The Digital Divide: Best Buy's Challenge Selling Digital Goods

In Friday's blog post, we looked at 5 tips for a good digital goods checkout. Today we're going to look at some of the pitfalls online businesses should avoid as they move into selling digital goods. Digital pureplays like Hulu and iTunes do not exist in the physical world and offer only digital products. Their user experience is optimized for consumers who are used to interacting with these brands in a digital manner, and they don't need to deal with the complexities and challenges that online retailers who primarily sell physical goods deal with when adding digital goods to their catalogs. Consider Best Buy, whose retail stores typically assign a quarter of their floor space to media products including music CDs, DVDs, Blu-Rays, console and PC games. According to a study by Forrester Research, 22% of music purchased in the US is in a digital format, with the sale of digital music formats expected to surpass those of CDs and vinyl in 2012.  As more and more music is sold in a digital format, consumers opt to view streaming movies and gamers purchase games direct from their PC or console, retailers like Best Buy will see falling in-store revenues from these product lines. Best Buy does currently offer digital products online, including mp3s, streaming video and software through microsites for the respective digital media types:

• http://www.napster.com for subscription access to unlimited music
• http://www.cinemanow.com for movie rental and purchase
• http://www.bestbuy.com for direct download software

In the case of these three digital content stores, Napster is owned by Best Buy (after an acquisition in 2008), Cinema Now is a joint partnership with Sonic Solutions and  Best Buy's software store is operated by a third party. This creates a problem for Best Buy. The sites are siloed from the main BestBuy.com store, so customers can't earn or redeem reward zone points during the checkout, use a balance from a gift card, or use coupon codes that they may find online or in promotional flyers. In addition, these microsites offer fewer supported payment methods, with no option to use PayPal. Worst of all, these microsites do not share customer accounts with BestBuy.com, forcing existing Best Buy customers to re-enter their personal information during the checkout and create yet another username and password. As other products move down the digital distribution path including console and PC games, Best Buy risks creating a fragmented and inconsistent online experience for their customers who wish to purchase digital goods. Imagine if you wanted to buy both a Blu-Ray player and a Blu-Ray movie in a Best Buy store, but you had to go to a different branded store across the street to choose and pay for the Blu-Ray ! Also, Best Buy does a poor job of cross-selling products where both a physical and digital version exist. For example there is no cross-sell on BestBuy.com for the digital version of Microsoft Office.

Even worse, the software microsite sells the digital version for $30 more.

Similarly, Walmart's mp3 store mp3.walmart.com and online video store www.vudu.com are also siloed microsites, exhibiting the same customer experience issues discussed above. The increasing demand for digital goods shows no signs of slowing. Many online retailers who sell music, games, software and movies are reacting slowly to the influx of new digital consumption services such as Steam for PC games which is estimated to have a 70% share of the digital distribution market for video games. As more retailers start to offer digital goods, they need to ensure that the sale of these products is well integrated into their existing ecommerce experience. Microsites are fine for niche or limited time products, but as consumer demand for digital products continues to increase, retailers must ensure that these products can be found and purchased side by side with their physical counterparts in the same online store. In our next Elastic Path ecommerce webinar Monetizing Digital Content – The rocky Road Ahead, we’ll examine various business models for digital content, along with consumer research on attitudes towards consuming and paying for online content. Click here to read more and register for the webinar, happening, December 8 at 9am PST / 12pm EST.