Retail ecommerce sales exceeded $5.7 trillion USD globally in 2022. Physical products like food, baby goods and apparel represent the top sales categories. Still, digital products like ebooks, digital art and video games are taking up a larger share of overall ecommerce sales.
For many online businesses, selling digital products is an effective way to stay competitive and increase revenue without high overhead. But transitioning into the world of virtual goods is not as straightforward as it may seem. Before expanding their ecommerce stores to new markets or to include digital products, merchants must understand global tax implications, secure digital delivery processes and more.
In this article, we will discuss everything ecommerce brands should know about selling digital products online, including:
- The rise of digital products for ecommerce brands
- The difference between selling digital goods versus physical goods
- How to sell digital goods online
- The importance of a Merchant of Record
The Rise of Digital Products for Ecommerce Brands
The digitisation of physical products, like books and music, has opened new income streams for media publishers. In recent years, online gaming has grown and with it, digital video game revenue. Statista estimates global digital gaming revenues will hit more than $275 billion by 2027.
Recently, non-fungible tokens (NFTs) have emerged as another type of virtual good that generates buzz and sales. The road to universal understanding and adoption of NFTs has been rocky. As a result, the market has been volatile. But many beauty, fashion and luxury brands have created and successfully monetised NFTs.
Generative AI also influenced the rise of online digital products. The technology makes it easier for merchants to create content, innovate digital product offerings and enhance marketing and promotion. Ultimately, the technology lowered the barriers to entry and made selling digital products more affordable and accessible across the ecommerce landscape.
Thanks to these and other driving factors, the demand for digital products continues to grow. Here are a few statistics highlighting the current landscape:
- Between 2019 and 2021, daily active users of digital products increased by 54%
- Ebook sales reached $1.95 billion USD in 2022
- Digital music revenue totalled $495 billion USD in 2022
strategies, effectively cater to their target market and ensure the profitability of virtual offerings.
How to Sell Digital Goods Online
To optimise global digital sales, brands with ecommerce channels and digital aspirations must invest in a host of tools and processes. These tools should support virtual goods and integrate seamlessly with secure payment gateways, ensuring a positive customer journey at scale.
Digital sellers must also consider digital rights management processes. Brands must safeguard products from unauthorised distribution and have a reliable digital delivery system that provides post-purchase access.
Here are some of the most important systems to set in place before selling digital products online:
- Payment handling and organisation: Global ecommerce sellers should accept payments in the preferred, local payment method. This often necessitates the creation of merchant accounts and payment gateways in multiple countries.
- Metered billing and subscription systems: For retailers selling subscriptions or similar digital products, it is typically best practice to offer metered or use-based billing.
- Tax compliance: Digital sellers must comply with local tax laws in all countries where products are sold. This includes calculating, filing and remitting sales tax according to local jurisdictions.
- Fraud mitigation: Security is of the utmost importance when selling digital products online. Sellers should prevent fraud by leveraging fraud prevention platforms, especially when operating on a global scale.
- Robust infrastructure: The launch of a new digital product generates heightened excitement. Brands need to have a webstore infrastructure that can process high volume traffic and transactions.
- Marketing and support: Digital products require a unique marketing approach. Retailers should create a strategy designed to attract, retain and upsell digital customers.
Even legacy brands face challenges when selling digital products, especially into new global markets. As with physical products and services, selling digital ones in new countries or territories requires planning and local infrastructure. Having the right pieces in place ensures a high-quality customer experience which translates into loyal customers and ongoing revenue.
Embracing Phygital Products
One of the newest evolutions in online sales is phygital products. Phygital products are a blend of the physical and digital worlds. They offer a seamless user experience, incorporating elements of both tangible, real-world interactions and digital technology.
For instance, a phygital product could be a toy that interacts with an accompanying app. It could look like a retail store that uses augmented reality (AR) to enhance in-store shopping. The shopping experience can also involve buying a digital item and receiving a token or coupon to redeem for a physical item. For example, a footwear company could sell an NFT that includes a pair of physical shoes or vice versa. This type of phygital commerce is often referred to as a “digital twin.”
The idea is to create an immersive, interactive experience that leverages the best aspects of both physical and digital realms.
Phygital products and experiences are becoming increasingly popular. As technology continues to advance, business owners look for innovative ways to engage their customers. The goal is often to create a more personalised, engaging experience that bridges the gap between online and offline.
Bridging that gap means having the capability to fulfil orders with physical and virtual products in one cart. Brands must ensure the checkout and fulfilment process is seamless.
The Importance of a Merchant of Record
Brands must have the technical infrastructure to sell and fulfil digital orders. But they must also ensure tax and regulatory compliance in every market. For businesses wanting to grow their global digital commerce, partnering with a Merchant of Record (MOR) is essential.
At its core, an MOR accepts payments on behalf of a business, handling complex financial, regulatory and tax obligations. It manages everything from processing payments and handling chargebacks to ensuring adherence to international tax laws.
This greatly streamlines the sale of virtual goods online. That helps retailers navigate global digital taxation laws and diverse payment methods across the globe.
Sell Virtual Products with Confidence
As the demand for digital products increases, ecommerce brands have a unique opportunity to tap into a promising market. However, the road to digital selling has distinct challenges. To succeed, ecommerce businesses need to arm themselves with the right knowledge, tools and partners.
If you are ready to sell both physical and digital products on the same platform, ESW can help. We have a complete enterprise DTC solution that makes it easy for brands to sell digital products for international markets. All without interrupting core business functions. Start growing your virtual goods portfolio by contacting ESW today to learn more.
