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What is the difference between an update package (with *.update extension) and a regular package created from the Package Designer in the Sitecore Desktop?

I know that:

  1. update packages are typically created from an automated system such as TDS package creator, Sitecore Courrier, etc while zip packages are normally manually created
  2. both can contain items as well as files
  3. update packages must be installed via /sitecore/admin/UpdateInstallationWizard.aspx
  4. zip packages must be installed via Sitecore Desktop > Development Tools > Installation Wizard

But are there any other technical or semantic differences between the two? e.g. should an update package only be used to install updates to something, rather than installing a totally new module?

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Internal File Structure

A big difference is the internal structure of the .update package file. If you open up an update package file you will see the following folder structure:

enter image description here

A standard .zip package does not contain all the folders for added, changed or deleted data. So an update package can do more than a standard zip package. IIRC you can't delete items by installing a zip package.

Installation method

Also with the update package installation wizard, you get more visibility over what is being installed. You can analyze the package before installing. It will give you a report to show what is going to be changed and any conflicts that will occur because of the install.

You do not get the same merge options with an update package tho, so an update package can overwrite your items.

Error Reporting

The update installation wizard also has better error reporting. On failure you can download details about the error to send to Sitecore support:

Image from Sitecore Docs

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  • Is the file format of the item files the same in zip vs update packages?
    – Matthew Dresser
    Commented Oct 26, 2016 at 13:37
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With the update installation wizard you can install update packages remotely without direct access to the sitecore server. As it is a standard ASP.NET web application. Besides that you're able to delete files and items with the update wizard.

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Update Package: A package used to update Sitecore solutions. Update packages contain not only items, files, and metadata but also items or files to be deleted and items or files to be changed.

Also, update packages contain information about the expected value of fields and hash values for files, making it possible to identify potential conflicts.

An update package uses the extension .update to distinguish them from regular Sitecore packages. Update packages cannot be installed using the Installation Wizard that is available in the Sitecore Desktop.

A .update package is actually a zip archive, so you can just rename the file from .update to .zip and you will see it as a zip archive.

The zip file contains both content Items and files. The zip file contains 3 folders: Items, files and metadata.

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Aside from what has already been answered here by Richard, the installation process is quite different. Using the .update package you get very useful information on what happens while installing it like files conflicts(for example if someone manually updated one file the installation will flag that this file is different from the one being installed) which is really useful if you are setting up automated deployments. Also the Sitecore upgrades are done using the .update package.

Regular Sitecore packages are useful for things like installing modules for the market place or moving copying items from different instances(which can be done with .update package if you are using TDS for example)

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