One Size Does Not Fit All in a Digital World

As mentioned in our Monday post, digital disruption is occurring in gaming, video, music, and numerous other verticals. Rapid consumer adoption of service-enabled devices like smartphones and tablets connected to the Internet has led to a crop of innovative competitors sprouting up. The new players – companies like Rdio, OnLive, and Hulu – aim to deliver better service experiences to consumers, challenging longstanding business models and industry stalwarts.

Indeed, some would even say that viable innovations must come from outsider organizations rather than incumbents. Clay Christensen, author of "The Innovator's Dilemma" and "The Innovator's Solution", being a case in point.

As digital content becomes more prevalent, traditional 'physical goods' business models like individual unit sales are no longer going to suffice. To successfully build ongoing strategic relationships with customers, providing an array of flexible business models – e.g. subscriptions, rentals, metered access – is important to meet the needs of various types of online buyers. In the digital world, one size definitely does not fit all.

This information (and more) was shared in our November webinar, Digital Disruption Is Happening. Content & Online Service Providers Must be Ready to Adapt. Available on-demand and recapped here.

Business leaders looking to make money from their catalog of digital content, software, or online services must find ecommerce solutions that allow flexibility to trial these alternative business models. A recently released Forrester report provides tactics for selecting the right vendor. Get your free copy of Market Overview – Digital Commerce Solutions 2011 here.

Digital commerce Q&A

Questions asked during the webinar are answered below by special guest, Forrester Research, Inc. Senior Analyst Peter Sheldon. Additional questions? Fire away in the comments!

What type of technology solution do you need to sell digital goods?

Content providers need to find ecommerce solutions that can support emerging business models. Rather than a typical ecommerce platform that only supports the sale of SKUs, look for a platform that can support sophisticated subscriptions, time-based access, and entitlements that are tied to the content management system (CMS) hosting and delivering the content.

Do I need to host the technology in-house, or can I outsource?

It really depends on your business. Global presence is one factor to look at. For firms that only have a U.S. operation but that need to sell globally, outsourcing to a partner with existing global infrastructure that can operate on your behalf can be very attractive. For larger enterprises that already have that global footprint – with legal entities in various markets around the world like China and Japan – managing ecommerce in-house may be less of an issue because they already have distribution and customer support outside the U.S. They may see efficiencies of scale by operating in-house. If digital commerce is of strategic importance, with high revenue potential, then ecommerce should probably be in-house as well. Another factor is internal IT sophistication. You can't make an in-house solution work without a highly capable IT team.

How do you evaluate and select a digital commerce vendor?

There is a still a place for the traditional request for proposal (RFP) but, at Forrester, we encourage firms to look at an alternative called scenario-based evaluation. It still requires a request for information (RFI) to create a shortlist of vendors who meet your criteria in terms of capabilities, features, cultural fit, and operational model. Then you use real-world scenarios to whittle down that list to one or two vendors. You ask vendors to come in to give you a mini proof of concept where they demonstrate their capabilities and map them to the scenarios that you've given them.

The scenarios could be customer-facing or internal day-to-day tasks. Examples are how you upload new content or manage promotions, pricing, merchandising etc. These types of scenarios allow you to take a deep look, not only at the technology, but also at the business user tools. Using scenarios, you can get a sense of how easy the platform is to use and how flexible it is.

In traditional ecommerce, success is generally defined by average order value, conversion rate, and traffic. How do you measure success in the digital world?

Typical ecommerce metrics are based around cart abandonment. But in the digital world, there really is no cart. Instead, what we are selling is access to content or a service. So service adoption – or sign ups – is important to measure. But what is more important is the conversion rate of free trials to paid subscriptions, and then tracking the lifetime value of that customer. How many subscription renewals are there? What is the uplift in subscription spend over time? These types of metrics have much in common with telecommunications operators who measure average revenue per user (ARPU).

How does a content provider build direct-to-consumer relationships, yet happily co-exist with so-called 'walled gardens' such as the Apple App Store?

It's certainly a challenge. We're seeing publishers building a hybrid strategy. They are offering subscriptions on their own sites so they can own the customer relationship and have access to the CRM data, but at the same time they are open to new customers coming from channels like Apple and Google.

Closed wall ecosystems do make it hard for content providers to build close relationships directly with consumers. For example, the Apple App Store is very closed but you must have a presence there. On the other hand, Android is a lot more open. You have to fight for the data from the third party distributors and look for creative ways to capture customer information so you can monetize it over time. We're seeing digital content firms pushing for better terms with Apple. And those terms are becoming a little more amenable than they were a year ago.

As we move from selling individual products or SKUs to selling access to content, how does the product catalog work?

In a traditional retail environment, the catalog is typically very large with tens of thousands of unique SKUs. But in the digital world, the number of SKUs or products is often very small, sometimes even as small as a single product with variations like subscription length (e.g. 1, 2 or 3-year) or access to advanced features. Some channels might have slightly different pricing as well.

So, on the face of things, the product catalog is very simple. The challenge is dealing with entitlements to the SKUs. The ecommerce platform is not just responsible for selling items, but must also play a role in provisioning content and services over the lifetime of the customer relationship. It must know when the consumer is able to download the content across multiple touch points like game consoles, smartphones etc. It must also manage the complexities of subscriptions. For example, if the consumer fails to make a monthly payment, it needs to put the subscription on hold.

Thank you, Peter!

Looking for help with digital commerce?

A recently released Forrester report provides tactics for selecting digital ecommerce solutions and looks at some of the key platforms available in the market today. Get your free copy of Market Overview – Digital Commerce Solutions 2011 here.

Looking for help with ecommerce strategy? Contact the Elastic Path Research & Strategy team at consulting@elasticpath.com to learn how our ecommerce strategy services can improve your business results.