Today internet businesses are able to offer their customers both tangible goods (products which can be physically touched) an intangible goods (products which exist in a digital form like music, movies, books and games) (Peppard & Rylander, 2005). While the sale of tangible goods via the web in some ways distorts traditional economic principles, the sale of intangible goods exaggerates the differences between traditional commerce and internet commerce. This section examines the sale of tangible and intangible goods and discusses Amazon.com as an example of an online retailer which supplies both tangible and intangible products.
Characteristics of selling tangible goods online
- No location or time restrictions - Shopping via the internet eliminates the need for customers to travel. Travel costs for customers (particularly those living outside larger cities) can sometimes outweigh the benefits of obtaining the product. Although online purchases often involve shipping costs to customers, Amazon.com uses the cost of shipping orders to customers to their advantage. By sometimes offering free shipping to customers who order value is over a preset amount, Amazon are able to encourage customers to place larger orders (Chaffey, 2012). However customer location continues to be a problem for traditional bricks and mortar retailers who, unlike online stores, do not have access to a worldwide customer base. Furthermore online stores are able to offer their customers 24 hour a day service (Few, 2008).
- No shelf space required - Although often thought of as an online book store, Amazon.com has expanded into other markets and now sells many new and second-hand items including clothing, shoes, electronics, tools, toys and equipment (Amazon.com, 2012). Unlike traditional bricks and mortar retailers (who need to find room in their showroom to display new products), Amazon.com's expansion into other markets has been somewhat simplified because their sales are made online (Brynjolfsson, Hu & Smith, 2006). Amazon.com has no need to find physical shelf space for new products to be displayed (Anderson, 2004).
- Further decreased costs - In addition there are other decreased costs that selling online offers stores. The need for sales staff is reduced (and can be eliminated), and the costs associated with tracking sales, processing orders and finding business information are also reduced (Few, 2008).
Amazon.com also offers customers products that are intangible or digitized products which include books, movies, television shows, apps and games. Few (2008, p. 204) states, "Quah (2003) defines digital goods as 'bitstrings, sequences of 0s and 1s, that have economic value', and identifies them as including 'ideas and knowledge, computer software, digital images, music, databases, videogames, blueprints, recipes, DNA sequences [and] codified messages'". The sale of digital goods by Amazon.com has been well received by customers, wth Amazon.com stating in 2011 sales of digital books (for Amazon's Kindle) were exceeding the sales of paperbacks (Chaffey, 2012).
Characteristics of selling intangible goods online
- Easy reproduction of goods - Few (2008) cites Quah (2003) stating that digital goods are "infinitely expansible" and refers to user's ability to easily copy these goods. However the ability to copy digital products does not necessarily mean that digital products can be shared. When referring to Amazon.com Walshe (2009) states, "You can't resell or share your books - because you don't own them". However it is important to note that Amazon.com has granted customers permission to lend certain digital books once for a period of two weeks (Amazon.com, 2012).
- Economies of scale - The abiltiy to easily supply multiple copies of digital goods to customers via an internet connection means the cost associated with the distribution of these goods are no longer an isue. The decreased cost of supplying copes of digitized products allows for increased benefits due to economies of scale (Liebowitz, 2002).
- Possible increase in value of goods - Although traditionally scarcity was often related to the increased value of product (Peppard & Rylander, 2005), the frequency of use of a digital product by a purchaser does not necessarily decrease its value (Few, 2008) (Peppard & Rylander, 2005). Furthermore as a result of the network effect the value of a digital item may be increased (Peppard & Rylander, 2005) (Liebowitz, 2002).
The Long Tail
The decreased costs associated with provideing both tangible and intangible goods online, together with the lessening effect of customer location, has allowed internet businesses to provide customers with a wide variety of goods that traditionally were considered too unconventional to stock. Bricks and mortar retailers often find that sales of niche products do not justify the cost of reserving space for the article (Anderson, 2004). However Anderson (2006, p. 114) states, "the mass market is turning into a mass of niches", and suggests that online stores are well placed to profit from these less popular products. This concept can be demonstrated when viewing an example of Anderson's (2004) "Long Tail" model as seen below.
Amazon.com and the Long Tail
Amazon.com's statistics show that over half of its books sales are derived from books that are not listed within its top 100,000 books (Anderson, 2004). Furthermore Anderson (2004) suggests, if the pricing of goods sold online (especially digitalized goods) were more directly related to the cost of supplying the consumer, customers would be encouraged to purchase less popular products, allowing businesses to gain substantial revenue from the sale of products that were previously unprofitable (Anderson, 2004).
This section has examined Amazon.com's sale of tangible and intangible goods and how traditonal economic principles are affected by the sale of these goods online.