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Categorizing and specifying intangible web goods

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As a result of the insights into the macroeconomic and business segment environments of intangible web good providing firms it is obvious that various kinds of intangible goods do exist.

It does not appear to be adequate to come to the same conclusions with respect to value creation for goods as different as downloadable music and online stockbroking functionalities.

There still is a lack of investigation with regard to good characterization in the context of Internet business (Torlina et al., 1999).

Categorization criteria have to be derived and evaluated. In this context we assess which new differentiation criteria fit and which traditional forms of categorization still work for intangible web goods.

It has already been stated that only such firms that provide intangible web goods are taken into account” Here two problems arise with regard to the analysis:

(1) The same firm can offer tangible as well as intangible web goods; and

(2) From looking at examples such as online stockbroking or downloadable software, it is obvious that intangible web goods can have various forms.

Selecting a perspective that focuses on goods and not on firms as such solves the first problem.

From an exclusive perspective on the provided goods, opportunities to create value are analyzed.

In this context it is crucial to categorize different kinds of intangible web goods and thus solve the second outlined problem.

To make the analysis more systematic, in a first step certain basic differentiation characteristics of intangible web goods have to be shown before further characteristics are described on the basis of these.

By investigating intangible web-good specificities an innovative categorization of these goods has to be developed in a first step, since currently there is no categorization scaffolding for intangible web goods in the literature that can be used for the purpose of this book.

Categories of intangible web goods are developed in the next section. The resulting categories of intangible web goods are then further investigated with regard to their differences and similarities to come to a holistic understanding of their features and characteristics.

Developing basic categories of intangible web goods
Common intangible web goods offered via the Internet include, for example, downloadable music, videos, software, books, news information, search possibilities in various databases (for articles, addresses, price comparisons and jobs), functionalities to search the whole web, opportunities to participate in discussion groups or community forums, and functionalities to trade stocks or fulfill banking transactions or insurance business.

Just from looking at these examples it becomes obvious that these goods are not homogeneous but very heterogeneous.

A first relevant differentiation can be established with regard to product and service characteristics.

As outlined previously a clear differentiation between intangible web products and services is not obvious.

Even though it is sometimes hard to differentiate between products and services as such, differences can be shown with regard to the inclusion of the so-called “external factor.”

It is possible to assess the extent to which co-production between supplier and buyer is possible, necessary or even essential with respect to intangible web goods.

Home banking or online stockbroking functionalities are not possible if the user does not give a high degree of sensible information to the supplier of the good.

The consumption of such goods is only possible by the accurate identification of personal data of user and supplier.

There is ongoing data exchange between the good provider and user in which the user has to specify the wanted transaction in detail.

With regard to downloadable music or software, there is less necessity for the inclusion of the external factor.

Even though the user has to specify her or his wishes, there is no real interaction. Such intangible web goods are very much standardized.

The external factor also seems to be of low to medium relevance with regard to intangible web goods such as databank research.

Here, the user has to be more specific about individual wants than with regard to standardized web goods, but no in-depth interaction takes place.

From this differentiation the high or low necessity of interaction between buyer and supplier with regard to a specific intangible web good can be established as a relevant criterion for a general categorization of intangible web goods.

Another central criterion is time specificity. Cost structure, for example, is highly dependent upon time (Afeche and Mendelson, 2000; Kauffman and Walden, 2001).

It is obvious that on the one hand there are goods whose value is not highly time-specific (e.g. an e-book), while there are other goods where time specificity is the central feature (such as in online stockbroking).

The two dimensions “necessity of interaction” and “time specificity are taken to lead to a basic differentiation of intangible web goods. From combining the criteria “interaction necessity” and “time specificity,” the following r basic groups of intangible web goods evolve:

1 High-velocity co-production goods are goods that require a high degree of interaction between the supplier of an intangible web good and the user.

In addition, these goods are extremely time-specific. For such goods, seconds can determine their actual value.

Examples include online stockbroking, auction platforms or home banking functionalities.

2 Medium to slow motion co-production goods as well as the goods from Group 1 call for the necessity to include an “external factor.”

Here, interaction between provider and user takes place to an extensive dimension. Compared to the goods summarized in Group 1 these goods are not time specific to a high degree, but are valuable over a certain time period that may differ from medium to very long.

For instance, taking put in an online discussion group is of medium time specificity (even if it is not relevant to put in a response this second, it usually has to be done within a particular timeframe to create customer value).

The contents of an e-learning area on history, on the other hand, can be described as only changing in the long run, and thus time specificity is low.

Other examples that fit into the category of medium- to slow-motion co-production goods are community forums, and e-consultancy with doctors or lawyers.

3 High-velocity single-production goods form the third group to be differentiated. In contrast to the first and second groups there is no high interaction necessity with regard to these goods.

Of course the user has to specify his or her special wishes concerning the good, but that is about all the user has to contribute.

No real interaction takes place. The time specificity of these goods is very high. The core example of a good fitting into this group is news information.

All current pieces of information offered via the web which are topical for only a short period of time for the majority of users fit into this category.

4 Medium- to slow-motion single-production goods.
a Medium-motion single-production goods also do not imply a high degree of interaction going beyond a specification of the personal wishes as outlined for the goods categorized in Group 3.

In addition, time specificity does not play the major but only a medium relevant role.

Even though the value of the goods fitting in this category does not depend on seconds, to a certain degree they have to be up to date.

Thinking for example about search possibilities in databases such as the yellow pages, it becomes obvious that the data do not change every minute.

Nevertheless they have to be made topical every now and then. All conceivable online databases (whether for articles, price comparisons or images) or engines to search the whole web belong to this category.

b Slow-motion single-production goods differ to a certain degree front the goods fitting into Group 4a above.

They imply a degree of time specificity that is even lower than the time specificity outlined there.

The “half-life” of these goods in general is much longer. Even though pop music, for example, can be more or less up to date, different customer groups may demand a particular song over a longer period of time. The same is true for downloadable videos, books or software.

A matrix containing the outlined intangible good categories does evolve, building the basic systematization for the following examinations of competitive advantage realization with different kinds of intangible web goods.

The basic differentiation of intangible web goods is shown in further summarizes examples of intangible web goods fitting into the different categories to illustrate this systematization.

In the following sections building on this basic categorization, additional good characterizations from the literature are used to analyze further the specific characteristics of the groups of intangible web goods outlined.

Specifying the intangible web -good categories
In the following sections traditional characteristics are analyzed with regard to possibilities for using them to describe the specificities of the developed categories of intangible web goods.

After product and service characteristics are evaluated, inspection, experience and credence good characteristics become the center of attention.

(Quasi-) commodity and look-and-feel good characteristics are analyzed with regard to their relevance to the different categories of intangible web goods, before digital and information good characteristics, and singular and network-effect good characteristics, of the different intangible web-good categories are analyzed.

Product and service characteristics of intangible web goods
As outlined previously, a basic differentiation of goods is between products and services. Products as well as services serve to fulfill human needs. Traditionally, services as opposed to products are characterized by the following features:

• Non materiality or intangibility
• Non-storability (transitoriness)
• Independence of location
• Individuality
• Necessity of contact or inclusion of an “external factor” (co-production of supplier and consumer).

However, with intangible web goods it is not possible to conic to a clear differentiation of products and services with regard to these characteristics.

As shown above, we can basically differentiate between intangible web goods that make the inclusion of the so-called external factor necessary and those that do not.

With regard to the other criteria, clear differentiation becomes more difficult. All intangible web goods are nonmaterial and independent of location.

Intangible web goods can be individualized in the sense that opportunities for personalization (to a varying extent) do exist.

Simultaneity of the production and consumption processes is conceivable for intangible web goods.

However, the technological possibilities of the Internet also allow for a production process that takes place at a different time to the consumption process.

With regard to the aspect of non-storability, it can be stated that intangible web goods such as music or software are stored on the user’s PC.

Web goods such as search possibilities in databases or news information are usually consumed online and not stored.

However, it is possible to store the results front database searches or news information on the PC as well.

Even though no clear differentiation between intangible web products and services is possible, the outlined product and service characteristics from the literature do attribute to high-velocity co-production goods, medium- to slow-motion co-production goods, high velocity single-production goods, medium-motion single-production goods and slow-motion single-production goods.

It thus makes sense to use the shown factors to understand different features of the basic intangible web-good groups.

Even though it can be stated that all intangible web goods are non-material and independent of location to the same extent, there are differences with regard to the other shown features.

Looking at high-velocity co-production goods (Group 1) such as auction or online stockbroking functionalities, consumption and production processes are necessarily simultaneous.

As soon as file consumer puts in his or her orders, the good itself is impacted. Here the simultaneity of production and consumption is essential for value creation.

Medium- to slow-motion co-production goods (Group 2) are valuable in the eves of the customers to a certain degree because production and consumption process take place at the same time.

This is true for discussion groups or community forums. However, these goods evolve over time and change with the ongoing interactions of users.

Thus, here a permanent production process takes place. For the single parts of this permanent production process it is only of medium to low relevance of the consumption and production are simultaneous.

General news information as categorized in Group 3 (high-velocity single-production goods) does not require simultaneous production and consumption processes, even though here it can happen and call increase value, such as in the case of a news ticker.

In general, for goods from Group 3 only a low necessity for simultaneity of production and consumption processes can be recognized.

With regard to searching databases or search engines, the specific search results are produced and consumed at almost the same time.

The user of such a medium-motion single-production good (here categorized in Group 4a) initiates the production process lot- his or her special needs (e.g. in terms of the specific selection of addresses from a database).

The user here expects an immediate delivery via the web, and value is increased when the production process commences immediately.

Finally, the necessity for simultaneity of production and consumption process is not given for intangible web goods such as downloadable music, software or videos belonging to Group 4b (slow-motion single-production goods).

As stated above, storability is given for intangible web goods. However, again the relevance of the feature “storability” for the different outlined groups of intangible web goods varies.

Only a low relevance of storability can be found for intangible web goods, such as online stockbroking functionalities, which belong to the group of high-velocity co-production goods (Group 1).

A protocol of the transactions can be stored, but usually after performing a transaction there is no necessity to store the accompanying transaction information and use it again later.

Tile situation is different for medium- to slow-motion co-production goods, such as community forums or news groups, belonging to Group 2. Here, storability is essential for the creation of the good as such.

Storability is only o{‘ low relevance for high-velocity single-production goods such as news information (Group 3), or medium-motion single-production goods such as databank research (Group 4a).

Even though these intangible web goods can be stored on the user PC, this does not usually happen because of the central relevance of direct consumption.

Storability is an essential feature of intangible web goods, such as e-music or software, that belong to the group of slow-motion single-production goods (Group 4b).

Here, the buying process is settled via the web, and the good is downloaded and used again.

Individuality can also he attributed to different extents to different intangible web goods. Individuality means the degree to which opportunities to personalize a good exist.

While there is a high degree of individuality with regard to intangible web good from the first group of high-velocity co-production goods (such as online stockbroking) as well as for the second group of medium to slow motion co-production goods (such as community forums), goods such as news information belonging to the third group (high-velocity single production goods) imply a medium degree of individuality with regard to the fact that there is a potential for personalization that can be utilized or not with respect to the composition of certain news in a way adapted to specific customer interests.

Intangible web goods such as search possibilities in databases or e-music or software (medium- to slow-motion single-production goods categorized in Groups 4a and 4b) offer personalization possibilities, but only to a very limited extent.

Individualized e-music or personalized software is imaginable but not very common, as is assigning personalized search masks to customers for their individual use of a database.
The basic groups of intangible web goods show the listed features to a different extent.

The above table gives an overview of the different degrees of the shown characteristics for the different groups of intangible web goods.

Inspection, experience and evidence characteristics of intangible web goods
Traditionally, next to homogeneous goods, search and inspection goods, experience goods (Nelson, 1974) and credence goods (Darby and Karni 1973) are differentiated.

While the quality of inspection goods can be verified before the purchase of the good, for experience goods that is only possible after using it for a while.

Examination of the quality of any experience good is almost impossible before the purchase takes place.

With regard to credence goods, the problem (in addition to the experience good characteristics) is that, practically, only a subjective assessment of the quality is possible.

The consumer is able to assess the quality of a search good prior to the purchase, but is unable to assess the quality of an experience good until it is used. For credence goods, assessment of qualities is not possible even after using it.

A point of reference of the assignment of goods to one of these categories is the extent of the underlying information asymmetry .

Homogeneous goods (such as grain, steel, raw material of a particular standardized quality) are analyzed in neoclassical theory under the assumption of complete and symmetric information.

Concerning search or inspection goods (such as car tyres), the quality of the good can be examined sufficiently ex ante contract completion for relatively low costs.

Most long-living consumption goods fit in this category, for which the central question is whether price is adequate for the observable quality.

Information asymmetries play only a minor role with regard to search goods. Ascertaining the quality of experience goods (such as cars) is not possible.

Only when the purchase is finalized does it become possible to gain complete information about the quality.

In this category there is a clear connection between consumption and benefit. That becomes obvious when looking at typical experience goods, such as a meal in a restaurant or a visit at the hairdresser. The extent of information asymmetry here can be characterized as medium.

The existing information problem does not differ between experience and credence goods.

However, concerning r credence goods things become more complicated because there is no clear connection between consumption and benefit to be recognized.

A control problem emerges that implies that the maker of the good has certain space with regard to the buyer, because benefit and costs are not showing a clear interdependence. The extent of information asymmetry is high.

Moral hazard may be the consequence. An example of credence goods is bio-dynamic grown vegetables or fruit; here the buyer has to trust the supplier about the kind of farming used to grow the products.

Transferring these categories to intangible web goods leads to the following insights. The main features of all intangible web goods seem to be experience good characteristics.

In the area of intangible web goods, no examples for “pure” search goods can be found. Even if an e-book has some search characteristics (such as its price), it has to be read before knowing if the purchase was worthwhile.

A downloaded virus scanner is another example of an intangible web good with a high level of experience good characteristics.

It is not clear before the customer actually tries to install and use the virus scanner if it fulfills the expectations.

This can be stated for all outlined groups of intangible web goods. Since they have to be purchased before they are used and can only evaluated fully after being used, they show experience good characteristics.

Additional creditor good characteristics can be recognized with regard to some of the outlined groups of intangible web goods.

Medium motion single-production goods (Group 4a) such as databases imply credence good characteristics as well (here even ex post contract completion it is difficult to evaluate if a complex database really gives admission to all available sources).
Another example from this group would be firms offering price comparisons on the Internet (e.g., where the customer has to trust that all available prices for a specific product in the web are compared.

All the other outlined groups of intangible web goods do not show credence good characteristics to a great extent.

It becomes obvious that a clear differentiation between search, experience and credence goods becomes even more difficult with regard to intangible web goods than it is for traditional goods.

A clear assignment of intangible web goods to the shown categories is not always easy. Because of that it can be easier and more sensitive to assign different characteristics of goods to the different categories and not to try to assign the goods themselves.

Search characteristics of a good would, for example, be price, color or shape. Color and shape are obviously not possible characteristics of intangible web goods, so price is the only conceivable search good characteristic of an intangible web good.

All intangible web goods can be characterized as experience goods to a certain degree because the quality of all conceivable intangible web goods cannot be verified before the good is consumed.

In addition, certain credence good characteristics can be recognized. The extent of credence good characteristics, however, differs with regard to the different outlined groups of intangible web goods.

A downloadable book or software can be assessed a while after the purchase. The same is true for home-banking or stockbroking functionalities.

Goods such as database research or price comparison in contrast show additional credence good characteristics because it is not always possible to evaluate characteristics even after the purchase due to incomplete performance information.

In summary, the identified groups of intangible web goods all fit in the category of experience goods, in one case combined with credence characteristics.

This leads to the conclusion that the extent of information asymmetry can be assessed as high for Group 4a because of the relevance of credence good characteristics, while only medium information asymmetry can be observed for the goods characterized in the other basic groups.

The table below summarizes the different extents, of inspection, experience and credence good characteristics for the identified groups of intangible web goods.

(Quasi-) commodity and look-and-feel characteristics of intangible web goods
Figueiredo (2000a, 2000b) differentiates four kinds of goods with regard to e-business: “commodities,” “quasi-commodities,” “look-and-feel” goods, and “look-and-feel” goods with heterogeneous quality.

Commodities are, for instance, paper clips, screws and crude oil of a certain quality. For such goods the mere title and the specifications give complete information about all relevant characteristics and quality.

Examples of quasi-commodities are books, videos and new cars. There is a further differentiation because, for example, books about various topics exist.

However, once the consumer chooses a specific good it is identical across vendors. Alter deciding on one title, competition is similar to that in commodity markets.

A two-stage decision-making process can be observed. First, the consumer has to find the preferred good (book); in the second stage the consumer seeks the vendor with the lowest price arid highest reliability.

The quality of look-and-feel goods (such as clothes, furniture or cosmetics) is difficult lo assess from afar.

The market for look-and-feel goods is truly differentiated in all respects. Look-and-feel goods with variable quality, such as original art or used cars, show distinguishing features for each individual good.

Figueiredo analyzes the long term success potential for each of these from categories in combination with cost leadership or differentiation strategies.

He comes to the conclusion that success in e-business is more probable the less a good is standardized and the more difficult its quality is to assess.

He explains this result in stating that only goods with variable quality offer differentiation potential for the Internet firm, which might be exploited by building a trademark that signals trustworthiness.

Figueiredo sees only low success potential with regard to the sale of commodities and quasi-commodities on the Internet.

Here, lie differentiates between traditional incumbents that have substantial advantages in goods with look-and-feel characteristics and “new entrants” that have advantages in the commodity area.

“Commodity” characteristics are hard to find in the field of intangible wet) goods. It is questionable where to classify high-velocity co-production goods (Group 1) in Figueiredo’s categorization.

They are not quasi-commodities because it takes a while to assess the goods while using them.

After having used them for a while switching cost can prevent the user from changing to a new provider, thus competition in this area is not similar to that in commodity markets.

The same argument is true for medium- to slow-motion co-production goods (Group 2). Here the good is created over time in an interaction process; no commodity-market competition is to be expected.

For high-velocity single-production goods (Group 3) like news information, a quasi-commodity character can be acknowledged.

However, since these goods are highly time specific, the user might not search intensely for cheaper information.

In addition, news information is often not as easy to compare as, for example, e-books. Medium-motion single-production goods (Group 4a) such as search possibilities in databases are also not clearly quasi-commodities.

The user here has to formulate a search request and then receives various research results. The user of course can undertake the same search with different database providers and take the cheapest offer.

However, the search results will always (at least slightly) differ from each other. Thus (quasi-) commodity characteristics are not highly relevant with regard to this group.

Quasi-commodities in the area of intangible web goods are downloadable music or books.

Such goods are differentiated to an extent – for example, there are e-books on various topics or music by various performers.

However, if the customer decides to buy a particular good (e.g. a particular e-book), the good is not different from the same good (e-book) offered by a competing supplier.

After the customer has decided on a particular good, competition for quasi-commodities does not differ from competition in commodity markets. Thus, the outlined two-level process takes place with regard to buying such a good.

First the good is searched for; second, the cheapest provider is selected. In lentils of Figueiredo’s classification of goods, intangible web goods such as e-books, Internet downloadable software or music fall into the category of “quasi-commodities.”

No intangible web goods can be classified as look and feel goods because of then non material properties.

The only product category outlined by Figueriedo applicable to some intangible web goods would be the group of “quasi-commodities.”

Following Figueiredo’s reasoning, providing intangible web goods via the Internet thus would probably not lead to long-term success.

However, just classifying Internet goods in terms of Figueiredo’s categories seems insufficient.

It seems that Figueiredo’s classification does fit to e-business with traditional goods, but not to e-business with “revolutionary” goods in terms of intangible web goods.

Intangible web goods such as online stockbroking functionalities or news information do not fit into Figueiredo’s categorization at all.

Only intangible web goods such as downloadable music, software or books fit into this categorization and can be described as quasi-commodities.

In the following sections, other relevant characteristics of intangible web goods have to be outlined to collie, to a better description of this specific group of goods.

The table below outlines the extent of commodity and quasi-commodity features of the basic groups of intangible web goods.

Digital and information characteristics of intangible web goods
At the beginning of the 1990s many authors recognized that a new product category arose with digital goods such as software, newspapers or music files to be downloaded by customers upon demand.

With regard to the focus of this book, a first limit to relevant categories of goods is that only digital goods are taken into consideration.

Only those goods that can be digitized by definition can be consumed directly via the Internet and are the center of attention of this book.

Nevertheless, as outlined previously, it seems insufficient to regard digital goods as one homogeneous group of goods and to come to general conclusions for all kinds of digital good providers because very different goods can be digitized.

All intangible web goods are often summarized under the term “information good” (e.g. Clarke, 1999; Shapiro and Varian, 1999; Soete, 1999, 2001; Varian, 1999).

This is also not a sufficient categorization of intangible web goods. Again, different extents of relevance of accompanying characteristics can be deduced for the outlined basic groups of intangible web goods.

Digital goods are characterized by a couple of relevant features. While production costs for the first good are usually quite high, the marginal costs of production for intangible web goods are almost zero (e.g. Choi et al., 1997; Kahin and Varian, 2000).

Often the physical part of the production process of digital goods is relatively small. The most important part in production is played by human capital and embedded knowledge (e.g. Jones and Mendelson, 1997).

Intangible web goods possess certain public good characteristics. To understand fully the features that go along with public good characteristics of intangible web goods, it first has to be clear what the differences between private and public goods are and which problems go along with public good characteristics.

All goods bought and sold by private firms or individuals in the market are called private goods.

In contrast, the properties of a public good are that there is non-rivalry in consumption (i.e. the consumption of a public good does not preclude others from consuming the same good) and that there is non-excludability in the consumption of a public good.

Excludability in private goods is based on the ability of sellers to make their good available to its buyers, i.e. ensure that the private good is exclusive only to customers.

Non-excludability, on the other hand, means that it is very costly for an entity to prevent one or more persons from consuming a public good.

These properties of a public good cause problems of under-supply or overuse. This leads to two problems with regard to supplying public goods.

Individual consumers tend to become free riders on the providers of a public good. Supplying a public good requires some expense; however, its consumption is almost costless once it is provided.

Consumers will realize that they just have to wait for someone providing the good to gain all its benefits (because of the non-rivalry characteristic) without paying for it.

However, if all consumers act as free riders, the public good will not be supplied. In ensuring the sustainable use of a common resource, the best option for all users would be to cooperate.

From each individual’s perspective, non-cooperation leads to greater benefits than controlled usage.

If everybody thinks like this, overuse results. Excludability is not merely a matter of physical exclusion but a matter of market exclusion, which in turn depends on the assignment of a good’s property rights.

The owner of a private good has the right to exclude others from using a good (Durano, 2001 ).

Such exclusion is not easily possible for public goods. The feature of non-rival consumption characterizes digital products (Soete, 1999).

The use of a digital good by one customer usually has no impact on other customers also using the digital product.

Many digital goods on the Internet can be consumed by an unlimited number of users, if no technical restrictions (such as congested data highways and insufficient bandwidths) exist.

Public good characteristics are attributed to intangible web goods such as downloadable music or software (Soete, 2001).

Excludability, rivalry and transparency are seen as essential for the functioning of markets, but are not given for intangible web goods such as computer software, films or music.

The buyer of an intangible web good (e.g. software) is granted a non-exclusive right of use.

Since the seller still has the good it can be sold to many more customers, but the user can create copies of the good and resell/redistribute them to others.

The cost per unit of an intangible web good is almost fully dependent on the extent of the market. Usually a provider can only be successful if numerous intangible web goods are sold.

Choi et al. (1997: 70-2) outline indestructibility, transmutability and reproducibility as relevant features of digital goods.

“Indestructibility” here means that no matter how long and how often a good is used, its quality does not degrade.

“Transmutability” means that a digital good offers many possibilities for customization. Finally, “reproducibility” means that high-quality copies of the original can be produced at low cost, and thus refers to the feature of digital goods that marginal cost of production is almost zero.

In addition, it shows that the outlined problems of redistribution and pricing’” have to be solved for such goods.

However, it again is not the case that all outlined characteristics can be applied to the same degree to all possible intangible web goods.

It can be stated that the initial fixed costs of production are high for all intangible web goods. It always needs a certain extent of technology (PC capacity, bandwidth, etc.) and human knowledge to establish the provision of intangible goods via the Internet.

Basically, the marginal costs of production are zero for all intangible web goods as well. Marginal costs of production that are almost zero imply enormous potential for economies of scale. However, the consequences of this differ with regard to the particular good.

Looking at intangible web goods such as online stockbroking functionalities (belonging to high-velocity co-production goods from Group 1) or community forums (belonging to medium- to slow-motion co-production goods from Group 2), economies of scale can be realized with regard to the technical establishment of the platforms.

The more personalization takes place with regard to the single user, the less the potential to exploit economies of scale.

With regard to high-velocity single-production goods (Group 3) such as news information, the situation is a different one: since news information is a highly time specific good, economies of scale have to be realized in a very short period of time.

An article in a daily net-newspaper has to be read by a larger quantity of people in a very short time to make the realization of economies of scale beneficial.

The potential to realize economies of scale here is smaller than for goods belonging to the group of medium- to slow-motion single-production goods.

The feature “economies of scale” is important for medium-motion single-production goods (Group 4a) such as databases; the more customers use an existing database, the better.

Economies of scale are in practice especially relevant with regard to software 79 or music that is downloadable from the Internet, i.e. for slow-motion single-production goods (Group 4b).

High-velocity co-production goods (e.g. stockbroking functionalities) are, in their specific form for the individual customer, clearly rival goods.

Only the person using the stockbroking account with the provider has the specific admission code to the platform.

Exactly the same goods are not for sale because of the specific interaction between provider and user.

The problems of non-rivalry are not relevant for such intangible web goods, although they are highly relevant for the other categorized groups of intangible web goods.

Medium-motion single-production goods (such as search possibilities in databases), high-velocity single-production goods (such as news information), medium- to slow-motion co-production goods (such as discussion forums) as well as slow-motion single-production goods (e.g. downloadable music files) can be clearly analyzed as non-rival goods.

The characteristic of non-excludability is also not relevant for all groups of intangible web goods.

Clear opportunities to exclude users from good consumption exist with regard to the goods in Group 1(high-velocity co-production goods).

Because of the high relevance of personal interaction and the exchange of user-specific personal data, here the criterion “non-excludability” is not relevant.

With regard to medium- to slow-motion co-production goods (such as discussion groups or e-learning), exclusion is conceivable, but not always wanted.

Goods belonging to Group 3 (high-velocity single-production goods) can be redistributed to others.

However, it is less attractive to do so because of the time specificity of the good. Users can relatively easily be excluded from consuming the goods classified in Group 4a (medium-motion single-production goods); because goods belonging in this group such as database research are cut to the specific needs of the individual user, it is more difficult for the user to find possibilities to let others participate in the use of the particular database research result.

Finally, it is hard to exclude people from using the goods classified in Group 41) (slow-motion single-production goods), because users can copy the goods and redistribute them.

Intangible web goods often convey information. E-books, downloadable films or music are examples.

Even though information can be stored and transmitted in digital form, the digital form does not make it essential to sell these goods online (Torlina et al., 1999: (6).

A book can be printed; music can be recorded on CD. From the perspective of the consumer there must be differentiation between the value from the content and the value from the digital form provided via the web.

The value of the Internet based digital form, for example, is much higher for intangible web goods such as database research than it is with regard to music or a book.

Auction functionalities (i.e. high-velocity co-production goods) as well as discussion groups (belonging to medium-to slow-motion co-productions goods) in their specific form are only possible because of the functionalities of the Internet.

Their value has increased immensely through the Internet, because direct interaction is easily possible with relatively short reaction times.

For news information offered online (i.e. high-velocity single-production goods) there is no difference with regard to the pure information whether it is read online or in a printed form (e.g. a newspaper).

With regard to these high-velocity single-production goods, however, the properties of the Internet imply advantages with regard to the topicality of the delivered information.

In the digital form provided over the Internet news information can be updated every minute if wanted, while a newspaper in the traditional paper-based format is usually issued only once a day.

Thus, the extent of value creation because of the digital form can be assessed to gain a medium level.

The goods belonging to the group of medium-motion single-production goods (Group 4a) gain value greatly because they are available in a digital form. Search functions for the whole web are only possible in digital form via the web.

Downloadable music (as well as the other goods belonging to the group of slow-motion single-production goods) is – after being downloaded – no different from the same music bought in a shop already printed on a CD.

Indestructibility is given for all intangible web goods. Once digitized, the good does not cease to exist.

However, again there is a difference with regard to the relevance of this feature concerning the value-creation potential for the different basic groups of intangible web goods.

The value of high-velocity co-production goods (Group 1) for the provider because of the time specificity in combination with the high degree of personal interaction is not diminished by the feature indestructibility.

Even though it might not be possible actually to destroy such a good at a certain point in time, the good does develop over time.

Only this development creates value (or the user. Indestructibility is more relevant to the value-creation potential of medium to slow co-production goods (Group 2) because they are riot as time-specific as the goods belonging to the first group.

However, since interaction plays a crucial role for these goods and the goods do develop over time as well, indestructibility is only of medium relevance in terms of endangering value creation. Rather, indestructibility makes value creation possible.

Low to medium relevance of the feature of indestructibility for creating value can be deduced for high-velocity single-production goods (Group 3).

Since they lose then value very quickly, it does not matter much in terms of value creation that these goods are not destructible.

Medium-motion single production goods (Group 4a) such as search results of database research are also not destructible, however, since they are mostly highly shaped to the wishes of the specific customer at a point in time, only small dangers with regard to value-creation possibilities accompany the feature of indestructibility.

The opposite is true for slow-motion single-production goods (Group 4b) such as downloadable software or music.

Since these goods are able to create value for a longer period of time and are used again and again, the feature of indestructibility implies dangers with regard to value-creation possibilities with such intangible web goods in terms of reselling them.

The feature of reproducibility, i.e. that high-quality copies of the original can be produced at low cost, also applies to different extents to the basic groups of intangible web goods.

No relevance of reproducibility can be recognized with regard to the value-creation potential of high-velocity co-production goods (Group 1) such as stockbroking functionalities.

Even if such goods can be technically reproduced, there is no benefit for others in going along with this reproduction.

Reproducibility is of only low to medium relevance for the group of medium- to slow-motion co-production goods (Group 2) such as discussion groups or online consultancy.

Such goods are on the one hand cut to the special needs of a specific user; on the other they also develop over time.

High-velocity single-production goods (Group 3) such as news information can easily be reproduced.

The problem of this feature with regard to value creation, however, is not as great as for goods like music or software, since high-velocity single-production goods are highly time specific and do not appeal to consumers for long.

Only medium relevance of the reproducibility feature can therefore be recognized for goods belonging to this group.

A medium to low relevance can be seen for medium-motion single-production goods (Group 4a).

Since searches of the web or databases are usually carved to a specific user’s needs and the single user can be excluded from access when he or she has not paid for access, the danger of reproduction is only of medium to low relevance.

The feature of reproducibility is of very high relevance with regard to value-creation possibilities of slow-motion single-production goods (Group 4b), because these are appealing to many customers over quite a while.

With regard to the increasing importance of the Internet, the sale of so-called information goods becomes more and more relevant (Dietl 1999).

It has to be clarified if and how the characteristics of Internet information goods are to be differentiated from their traditional counterparts (Kauffman and Walden, 2001: 5).

Information providers have to cope with time so-called information paradox (Arrow, 1971; Shackle, 1952): nobody wants to buy a piece of information without knowing the information, and after knowing the information the buyer is not willing to pay for it anymore.

Mechanisms have to be found to solve the consequent problems of information providers on the Internet.

An example of intangible web good with information good characteristics is news information.

Again, different kinds of intangible web goods can be differentiated for which the information paradox has different consequences with regard to providing the good on the Internet.

Stockbroking or home-banking functionalities (high-velocity co-production goods) or e-learning functionalities or community forums (medium- to slow-motion co-production goods) are less affected by the problems of the information paradox because potential customers can examine the product before buying, but still have to acquire the good when they want to use it.

The problems described with a good characterized by the information paradox are clearly relevant for intangible web goods from Groups 3 and 4a, such as news information (high-velocity single-production goods) or the results of database research (medium-motion single-production goods).

All characteristics of the information paradox are given here. The problems shown above are not that relevant for downloadable music or software (slow-motion single-production goods), because these goods (from Group 4b) are not used just once but again and again.

In addition, parts of musical pieces may, for example, be made available to get an impression of the total piece, and functionalities of software can be explained without already giving away the entire intangible web good.

The table below summarizes the different degrees of digital and information good characteristics for different basic groups of intangible web goods.

Singular and network characteristics of intangible web goods
As outlined before, intangible web goods by definition are digital. Because of this feature they are typically interdependent with standards or technological compatibilities.

When thinking about the value-creation potential of the different groups of intangible web goods it therefore has to be taken into account whether the particular good implies network effects or not.

Network effects often play a crucial role with regard to the adoption of digital goods by the consumers (Kauffman and Walden, 2001: 27).”

Differentiation is made with regard to the benefit or value of a good: original benefit is differentiated from derivative benefit.

Original benefit means the benefit or value which a good implies for a consumer independently of the number of similar or complementary goods used by other consumers.

Derivative benefit on the other hand is the benefit or value which a good implies for a consumer by the fact that the good can be used in interaction with similar or complementary goods of other consumers (Taschner, 2001: 85).

Singular goods which imply only original benefit for the customer (e.g. fridges), indirect network-effect goods that imply original plus derivative benefit for the customer (e.g. PCs), and direct network-effect goods that imply only derivative benefit for the customer (e.g. telephones) can be differentiated.

The value of a network with direct network effects increases directly with the number of physical network members or connections (Katz and Shapiro, 1985: 424).

No singular good characteristics at all can be attributed to high-velocity co-production goods (Group 1) or medium- and slow-motion co-production goods (Group 2).

They are of no use to the customer as such, but only create value in interaction with others.

Clear singular good character can be attributed to intangible web goods categorized in Groups 3 (high-velocity single-production goods) and 4a (medium-motion single-production goods).

These goods do not depend on the number of other users or complements. Slow-motion single-production goods (Group 4b) depending on the degree of indirect network effects (between high and medium) imply a medium to low level of singular good characteristics, because it is possible that they also create value for the customer when used on their own.

Direct network effects in the area of intangible web goods can be observed for Group I goods such as auction platforms or stockbroking functionalities (high-velocity co-production goods) as well as for Group 2 goods such as virtual communities or news groups (medium- to slow-motion co-production goods).

No other basic group of intangible web goods implies direct network effects. Indirect network effects on the other hand exist if the value of a network increases with the number of available complementary products.

This aspect is less relevant for the goods belonging to the first (high-velocity co-production goods) and second (medium-to slow-motion co-production goods) basic groups of intangible web goods.

Complementary products do not play a central role with regard to the value-creation potential of these goods.

The same can be stated for news information (i.e. the group of high-velocity single-production goods) as well as search in databases (i.e. the group of medium-motion single-production goods).

Downloadable music, videos and software (slow-motion single-production goods) do imply indirect network effects.

All of these goods need other compatible goods to be used – for example, a player that can read and reproduce the downloaded music or operating software that can integrate the new software.

Such indirect network effects are highly relevant in the case of software,” but also play a crucial role with regard to a downloadable book.

It becomes obvious that there are various strategic issues with regard to network characteristics of intangible web goods that have to be taken into account when categorizing the goods and later when analyzing possibilities to create competitive advantage with intangible web goods.”

The table below summarizes the relevant characteristics of the categories of intangible web goods in this context.


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