which significant positive network effects are
central to the value derived by the consumer.

TRANSFORMATION OF THE TECHNOLOGY-ENABLED VALUE CHAIN

The logistics of the manufacture and delivery of digital goods are fundamentally changing as a result of
new business practices and technological advancements. Both the marginal cost and the time of
reproduction are essentially negligible for digital commodities.

Telecommunications businesses and computerized networks have taken the role of traditional physical
methods of distribution (roads, trains, airways, and canals). The supply chain is tremendously simplified
but also significantly disrupted by digitization. New corporate entities and procedures are introduced, old
market middlemen are replaced, and companies now have more options for vertically integrated supply
chain services.

Take the music industry's dynamic supply chain as an example. Through their involvement in recording
creation, distribution, promotion, and talent acquisition for the music industry, record labels have
historically provided value. The value proposition of these positions has significantly decreased as a result
of recent technology advancements. Nowadays, independent artists can use the Web, blogs, social
networks, and other technical tools to directly communicate with the consumer, playing any or all supply
chain roles. Because of disembodiment, digital goods companies can also work directly with consumers
to develop and deliver customized versioning and bundling. With digital goods, firms that utilize
electronic communities for product feedback and new product brainstorming can rapidly respond by
altering and customizing their offerings.

To create and provide customized versioning and packaging, digital product firms can also collaborate
directly with customers. Analysis of consumer-generated goods' efficacy and market impact, as well as
alternative business methods (such, possibly, revenue sharing), that are required to function successfully
in this space, are research problems in this area.

MARKET IMPACT OF LEGAL DECISIONS AND LEGAL AGREEMENTS

In the area of digital commodities, there are many significant legal challenges and issues. By definition,
such items can travel between seller and buyer across national or international borders as readily as they
can travel across a street in the same city. Without a personal encounter and a location that is identifiable
for either the seller or the buyer, digital good sales transactions, product delivery, and acceptance take
place online. And the question is Is a merchant considered to be locally based on their ISP, Web server,
place of residence, place of business registration, or place of a business owner nearby?
Even in e-commerce environments where actual good sales are made, U.S. courts still have trouble
comprehending how to properly apply the due process and commerce clauses. There is a physical
delivery involved. The question marks increase significantly when transactions involve digital goods. But
in the U.S., the interest in and drive for an expansive answer now appears linked to troubled state
economies and soaring public deficits.

But the issues go beyond taxation to include all aspects of producer/seller liability, product warranty,
consumer protection, and financial regulation (including fraud prevention). While governments and
regulatory agencies tend to focus on protecting the buyer, the seller is also exposed to growing risks since,
for digital goods, the seller has little means to guarantee the true location of the buyer. Although there
might be an IP address, proxies could mask the buyer's actual location. In DGM, vendors are unlikely to
have any influence over the locations of the people they do business with. As a result, it is unclear to what
regulations digital goods vendors are subject. Although vendors may attempt to include strict and detailed
terms in their stated "terms of the agreement," the legal strength of such "click to agree" terms is
questionable because different courts are unlikely to evaluate them consistently. 

These discussions lead us to suggest the following as important emerging research streams:

1. Analyzing using the market impact of alternative digital good taxing structures,
2. Modelling labeling and analyzing the impact of differing definitions and rules on transaction situs,
3. Modelling telling and analyzing the alternative feasible national and international agreements related
to taxing and regulatory authority.
TRANSNATIONAL AND CROSS-CULTURAL ISSUES

1. Digital Goods easily flow across multiple channels

2. It was a great complexity of regulatory and taxing authority.
3. If the agreement amount different states are seen as difficult then multi-county dealings seem
difficult to deal with in prospects
4. The fact is that these issues are not resold which adds risk for the digital goods and it’s providing fine
food for the Analysis of the business and legal research
5. Here legal peace may be the second international aspect that may show the most Challenges for
digital goods firms
6. It shows how they interact and how they socialize.
7. Considering the development and promotion of digital goods. Is an immersive and Intercreative
environment.
8. Can the digital goods be utilized by the firms to create a strategy the results in defense are
embodiments that are tailored for.
9. For Example, has Facebook served to reduce cultural defenses when it comes to digital goods used?
10. Will integrative research help the digital goods

AN INTEGRATIVE RESEARCH AGENDA FOR DIGITAL GOODS?

Research on DGM has found a progression in terms of technology in certain industries, it has also found a
shift in the market for those industries. As a result, there is a sizable group of research has progressed,
particularly in the software and music fields. As the users of DGM are on an increasing note, it is
appropriate to have researched an integrative perspective on digital goods in this scenario. With the help
of results from past research, there is a possibility to apply research findings on existing digital goods
which will help to conclude emerging markets for new digital goods. For example, consider piracy, which
continues to plague the entertainment and software industries and is now a threat to the e-book and movie
industries as well. The research paper questions whether the research findings from the music and
software industries are applicable and helpful in shaping strategies in terms of piracy for music and digital
movie markets. Although the product's actual attributes may differ, they all use similar platforms that
depend on personal consumption patterns to drive their business models. Currently, the other product
which is the video game industry has moved towards a network-hosted, interactive environment that can
reduce the risk of piracy.

As of now, research on various types of digital goods has yielded both consistent and inconsistent results.
Tech controls (digital rights management in the case of music, hardware, and software controls in the case
of software) are unfriendly to users and a barrier to enjoying the product, reducing demand. Furthermore,
the time and money spent by individuals to resolve possible obstacles do not translate into earnings for
the seller of digital goods. On the other hand, the available evidence indicates that the effectiveness of
legal threats to piracy varies. While software piracy is effectively deterred by legal sanctions, the findings
on the impact of legal sanctions on music piracy are often contradictory and, at best, modest.

We propose that the basic attribute of every single computerized great —immateriality — may give an
establishment to start to foster binding together standards of computerized merchandise. A characteristic
starting place for such examination is in any case reviewing the likenesses in discoveries and also the
take-off points across advanced merchandise. The examination can then prompt a look at the variables
that drive and make sense of the clashing results. While spirituality through digitization is the tie that ties
unique computerized merchandise, various other major qualities put advanced products aside from one
another. These distinctions incorporate the following: -

1. Consumption patterns: While products, for example, books and films are commonly one-time
utilization products (there are exceptions), software and music are described as repeated use.
2. Network effects: These are stronger in the case of entertainment goods (music, movies, and games)
than digital goods such as software. The demand for entertainment goods possesses characteristics of
“fashion goods” and thus exhibits some idiosyncratic properties.
3. Digital properties: Some digital goods require “lossless” replication and consume larger storage and
computing resources (e.g., movies).
4. Legal framework: The existing legal framework provides comprehensive legal protection for some
digital goods (e.g., copyright in the case of music). However, for some of the emerging digital goods
(e.g., massively multiplayer online role-playing games) there are significant legal gaps that providers
currently attempt to cover through end-user licensing agreements.

We provide a structured comparison of commonalities (common properties) and distinguishing

differences in key characteristics across digital goods in Table.

TABLE

Software Music Movies Books Video MMOG

games
Piracy
The market is Y Y Y Y N N
impacted Mostly Sold as a
negatively by proprietary service
piracy platforms hence
limit piracy is
piracy minimal
Digital good properties
Lossless Y N N Y Y N/A
compression
and transfer
required
Consumption patterns
Predominantly N N Y Y N N
one-time-use
Demand characteristics
High price Y N N N N Y
sensitivity
Market characteristics
Few products N Y Y Y Y Y
generated the
most revenues
We look forward to future research endeavors that add to the set of findings that are consistent across
specific sets of digital goods markets. At the same time, we expect parallel benefits to the field from
studies that identify and investigate those settings that require a unique and distinctive focus on the
specific characteristics of individual digital goods.

CONCLUSION
Structuring an agenda for future research on the digital goods market has been a difficult yet enriching
undertaking. Through this report, we have learned a lot about the digital good and digital goods market
and the broad importance of this arena. By following the timeline of technology and market evolution we
were able to understand the systematic perspectives and progress of digital goods. The study on digital
goods and research lead us to the view that the research community has now built mass knowledge which
can be used to build a set of general principles of digital goods.
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