Friday, July 27, 2007

Segmenting the Market for Digital Products

Market segmentation is a critical component of any pricing strategy. When it comes to digital products, market segmentation often goes by the moniker of “versioning”. To give just two examples, digital product may be versioned by dimensions such as timeliness (delayed data is cheaper than recent data) or speed (versions of software that run at faster speeds are more expensive than those that run at a slower speed).

This story on a free wi-fi network along a 22km stretch of the Thames River in London is an example of versioning at work. The service is free at download speeds of up to 256kbps to users who agree to watch a 15-30sec advertisement every 15mins or so (that’s versioning by annoyance), while anyone who wants to pay for the service will not only avoid the commitment to watch an advertisement, they’ll also get faster download speeds.

By the way, further information on versioning can be found in “Information Rules: A Strategic Guide to the Network Economy”, by Carl Shapiro and Hal Varian can be found here.

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