What are digital products and how can you make money from them?
Date 07 August 2023
There are many companies that design and create digital products. But we are the only ones who make sure they are profitable for their owners. See what digital products are and how you can make money from them.
What will you learn from this article?
1. What digital products can you make money from?
4. Search and comparison engines
5. What are the advantages of digital products?
6. Which products to offer: digital or physical?
What digital products can you make money from?
A digital product, unlike a physical one, exists only in a virtual space. It therefore has no material form. It can therefore be an audio file, an animation, an ebook or a font. You have probably bought any of these products online more than once.
Of course, you can produce good music, animations or fonts and sell them online. However, this is a business for a very narrow group of creative makers. We will focus on slightly more versatile products that we can design and produce for you, and that will generate income for you.
SaaS means software as a service. In this business model, you can develop software to meet some need of your users and make it available to them in the cloud. You are responsible for the infrastructure on which the software runs, for keeping it up-to-date, uptime and security.
What do SaaS owners make money on?
- The user pays in a 'pay-as-you-go' model, i.e. for the resources used. He pre-pays for a certain number of units and uses the service until it runs out, and then buys them again.
- Another type of billing is subscription, which charges for access to services in perpetuity (you pay once, use for life) or limited in time (e.g. you pay a monthly, quarterly or annual subscription).
Remember, SaaS software will only be profitable if it fulfils an important user need.
Examples of commercially successful digital SaaS products:
- Trello - a project management system for companies, among other things, allows easy distribution of responsibilities among team members, gives them tools to communicate, presents schedules and reports on progress.
- Shopify - a system for building online shops; among other things, it allows the creation of a website from a template, with the option to sell, online payments, stock levels and even printing labels for shipping.
- Mural - a system for online discussion of projects, including jotting down ideas, pasting inspirational photos, creating mind maps and commenting on others' suggestions.
- Sprout Social - a system for marketers to manage communication in social media, including the ability to publish from one place posts on Facebook, Twitter, LinkedIn or Instagram, measure the effectiveness of activities and organise social media conversations with customers.
Marketplace is a huge online shop that offers products from a variety of brands. Both physical and digital products can be sold there. The owner of the marketplace makes space on its site available to various sellers. The software allows them to build their shops on the platform, present their products, accept online payments, manage the shipping of goods or provide customer service. The creator of the marketplace ensures that the entire system functions correctly, is updated and is secure. It also conducts promotional activities to increase user interest and website traffic.
How do marketplace owners make money?
- The main source of income for marketplace owners is the fees charged to the sellers operating on the platform.
- These fees can be a fixed amount, e.g. in the form of a monthly subscription, or they can depend on the turnover generated.
- It is also possible to earn money by providing advertising services that sellers purchase to promote their products.
- The owners of a marketplace can also trade in the marketplace, but this is not the rule.
Although the global marketplace is dominated by the big players (Amazon, eBay, AliExpress, Alibaba, Airbnb, Booking.com and, in Poland, Allegro), new sites are still emerging to make money. The recipe for success turns out to be specialisation!
Examples of lesser-known marketplaces that have been commercially successful:
- Get Your Guide - a marketplace that sells stationary services to tourists. Here you can find a guide to show you around the city, buy tickets for sightseeing, a local cooking course or meditation classes.
- Envato - a marketplace where digital creators from all over the world sell their music, photos, logos or designs for flyers, business cards, banners and websites. Here you will find millions of digital works in dozens of categories.
- Etsy - a marketplace that brings together dealers in art, antiques, artistic jewellery, crafts and vintage fashion.
- Chewy - an American marketplace for pet shop owners. Here you will find pet food, treats and toys, but also offers dog walking or pet care.
Search and comparison engines
Users can feel lost in the maze of offers available online. Whether they are looking for a toy for their two-year-old, a cinema ticket, home insurance or an all-inclusive trip. This is why search engines and comparison sites have been created.
They search marketplaces and online shops for products and services tailored to the user's needs. In order to create a useful, and therefore profitable, search engine, it is necessary to research well what criteria customers use to select the products in question. Price alone is not enough. When looking for plane tickets, whether the price includes baggage, whether the flight is direct and whether you get a meal on board may also be decisive. And when looking for a T-shirt, the brand, colour, cut, sleeve length and print may be decisive. Although there is also a group of customers for whom it is important whether the cotton used is organic. A search engine with such a filtering option can gain popularity and take over competitors' traffic.
What do search engine owners earn from?
- The main source of income for search engine owners is the commissions they receive if a user makes a purchase of a product or service they found on their site.
- Some search engine owners sign contracts with selected vendors and only compare their listings - in which case they may claim an exclusivity fee.
- Search engine owners also often offer advertising services that allow companies to highlight their listings in search results.
- A search engine can also be used as a tool to attract the attention of internet users and promote other products. We advised such a solution to a block manufacturer that launched a search engine for construction team listings. From our research, we found that people embarking on house building have problems finding builders. The search engine increased traffic to the website and generated more product sales. See our case study for details.
Examples of successful search and comparison engines:
- Trivago - compares hotel accommodation prices around the world, pulls information from major marketplace sites such as Booking.com, Hotels.com and Agoda.
- Booksy - allows you to find a hairdresser, barber and beautician, makes online appointments for nail painting, eyebrow adjustment or head massage.
- Rankomat - a search engine for insurance quotes, which gives you the chance to compare them in many respects and offers electronic contracting.
- Skiplagged - this flight search engine quickly began to pick up users from the popular SkyScanner when it introduced a 'hidden city' option - allowing you to buy cheaper connecting flights, only to then drop some sections.
As the Skiplagged example shows, even in a highly competitive market it is possible to find a functionality or search criterion that will build an advantage, win customers and start making money. In building any digital product, and search and comparison engines in particular, you need to constantly follow your customers. Identify their problems and offer ways to solve them.
What are the advantages of digital products?
- You can reproduce digital products quickly.
- Creating even a large number of copies of a digital product is cheap.
- You don't have to create digital products to stock up, because you duplicate them when someone wants to buy them.
- You can constantly change and improve your digital products - you can easily adapt them to current technical requirements or add new functionality.
- You can deliver digital products to your customers easily and cheaply - all you need is an internet connection.
- When you sell digital products, you don't need to have a stationary shop. You can use many existing online distribution channels.
- Selling digital products generates low fixed costs, so margins on them are much higher than on physical products.
Which products to offer: digital or physical?
- If you are just starting out with your business, you may immediately assume that your company will only offer digital products.
- But what if you've been in business for a few years and are doing quite well selling T-shirts, for example? In this situation, you won't be choosing between a digital product and a physical product. Since you are doing well selling physical products, add a second strong pillar to your business - start offering digital products and make money from them.
- Expanding your offering to include digital products can be the first step to turning your entire business 100% digital. Indeed, well-designed digital products can prove to be more profitable than tangible ones. We know of examples of such companies that, after launching digital products, have withdrawn from selling physical products.
Let us inspire you.
- Case studyXELLA: Corporate-startup
- Case studyVOGUE POLAND: Mobile App
- Case studyOPEN'ER FESTIVAL: Mobile application and festival management system
- Case studyNAVIPARKING: B2B sales support service