Why Are Physical Software Sales Still a Thing?

And most boxes are empty!
February 11, 2017, 2:00pm
Image: Andrada Fiscuțean

In March 1989, British scientist Tim Berners-Lee wrote a paper describing a new way of sharing information on the internet. His boss thought it was "vague, but exciting," and allowed him to work on what later became the World Wide Web.

Three decades later, in a world with gigabit internet connections and affordable pricing plans, we still prefer to buy software in physical packaging instead of quickly downloading it from the web. The main reason, it seems, is that despite living in a connected world for several decades now, a lot of people still don't trust the internet enough to buy software they can't touch.

Today, about a third of all software is still sold in physical boxes. Four companies I've talked to both on the record and on background said physical packaging makes up between 30 to 40 percent of their global revenue, and another one, graphics processing company Corel Corporation, told me they represent 20 percent. Overall, individual consumers tend to buy more boxes than businesses, which purchase in bulk.

Most of these physical packages are virtually empty, with only a tiny piece of paper inside with a download link and an activation code. Companies who sell software this way tell me that including a DVD is often a useless endeavor, as new laptops lack optical drives. Even when companies do sell physical media, users would still need to download the latest version of the software, as opposed to the one that's on the optical disk.

Consumer behaviour expert Deborah MacInnis at the University of Southern California told me that fear might be at the core of the phenomenon of buying software in physical boxes. "[It's a] fear that something will go wrong and consumers will need to prove that they actually bought the product," she said.

Another explanation has to do with people's confidence in their technical ability to install the software. "They want to have the key code written down for them because it provides a sense of confidence and security in case they need it at a future date," she said.

The most accurate software-in-a-box sales numbers come from Electronic Arts' preliminary report for the quarter that ended on September 30, 2016. The "Packaged Goods" segment, which includes games for consoles, handheld devices, and PCs, had a net revenue of $332 million. That's 37 percent of the company's total net revenue.

I've talked to several gamers who prefer physical packaging. Some told me they do this because at a later time they might want to sell the games, while others are interested in collecting them. There are also customers with slow internet connections and data caps, for whom a physical box works best. However, most games these days still require very large updates, even on the day they launch.

Many people still buy boxes games, even though they need to download big updates to play them. Image: BentleyMall/Wikimedia Commons

Graphics processing company Corel Corporation has the lowest percentage of packaged goods sales of all the five companies I've talked to: 20 percent across its entire business. However, there's a strong demand for physical products on retail and reseller channels, where boxes make up more than half this company's revenue. It's basically a form of advertising. If a company doesn't have a physical package, it can't occupy shelf-space in stores where it could find many of its customers.

Corel offers DVDs inside its physical packages, but there are companies who don't, like the antivirus provider Kaspersky Lab. "Most of our boxes are empty: if you open the box, you can find an activation code and a URL to download the software," Sergey Fedorov, head of retail at Kaspersky, told me.

The company tried to see who buys software in physical packaging. It noticed that most people purchase boxes when they buy a new computer. Having an additional physical product might make them feel they get a better value for their money. After that, buyers renew the licence online.

The companies I talked to said they would be happy to ditch the boxes and sell every piece of software digitally, as physical products pose logistic and environmental challenges. However, changing people's habits takes time and effort, so they try to reinvent the concept of physical packaging.

Kaspersky, for instance, is testing new ways of delivering its software to its clients, such as printing codes on receipts, which are smaller and easier to make compared to boxes.

Microsoft is also trying to improve physical packaging to have less of an impact on the environment, and issued a set of design principles, including making their boxes smaller and using eco-friendly materials.

"On average, 70 percent of the paperboard we use contains recycled content and plastics make up less than 4 percent of total packaging materials," according to Microsoft.

So why are physical software packages still a thing? Because a lot of people either don't trust the internet, or don't have access to fast download speeds. Over the past few years, boxes have slowly decreased in popularity, and judging by this, one can assume customers are getting used to buying things digitally. However, having more people on high-speed internet is—in some parts of the world—a huge infrastructure issue with no easy solution in sight. Until that solution comes along, software sold in boxes will likely remain a thing.