The Economics of Electronic Commerce – Chapter Two: Characteristics of Digital Products

As the Internet progresses beyond merely being an efficient communications medium and truly expands the opportunity for trading goods, the very definition and basic characteristics of products will change in this electronic marketplace. Information is commonly thought of as the new commodity for electronic commerce. Information, which is often loosely defined to include software and so-called ‘edutainment’ products as well as other knowledge-based products that can be digitized and delivered via networks, has received the most attention in the public press. However, information even in its broadest sense is far from the only product that can be digitized. Many physical products can be made “smart” by adding an electronic interface to monitor and control their functions—for example, smart cars and smart appliances, which become hybrid digital products. Other examples are electronic currencies and various forms of financial instruments and securities. Even market processes are being digitized. For example, instead of driving to stores, consumers visit Web stores. Messages containing price quotes and orders sent over the Internet can indeed be considered to be digital products which perform the same functions as advertising and ordering in physical markets.