This paper proposes that firms’ product positioning in digital markets includes proposing combinations of product functions—different conceptualizations of how products provide functional uses and add value to customers. As these positions are closely aligned with customer needs and preferences, aggregate market feedback serves as an essential input for positioning strategies in digital markets, especially for the initial entry into the market. Using data from Apple Store’s Photo and Video mobile applications, we show that different dimensions of market feedback—overall customer dissatisfaction and customer evaluation heterogeneity—provide different cues about the demand environment, facilitating firms’ absolute positioning in the functional space and relative positioning vis-à-vis existing successful products. We find that while a high level of customer dissatisfaction is associated with greater emphasis on the core function and differentiation from more successful products, high customer evaluation heterogeneity is associated with less emphasis on the core function and imitation of more successful products. Our study contributes to the emerging literature on strategic behaviors in digital markets by showing the drivers of different positioning strategies pursued by the firms and establishing market feedback as an essential input to innovation in digital product markets. It also contributes more broadly to the literature on market entry by empirically demonstrating the impact of demand-side considerations in market entry decisions.