Information goods are commodities that provide value to consumers through the data or signs or other content, such as pictures, music or other sounds, that it contains and refers to any good or service that can be digitalized. Examples of information goods includes books, journals, computer software, music and videos. Information goods can be copied, shared, resold or rented. Information goods are durable goods and thus, will not be destroyed through consumption. As information goods have distinct characteristics as they are experience goods, have returns to scale and are non-rivalrous, the laws of supply and demand that depend on the scarcity of products do not frequently apply to information goods. As a result, the buying and selling of information goods differs from ordinary goods. Information goods are goods whose unit production costs (including distribution costs) are negligible compared to their amortized development costs. Well-informed companies have development costs that increase with product quality, but their unit cost is zero. Once an information commodity has been developed, other units can be produced and distributed at almost zero cost. For example, allow downloads over the Internet. Conversely, for industrial goods, the unit cost of production and distribution usually dominates. Firms with an industrial advantage do not incur any development costs, but unit costs increase as product quality improves.
Common trading models There are two common trading methods in information goods trading: the leasing model and selling model. Providers of information goods and services are increasingly adopting leasing models. With the leasing model, the user does not own the information good or service permanently but leases it from the provider and pays a fixed fee on a regular basis. For example, mobile music applications. Consumers pay monthly for listening rights to all songs on the platform. With the selling model, after payment is prepaid, consumers can use it unlimited times. For example, with video games from game companies, consumers can play the game regardless of the time any number of times after purchasing a game disc or network license.
Disadvantages Piracy is an important issue facing information service providers. A report from the U.S. Government Accountability Office states that counterfeiting and piracy have a wide-ranging impact on consumers, industries, governments and the economy. Generally, it depends on the type of infringement involved and other factors. These include lost sales, lost tax revenue, damaged brand value, and reduced incentives to innovate. For example, the software industry may be one of the hardest hit. In 2011, the piracy rate of US software products was about 20%. That alone cost the American software maker a whopping $9.5 million in lost revenue. In addition, social sharing of information goods involves buying and sharing a single good through a network of acquaintances such as friends or colleagues is also an important issue for suppliers of these goods. When customers buy an information good and send it to their friends or colleagues. The person who receives it does not need to buy it again. Although these actions do not involve piracy, it affects the sale of information goods.
Bundling strategy Although information goods can be copied in large numbers and sold after completion. But it can also be shared by customers who have already purchased it. Despite the growth of the Internet, the profits of information products will only decrease. As a result, producers started bundling. Bakos & Brynjolfsson (1999) found that bundling large numbers of unrelated information goods can be surprisingly profitable because the law of large numbers makes it much easier to predict the value consumers place on bundled goods than if they were sold individually.
Versioning strategy Versioning is a method of implementing second-degree price discrimination through varying the quality of a product. For example, a music software company may offer a "student version" of its software with fewer features at a lower price and a "professional version" with more features at a higher price. This approach is particularly advantageous when it is not costly to downgrade an information good to create one or more lower quality versions. Versioning involves a corporation offering its product in various versions and allowing customers to choose the one that suits them best. The goal for the corporation is to minimize expenses while meeting customer requirements as precisely as possible and matching the requested price to customers' willingness to pay. For information goods providers, producing different versions is relatively easy and cost-effective, especially for established products like a mail program or a communications portal. However, it is important to determine how many versions to offer. While it is theoretically possible to produce an individual version for each customer at a low versioning cost and achieve complete price discrimination, having too many product versions can be confusing for customers. The market should be able to easily distinguish between the performance differences of the versions to make informed purchasing decisions The best way to version information goods depends heavily on their network externalities. However, even for products that have significant externalities, the decision to version should also consider other factors such as how exclusive the network is and the costs involved in versioning Typically, vendors in proprietary networks benefit more from versioning than those in shared networks. For products that follow open standards or are compatible with other competing brands, vendors may consider reducing their versioning activities as it may not produce the desired benefits.
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