When defining a software or internet offering and its functionality, one enjoys a much higher degree of freedom compared to physical products. Software is extremely malleable and one can implement nearly “everything” in software. The high degree of freedom creates challenges, though, as it makes it difficult to focus and to determine meaningful combinations of features and functionalities.

Same with the business model and pricing for digital goods: usually, marginal cost is very low, which means once the offering is available, it usually costs next to nothing to serve one more customer. This enables for example the “freemium” business model, where the majority of customers uses a base-level offering free of charge, while only a minority pays for advanced functionality.

Try using this business model with physical goods, for example with cars: customers get the base model free of charge, and only the more demanding customers that need a faster car or a convertible pay for their car. Well, while this would certainly boost market share of the car manufacturer, it’s pretty obvious why this is not a viable business model and price structure.

Here again, the higher degree of freedom increases complexity for the product manager. For example in setting prices, one of the classic influencing factors is unit cost – which doesn’t provide much guidance for goods with very low marginal costs.

So, product managers for software and internet offerings do face specific challenges – but on the other hand, the industry has developed specific techniques to address these challenges. For example, the discipline of requirements engineering that supports product planning and quality assurance, helping product managers to better deal with the challenges of defining the product offering.