Around the globe, we increasingly live in a digitally connected world. The proliferation of mobile and connected devices has changed the way we do almost everything and that is certainly true of how we buy, sell, and pay. The app economy has grown exponentially in the last decade to a $950 billion space with more than 3.4 billion smartphone owners and 28 billion app enabled IoT devices.
With easy access to devices, the web, and mobile commerce when the pandemic hit, online spend in the domestic United States grew 44% to $861 billion spent online. This surge in digital commerce has accelerated a transformation across many retail businesses and services. Throughout the pandemic we’ve seen significant growth of digital goods as well.
What are digital goods, you ask? Have you ever watched your favorite show online, listened to a podcast, read the news on your tablet, made a financial transaction with your phone, or enrolled in insurance on the web? My guess is your answer is yes. That means you’ve consumed digital goods. Digital goods are the things you’ve come to love. As these digital products proliferate, we’re finding that payments are at the center of each exchange, every subscription processed, and transaction made.
The question we have to ask ourselves is “is this acceleration of digital goods consumption here to stay or is it a pandemic phenomena”?
Since COVID-19 began, we’ve seen a 14x increase in transaction growth of digital goods (Q4 2019 compared with Q4 2020).
Digital goods spending (in $ terms) across Spreedly’s Payments Orchestration platform has increased dramatically by nearly 370% in that same time period. We saw an early peak in spend per transaction in April 2020 that leveled off and has remained fairly consistent since.
More recently, month over month growth has remained strong. Over the last quarter, transaction growth and spend growth have averaged 16% and 11% MoM, respectively.
While this growth is certainly significant, it’s still fairly linear as compared to pre-COVID growth rates or compared to recent growth in other industries such as travel and hospitality, where in a recent blog post our CMO, Randy Guard, noted a 192% increase in these transactions over a recent five week period. Nor does it compare to the exponential growth we’ve seen in order ahead and delivery services that continue to remain strong.
As we look across the globe, there’s consistency in digital goods growth; however, Europe saw a sharper increase in transactions compared with the other regions. This increase occurred in the early days of the pandemic. North America also saw a spike during the winter holiday season.
Digital product growth has been on the rise in direct correlation with the hyper growth of internet adoption, mobile device usage, and deployment of connected IoT devices. The move to digital commerce has grown during the pandemic as McKinsey noted in a recent study there’s been a “Flight to Digital” and that “persists across countries and categories”. That said, the data from another recent McKinsey study represents that the shift to digital commerce has progressed significantly and is here “for the long-haul”.
From Spreedly’s vantage point, growth in digital goods was strong pre-pandemic and has remained strong throughout. We may not have a crystal ball, but we can look to the past along with the data at our fingertips to help inform our future.
Blockbuster’s failure to capitalize their business to keep pace with Netflix, Borders inability to compete with Amazon, and the decline of the taxi industry as it fell into the shadow of Uber, Cabify, and Lyft tell us that digital commerce is here to stay. As a recent Forbes article so astutely put it, businesses have made a ‘move from thinking “how can we use digital to sell more product”, to thinking “how can we use technology to reimagine the way we help deliver customer value?”’.
As consumers, we equally expect, and even crave, digital experiences. These digital experiences, including the purchase, must be easy, intuitive, and frictionless and payments will continue to play a pivotal role in the growth of the digital goods industry.