The goal of this research is to make an addition to existing theory about consumer surplus in the Internet economy, and in particular the contribution of customization of digital products. According to Brynjolfsson et al. (2003), increased online availability of previously hard-to-find products represents a positive impact on consumer surplus. Product customization is one way to create consumer value, by closely matching a product to a consumer’s needs (Squire et al., 2004). Not much research has been conducted on the customization of pure digital products in the Internet economy. The majority of the available research on the Internet economy is about e-commerce where tangible products are being sold or delivered through intangible services (Choi and Whinston, 1999; Dewan et al., 2003), while other research focuses on the mass customization of physical products. Also existing literature on mass customization mainly focuses on supplier surplus. This research will address pure digital products: on-line delivered customized products where both product and channel are digital, and instead of the supplier surplus, this research focuses more on consumer surplus. Product customization, enabled by the Internet could allow sellers to exploit buyers, but it also would benefit buyers (Grover and Ramanlal, 1999; Barua et al., 2004).
To accomplish the goal of this research, characteristics of customization have to be identified to support a customization strategy for suppliers in such a way that it can decrease search costs for consumers dramatically, so variety of digital products can be maximized. Variety is positively related to consumer surplus (Brynjolfsson et al., 2003). I make an addition to their findings by relating increased variety with customization and personalization, which could be mutually reinforcing in the Internet economy. The consumer should benefit from this increase in variety and customization, while variety induced complexity and search costs are being lowered dramatically.
The overall research question takes the main themes of customization and personalization in the Internet economy into account, in particular for pure digital products. These themes outline the context of the research. The overall research question is the following:
How to support customization and personalization for pure digital products in the Internet economy to dramatically decrease complexity and search costs for consumers, so variety can be maximized?
To gain answers to the overall research question, I constructed hypotheses which are the result of a review of literature in Chapter 2 on digital products, mass customization, and the benefits and drawbacks of variety. The hypotheses are the following, and visualized in Figure 1.1:
H1: The larger the product variety, the higher the level of customization.
H2: The higher the level of customization, the larger the possible variety.
H3.1: The larger the variety, the larger the complexity.
H3.2: The larger the complexity, the higher the search costs.
H4: The higher the level of customization, the lower the search costs.