Last updated on 21 April 2022
Digital downloads are known to cost more than physical copies, whether you’re getting a game, music, or even movies. They can be easily sold online through Shopify, Etsy, Apple TV and many other stores.
Although digital products hold their value longer than physical products and you don’t physically have something to show for it, they are usually way more expensive. I will dive deep below on why this is, you may be surprised but there are many good reasons for it.
5 Main points on why digital products are expensive
1. They are more convenient
It’s not surprising that digital downloads are more expensive because they are more convenient. You can quickly get a digital product online from the comfort of your home, but with a physical product, you need to visit the physical store and buy it or wait for it to be posted. Since the product is easy to get, you don’t have to do much to buy it.
It goes by the saying “people pay for convenience”.
2. Digital Downloads are easily accessible
Digital downloads are also easily accessible as long as you have internet or it downloaded on your device. You have to visit an online store and search for what you want, but with a physical product, you might have to look for it from store to store before purchasing it.
3. The Digital Goods VAT Tax
There is now a legal requirement for every online store/platform to collect VAT on their digital sales in the EU. This was because of large companies basing themselves in a VAT-free country, selling digital downloads and avoiding paying VAT taxes.
This means that all businesses (small and huge even if they don’t hit the VAT threshold) need to pay the VAT in the billing country of the customer they are serving. Thus, the stores need to increase the price of the product to cover this charge. Some countries have a VAT rate of 29%, which is insane. The average VAT rate of all EU countries is around 22%.
The VAT is paid to all the EU countries by using the OSS (one-stop-shop) scheme. You register for OSS in a country of your choice in the EU, then you pay this country the total sum of VAT and they distribute it to all the other countries.
The way VAT works is that the customer needs to pay it. Only business-to-business transactions are VAT-free. This affects everyone worldwide such as movie lovers and gamers.
You got to remember also, VAT is a completely separate tax from corporation tax. Corporation tax in the UK was 19% as of 2021. So once you pay VAT to OSS, then you need to pay an extra 19% corporation tax on the company profits. Now you can see why it’s expensive to run digital downloads.
4. Digital downloads don’t deteriorate
Digital products can never be considered used, unlike the way physical products can be. The value is always the same whether you have used it for a long time or not, but if you buy a physical good, you might have to resell it at a lower price.
With digital downloads, although they hold their condition, they can easily be copied or pirated depending on the download. I will go into more depth below.
5. Digital download costs to maintain
Software & security
Software development and security to protect digital downloads comes at a high cost. They are very technical and skilful jobs which require a high level of expertise. With the amount of hacking going on these days, security is so important.
Bandwidth & web servers
Also, bandwidth comes at a cost too. You would be surprised but bandwidth is quite expensive. Bandwidth is essentially the measurement of uploading and downloading files. The way the internet works is by hosting these files on web servers dotted around the world and when we access a website or digital download, bandwidth is used to deliver the web pages or files to your computer.
A fun fact for you – AWS (Amazon Web Services) control 33% of the internet in the 3rd quarter of 2021. That’s a large amount of the internet! Even Netflix runs its services on Amazon, think of how much bandwidth they use.
Let’s not forget that physical products cost too, but they may not require as much expensive expertise depending on the product.
Have you noticed when you’re on Youtube, Netflix or Discord that if you keep playing for a long period of time, they will pause the video and ask are you still watching? This will be to reduce their bandwidth usage if they believe you are not watching anymore.
Downsides to digital downloads
Hard to transfer
Usually, digital downloads are assigned to your account so it’s hard to pass the game or movie onto a friend once you’re done with it. You can of course allow them to sign in on your account but that’s up to you to give your personal details away.
The platform has control and can remove
The platform you buy the digital downloads from is in full control of your downloads. Let’s say if you buy a movie on Apple TV, then in a years time they remove the movie because of contract issues or legal requirements in your country, then you have lost your access to the product. This doesn’t happen often, but it is always a possibility.
Need access to decent internet
Files are large these days with the likes of 4K streaming and gaming. You will need to have access to good internet to access your digital downloads. Of course, it’s getting easier every year because phone networks are getting better coverage, stronger signals and fibre broadband is becoming much more available.
The likes of Starlink has made it easier for so many houses to get fast internet where it wasn’t possible before.
Easily copied and pirated
A well-known downside to digital downloads is that they can easily be copied. It of course depends on the digital product, and there are methods to prevent users from doing this such as license keys etc. But in general, it’s difficult to prevent users from sharing digital downloads. Look at our blog on how to prevent customers from sharing digital downloads.
There you have it, a detailed list that makes you understand why digital downloads are more expensive. It makes a lot of sense when you think about it. I hope it’s helped you grasp an idea of how the digital age is progressing and why we need to accept the extra costs incurred with digital downloads.
This is why we have created a digital downloads app for Shopify, to play our part in building the best Shopify apps for eCommerce businesses. Take a look at our features and what we can offer for Shopify stores.