Techdirt. Stories filed under "micropayments"

Unfortunate: Twitter Forces Flattr To Stop Its Twitter Integration

Mike Masnick — Tue, 16 Apr 2013 20:08:55 PDT

Just a few weeks ago, we wrote about how Flattr had integrated with services like Twitter and Instagram to make it incredibly easy to support content creators (including us!) by just favoriting a tweet. Not surprisingly, in the first month after that went into effect, we saw a boost in revenue from Flattr. Unfortunately, Flattr has now announced that Twitter has forced the company to stop this integration.

Flattr had been using the Twitter API to figure out what people had favorited, and had been gathering data about the specific tweets. However, Twitter told the company that it was violating section IV. 2 C from its API terms. That term says that:

Your advertisements cannot resemble or reasonably be confused by users as a Tweet. For example, ads cannot have Tweet actions like follow, retweet, favorite, and reply. And you cannot sell or receive compensation for Tweet actions or the placement of Tweet actions on your Service.

It's that last part where the trouble came in. Of course, it seems clear that that particular line in the terms of service was designed for situations where people are "selling" tweets or something similar. Not for cases where a service like Flattr is helping people make money from supporters. In response, Flattr even said that it would waive its standard 10% fee on any Flattrs that come via tweets. Twitter told them it wasn't good enough. Now, you can argue that "rules are rules," but rules need to make some sense. And it's unclear what kind of sense this makes. There's nothing about the way in which Flattr is using Twttier that is negative for Twitter. It seems like a really nice and useful addition. Obviously, we're somewhat biased, because it also helped us make a few bucks (not much, but some), but I can't see how it makes sense for Twitter to block this functionality.

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Flattr Makes It Easier Than Ever To Support Content Creators Just By Favoriting Tweets

Mike Masnick — Tue, 19 Mar 2013 20:13:29 PDT

We've written about Flattr a bunch of times over the past few years, as we find it to be a really interesting experiment in both micropayments and in supporting content creators. If you're unfamiliar with the concept (which was created, in part, by Peter Sunde from The Pirate Bay), each user of Flattr puts some amount of money (total is up to the user) into its account each month, and they can then click on "Flattr" links around the internet. At the end of each month, Flattr tallies up the total amount of content you've "flattr'd" and divides your monthly allotment by that amount. Thus, if you want to give creators $10/month, and then flattr 10 pieces of content, each creator will get $1 (actually, $0.90 after Flattr's 10% cut). If you flattr 20 pieces of content, each one gets $0.50 (er... $0.45). The thing we liked about this is that it gets you past a big part of the mental transaction costs of micropayments: that is, if you have to think about "is this piece of content worth $0.50 or $0.10?" you're already going to lose a bunch of potential customers who don't even want to bother with thinking about it. But, with Flattr, they don't have to think about it for each piece of content. Once they're convinced to take part and fund their account each month, it makes no difference to them how many piece of content they flattr.

As some of you know, we've had a Flattr widget on every one of our posts for the past couple of years. It brings in a small amount of money each month -- maybe between $50 and $100 or so. Of course, part of the issue is that there are some usage hurdles. The service has a small but dedicated user base, but it seemed to stagnate over the years. On top of that, there was a bit of a chicken and egg problem, in that the process of finding content that is Flattr-enabled is still somewhat haphazard -- and then Flattr users need to remember to flattr that content. However, that's now getting much easier as Flattr has announced integration with a number of different services, including (most importantly) Twitter, Instagram and Soundcloud (also: Vimeo, Flickr, github, 500px and app.net). So, now, if you connect your accounts, you can give money simply by favoriting tweets.

And, yes, that means if you want to toss a bit of change our way, you can now do so with a Flattr account by favoriting the tweets on our official Twitter account or my personal Twitter feed as well -- both of which are connected to the Techdirt Flattr account.

Of course, the other hope in all of this is that it will help lead to more people using Flattr in the first place. That's because Flattr users who favorite a tweet of someone who is not using Flattr are still designating those flattrs for that account. That doesn't mean that Flattr is holding money for those accounts (since that could add up!), but simply accumulating flattrs. Thus, if I "favorite" a Twitter account that doesn't use Flattr once a month, and that person finally signs up for Flattr a year later, it would count all 12 of my favorites as if they came that month (thus giving users on other services incentives to sign up sooner rather than later). Flattr is working on automatically notifying people who can "claim" money, but initially they're hoping the community will do that job for them, with an "unclaimed" page that highlights those with the most Flattrs on the various connected networks. Someone call Randall Munroe and let him know he has a whole bunch of unclaimed Flatttrs for the xkcd Twitter account. Ditto Wikipedia and the Torproject. Similarly, someone might want to alert Linus that his Github account is leading the way in unclaimed Github flattrs as well.

There are, also, some obvious social networks that are missing -- though I've been told that Facebook, YouTube and Tumblr are obviously key among them. It sounds like Google+ may be a bit further down the list. All in all, we still love the idea of Flattr, and think that this is a good step as it evolves its business. It still requires getting people to sign up to pay -- and that, of course, will always be a big hurdle -- but making it easier to do something once you have joined seems like a very good thing.

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Insanity: Apple Rejects Podcatching App Because It Has Flattr Integration

Mike Masnick — Fri, 1 Jun 2012 03:10:00 PDT

One purpose for which micropayment solution Flattr (which we use here on Techdirt) has certainly caught on is providing a way for people to support podcasts. Apparently, simple integration allowing people to designate some money for podcasters has just "felt right" for lots of users who do exactly that. And some podcasting/podcatching apps have tried to accommodate this. Instacast, a popular app for downloading and listening to podcasts on the iOS platform, integrated Flattr back in February, but in early May the arbitrary gatekeepers at Apple rejected the app because the Flattr integration went against Apple's demands that all in-app payments go through its own system. Vemedio (the makers of Instacast) along with the folks at Flattr appealed to Apple that this was ridiculous... but Apple issued a final decision rejecting the app. In response, Vemedio is very reluctantly removing Flattr from its app, meaning podcasters just lost a good way of making money, all because Apple can't control it. More evidence of Apple becoming a rather evil gatekeeper, rather than an enabler of new and interesting ideas.

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NY Times Sends Cease & Desist Letter To Kachingle For Trying To Show Them Alternatives To Paywalls

Mike Masnick — Fri, 15 Oct 2010 14:47:32 PDT

Back in August, we wrote about two companies Flattr and Kachingle that were trying to create a very easy to use form of micropayments, that do away with the mental transaction costs, as a method of getting people to voluntarily support content they enjoy monetarily. Since then we've been experimenting with Flattr (you can see the widget to the left) and it's been quite interesting, especially since Flattr finally opened its doors to anyone, rather than being invite only, as it was when we first started. We'll have a more complete report about our Flattr experiment sometime soon...

That said, Flattr's competitor, Kachingle (which is similar, but with a few key differences) recently put together an amusing publicity stunt. Knowing that the NY Times paywall is fast approaching, it put together a "Stop the Paywall!" campaign for Kachingle uses, letting them designate which NY Times' columnists they want a piece of their monthly contributions to go to.

It's a pure publicity stunt, and when I saw it announced I wasn't going to write about it. Except... the NY Times and its lawyers have now changed that. While Kachingle leaves out some of the important details, apparently, three people from the NY Times, including the VP of Digital, a lawyer and someone working on the NYT's paywall, called Kachingle, demanding they take down the promotion, saying that it was "annoying" and that it would not stop the paywall. After Kachingle refused, they said they were sending a cease-and-desist letter (which, as of this posting, apparently has not arrived at the Kachingle offices).

In other words, the NY Times just made sure that Kachingle gets a ton more attention for its publicity stunt, and looks like they're simply not open to any alternative business models. I am curious as to the legal reasoning behind the cease-and-desist. I will say that, from the information posted, it is not clearly stated where the money designated for the NY Times' bloggers is actually going, which I would guess may be the legal concern. I guess I could see a trademark claim, in that the NY Times could say that this implies that the NY Times has a business relationship with Kachingle when it does not -- but I think that anyone reading the actual site would immediately recognize that there's clearly no endorsement or relationship with the NY Times. In fact, that's why Kachingle set up the page...

Anyway, if Kachingle ever gets and posts the C&D, we'll be sure to update the post... But, really, what benefit is there to the NY Times in doing this? Threatening Kachingle with legal action seems downright petty and closed minded. Why not let the company run its promotional campaign, see if you learn anything from it, and move on?

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What If You Could Click A Button And A Sponsor Would Pay A Site Money (Without It Being Clickfraud)?

Mike Masnick — Tue, 31 Aug 2010 22:42:00 PDT

I recently wrote about Flattr and how it's a different take on micropayments that seems more interesting to me (though I'm still not convinced it'll get big enough to make a difference). In that post, I also noted a competitor, Kachingle. Apparently, another company is about to enter the space, named Twixa, but it has a slight twist on the concept. Rather than asking users of a site to click a button to pay with their own money, the "ThankThis" offering from Twixa gets a sponsor to pay the money. Basically, any time you clicked the "Thank This" button (which looks similar to the Flattr button), rather than some of your money going to the site, a sponsor's money goes to the site. Of course, it also puts up a simple ad, which is how the sponsor finds this worthwhile. In some ways it's almost a direct play on the fact that some sites ask people to click on their ads to get cost-per-click cash from advertisers -- even though that's often frowned upon as a form of "click fraud." In this case, however, it's encouraged with the participation of sponsors. I'm still not convinced that enough people would really click to make a difference, but it is quite interesting to see how this space is evolving.

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Getting Past The Hurdles Of Micropayments

Mike Masnick — Thu, 5 Aug 2010 09:58:44 PDT

Much of the press coverage around Flattr, the "social payments" startup, focuses on the fact that it was founded by Peter Sunde, who is perhaps better known for being the (former) spokesperson for The Pirate Bay. I have no doubt that this is a big reason why the company got a lot of its initial attention, but I think what's a lot more interesting is that this is one of the first "micropayment" platforms that actually tries to get around the historical problems of micropayments for content. There have been lots of micropayment companies out there, and almost all of them failed -- and it wasn't difficult to see why. First, they underestimated the "mental transaction costs" that micropayments entail. Just making the decision if something is worth paying for is a huge "cost" for users. Second, they heavily underestimated the "penny gap," which is the effort that it takes to get someone to go from "free" to paying even a penny. Next, it's an attempt to fight the basic economics of what supply and demand is pushing for the content be priced at. And, finally, required micropayments make it very hard to promote that content via word of mouth or sharing.

Many have tried to tackle the problem of micropayments by assuming that the only real problem is the lack of a clean and easy design. Undoubtedly, a clean and easy design makes it easier to use micropayments, but doesn't tackle all of the other issues. And it's that part that makes Flattr interesting to me, in that it actually tries to get past some of those issues. MediaEvolution recently did a short video interview with Peter about Flattr, where he explains the basic concept: As he notes, Flattr is actually somewhere between a payment platform and a donation system. But what's most interesting is the way it gets past the mental transaction costs/penny gap issue. It does that by getting people to only make the decision once. You agree to "fund" your Flattr account each month with a set amount, and then when you click on "Flattr" buttons on various content, you're not increasing how much you pay -- you're just subdividing your amount by one more part.

In other words, if you agree to put in $10/month, you'll always spend $10/month no matter how many things you "Flattr." It's just that the amount each thing you Flattr depends on how many you click. So if you click on 10 things, each will get a dollar. If you click on one hundred, each will get ten cents. So, there's no more mental transaction costs or penny gap, once someone has been convinced to sign up for Flattr (which is, yes, still an issue to consider).

The other neat thing that Flattr has done is to effectively set its own site up as something like a "Digg with money." Just to see what happens as an experiment, we've set up Flattr here on Techdirt. You should see the Flattr button to the left of each blog post for now. It looks kind of like a Digg This button, that shows a counter of how many people have "Flattr'd" that story. I don't expect a huge number of folks to Flattr any particular story -- especially since the service is still in private beta, but there is some interesting potential here. One of the complaints people had about Digg was how it got gamed. If Flattr could get widespread usage, it could potentially become a more useful sort of "Digg" because people actually have money riding on who they vote for. I think this aspect of the site is still a bit underdeveloped, but it has some potential.

Since Flattr is still in private beta, we do have a bunch of invites to hand out to folks, if you want them. If you're interested in getting an invite, please use our contact form with the subject "Flattr Invite." We don't have unlimited invites, of course, so first dibs will go to folks who are already Techdirt Insiders (so make sure to mention that in your email request). After that, it'll be first come, first served.

There are some others in this space as well. In the US, there's a company that's been around a bit longer called Kachingle, which Mark Glaser from PBS just wrote about, including an interview with Kachingle's CEO. Conceptually, the two are very similar. Kachingle seems to focus more narrowly on journalism/blog sites, whereas Flattr is for all sorts of content. Kachingle also has a set price: everyone has to pay $5/month, unlike Flattr which lets you choose how much you want to spend per month (in euros, for now). Also, Kachingle doesn't seem to be doing anything Digg-like (yet).

It's also interesting to note that both are big in Europe. With Flattr, this isn't as surprising, seeing as the company is in Sweden, but apparently Kachingle is big in Germany, despite being a US company. As always, I'm still not convinced that "donation" models are really that sustainable, and I've always been skeptical of "micropayments" in general. However, I find both of these attempts to be at least worth watching, as they seem to try to get around the usual hurdles associated with these models.

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My Debate With The NY Times' David Carr Over Journalism Business Models

Mike Masnick — Fri, 18 Sep 2009 18:34:00 PDT

Mark Glaser, from PBS's MediaShift invited me and NY Times columnist David Carr to have a back-and-forth debate over email, concerning business models for newspapers -- specifically questioning whether micropayments or a paywall of some kind makes sense. Carr supports some sort of "user pays" model for content, whereas I tend to think the idea would backfire badly. PBS has published the two part debate here:

Part I, where we disagree about what people will pay for, and talk a bit about newspaper economics (they're bad...).
Part II, where we continue to go back and forth, but eventually reach a bit of common ground in the middle (no, really!)

There's probably not that much surprising to folks around here if you read this site regularly, but it was a fun debate.

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Google Working On Micropayment Scheme To Help Newspapers Commit Suicide Faster

Mike Masnick — Thu, 10 Sep 2009 09:33:00 PDT

Now this is funny. One of the undercurrent themes found in all of the "newspaper guy blaming Google for newspaper demise" stories is the idea that Google should also come to the rescue of newspapers. Usually, this means by just forking over some of its massive profits, but other times it's based on odd claims that Google has a responsibility to create the new business model for journalism. Well, it appears that Google is stepping into that breach... but it strikes me as an elaborate practical joke. That's because Google has alerted the newspaper world that it's working on a micropayment solution via its seldom-used Google Checkout offering, that could be used as a form of a paywall. Of course, we've been waiting for newspapers to actually offer just such a paywall, so that we can watch it fail and get on with our lives. Perhaps I'm way too cynical on this particular move by Google, but it strikes me as Google handing newspaper execs the rope with which to hang themselves. The problem with a paywall isn't that the technology doesn't exist to make it work -- it's that consumers won't buy into it. But, if the newspapers want to try -- and Google wants to provide the rope -- good for them. Update Seems like a bad time to point out that retailers are having serious problems with Google Checkout, huh?

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Wait... Wouldn't Micropayments Be Bad For Journalism?

Mike Masnick — Fri, 15 May 2009 01:23:44 PDT

It's been funny watching newspaper execs and journalists go on and on and on about how important it is to "save journalism" and then come up with plans that will likely hasten the demise of newspapers -- such as micropayments. We've discussed in great detail why micropayments are unlikely to work (they've pretty much failed everywhere they've been tried with news content), but Kevin points us to an argument that shows why micropayments would likely be a terrible thing for journalists as well. When you have a direct association between revenue and a particular article, then suddenly it becomes possible to determine quite specifically how much people are willing to pay for a certain journalist's articles. Thus, management now has incentive to reward journalists who get more people to pay -- meaning those journalists have every incentive in the world to try to come up with stories that will make people pay, which might not be "good journalism."

Of course, some will (and have) pointed out that there's already some of this done, with tracking of advertising revenue on certain articles, but this would be even more direct -- and the key point is that it leads to trying to maximize the experience of a single article, rather than the entire experience:

An article is worth far more than the number of direct sales it generates. Even more importantly, thinking of each article in isolation shortchanges the value of the publishing enterprise as a whole. There are many things that make the New York Times better than the Podunk Daily, but "readable articles per day" is the least of them. (Which means that in addition to being bad for consumers and journalists, by destroying brand value micropayments would also hurt publishers. The trifecta!)

In fact, in this hour of crisis, newspapers should be moving in the exact opposite direction to generate revenue -- focusing not on specific articles, but rather on delivering valuable experiences to their readers, whether that takes the form of articles, databases, multimedia, user-generated content, or whatever else will serve the audience's needs. It is the entirety of that experience that will deliver goodwill and revenue opportunities down the road.

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WSJ To Try Micropayments: What A Bad Idea

Mike Masnick — Mon, 11 May 2009 01:27:00 PDT

There are all sorts of bad ideas around trying to get people to pay for news, but perhaps the worst is the idea of micropayments. Micropayments are trotted out every other year or so as the "savior" to paid content by people with little understanding of economics. The problem is that micropayments never work in a competitive market. First, the "cost" is much bigger than the nominal sum, because of the mental transaction costs ("is this worth buying?") that add friction to the process. Second, and more importantly, it's a self-defeating move. In adding micropayments, you automatically decrease the value of the content. This may sound paradoxical, but what matter is why and how people value content. These days, many people value content for the ability to engage with it, comment on it and share it with others. Micropayments take away that ability, and thus decrease the value of the content. In some sense, adding a micropayment option gives people fewer reasons to pay! Micropayments have been tried over the years, and every time someone announces them the press goes all nuts about how they're the business model of the future for content. And then the projects go nowhere for a few years, whither and die. And the press never seems to notice.

So, it should probably come as little surprise that it's the press itself that's going to try such a plan. The Wall Street Journals' managing editor, Robert Thomson says that the WSJ is going to start offering a micropayment offering for individual articles. Of course, it sounds like it's not always micropyaments either:

"It's a payments system -- once we have your details we will be able to charge you according to what you read, in particular, a high price for specialist material."

A "high price," by definition, isn't a micropayment of course. And it's just as likely to fail miserably. Putting a paywall in the way of people, and they'll find the content elsewhere. Put a paywall in front of good content, and it just opens up the opportunity for other, smarter, publications, to provide the news for free and run away with all the advertising money.

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Isaacson's Micropayment Article An Example, By Itself, Of How Screwed Up Mainstream Media Is

Mike Masnick — Fri, 20 Feb 2009 01:27:34 PST

We've already beat up on Walter Isaacson and his ridiculous plan to save mainstream newspapers and magazines via online micropayments, but couldn't resist discussing one extreme bit of irony pointed out by Tim Lee and discussed at length at the Abstract Factory blog: the reasoning in Isaacson's article is so weak, it shows why it's not worth paying for. Specifically, the post notes that Time Magazine published Isaacson's writeup instead of those who actually understand the issue, because he's a part of their "club" (the former managing editor). Thus, Time chose a clueless friend, rather than an informed stranger -- and that sort of thinking is all too common in the business:

When you're a member of the club, your buddies will publish any old crap you write; better you than some stupid professor nobody knows....

I mentioned irony earlier. Isaacson has filigreed the irony with extraordinary precision. His article is inferior to material produced for free online by people who draw their paychecks from other sources (Shirky and Odlyzko are both professors who also work(ed) in the private technology sector). Furthermore, it is inferior as a direct consequence of structural weaknesses of traditional magazines. Despite its inferior quality, it presumes its own superior status by ignoring or dismissing contributions to the discussion which occurred outside of traditional "journalistic" media. Finally, taking that superiority as a given, it argues, poorly, that people ought to pay money for products like itself, because (quoting Bill Gates) nobody can "afford to do professional work for nothing".

In short, Isaacson's article not only fails to make its case, it actively undermines its own case while doing so.

Meanwhile, if you want yet another good argument against micropayments, be sure to check out Charles Arthur explaining how micropayments would turn the web into Zimbabwe.

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A Good Suggestion For Funding Journalism... And A Great Explanation For Why Micropayments Don't Work

Mike Masnick — Thu, 19 Feb 2009 14:16:58 PST

With a bunch of old school journalism industry guys suddenly rehashing the old and tired debate over micropayments for news, the folks over at Freakonomics put together a little "quorom" where they asked four different people, with varying viewpoints, about the whole "micropayments for news" issue. Two of them, William Baker and Alan Mutter, support micropayments. I find their arguments not particularly compelling, as they both seem to focus on why newspapers need money, not why anyone would want to pay. On the other side of the coin is Clay Shirky and Marshall W. Van Alstyne, a professor at BU. Shirky, not surprisingly, does an excellent job rehashing his reasons for why micropayments don't work, but I have to say that Van Alstyne's reasoning is even better (and quite eloquent):

Micropayments won't solve newspapers' pay-or-perish problem, at least not under current proposals. There are many reasons why micro-scalping readers won't work, but let me start with two: the unique properties of information goods, and inefficiency.

News is not like an iTunes song; it's perishable. Today's front page is tomorrow's fish wrap, and we don't need to replay it. If anything, a reader benefits more from a second source than repetition from the first. Facts are delivered; songs and movies are created. Facts also can't be owned, so when the Internet places geographically dispersed media in direct competition, the price of facts falls to marginal cost. In digital markets, that's zero.

Micropayments introduce friction into an otherwise frictionless world. This means that no matter how efficient they become, it is more efficient to bundle. If a person makes one or two transactions with a news source, it's more efficient to aggregate lots of them and bill a single advertiser once. If a person makes frequent transactions, it's more efficient to aggregate those and bill that person once as a subscription. Any increase in micropayment efficiency improves bundling efficiency at least as much, because the gains accrue over more transactions.

Putting micropayments on news is like putting tollbooths on an open ocean. Internet users, awash in a sea of information, will avoid new barriers by navigating around them. And frankly, the interests of a free society are rarely served by building barriers between the people and their news.

And, unlike the actual newspaper guys, Van Alstyne actually then makes suggestions for ways that newspapers can both add value and give someone (if not the consumer) a reason to buy. He has three suggestions, and you can click through to read them all, but I found the last one the most interesting:

Invert the whole business. Use the friction of micropayments to solve a consumer problem and stem the flood of information from advertisers vying for their attention. Advertisers can bid for limited units of people's time. This increases ad revenues and helps match particular ads to particular people. Vendors will bid low to rent New York apartments to sports fans checking scores for the Oakland A's, but bid high to offer next week's tickets. Publishers need to give up on the idea of profiting from distribution and focus on the idea of matching people to content.

The trick is not to add new types of costs, but to add new types of value.

What a surprise. It looks like the folks outside the industry understand how to make the industry work better than those inside of it.

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Economics Doesn't Work In A World Of 'If Only...'

Mike Masnick — Tue, 10 Feb 2009 12:04:21 PST

We had already explained why Walter Isaacson's "we'll just use micropayments!" model for news wouldn't work, but it seems he's still out there pitching the idea. Clay Shirky did an even better job dismantling the concept, but last night Isaacson appeared on the Daily Show with Jon Stewart to pitch the same ridiculous idea: Stewart called him on a couple points -- noting that once something is free, you can't reasonably flip a switch and start charging for it, and also noting that news is fleeting, while music is a product people hold onto. Isaacson didn't have good answers to either points, other than a basic "if only..." Towards the end, Stewart pitched an equally bad idea (which Isaacson loved) which was that any aggregator would need to pay news publications for sending them traffic. It's the "how dare you help build our readership" business model.

But the really frustrating thing is that Isaacson doesn't seem to have a clue about basic economics (and, at times, news business models). For all his talk about the importance of getting good reporters "paid," he seems to have missed out on the reason we want good reporters to get paid: because they actually do good work. That means doing research to understand the topic they're talking about.

Isaacson didn't do that himself.

Instead, his whole idea is based on the wishful thinking of "if only..." If only the newspapers hadn't started by putting content online for free. Newsflash: they didn't. A lot tried to charge and it failed. Miserably. If only we had a system whereby people could pay just a small amount per article. Newsflash: it's been tried. People don't like it and don't use it. If you want to destroy your audience -- the most valuable resource you have as a publication -- it's a great way to do so. If only journalists could get paid. Newsflash: they do. Journalism has always been paid for via advertising rather than direct subscription fees (which mostly just handled the cost of printing/delivery, if that). It's particularly egregious early on in the interview, where Isaacson says:

"Who is going to send people to Baghdad if always, everything in journalism is free?"

Isaacson is certainly well-respected for his work in journalism for many, many years, but how can he make that claim with a straight face. Everything in journalism is not free. It's never been free. The fact that you might allow people to read it for free, does not mean that "everything" is free. Google gives away "everything" it does for free, and is quite able to make a ton of money. Why? Because it sells the "attention" of its users. That's what newspapers have always done. The difference now isn't that they're giving content away for free. It's that they're not used to competition and haven't done a good job keeping their audience around.

But, the most ridiculous thing is that nowhere in the interview does Isaacson ever give a single reason why people would want to pay for a newspaper. Instead, he just focuses on why newspapers need money. That's not how you run a business. That's not how you come up with a business model in the face of tremendous competition. You don't focus on "we need money." You focus on giving someone an actual reason to pay. Isaacson doesn't do that at all. He just focuses on the need for money, and falsely assumes that tollbooths solve that problem.

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Micropayments For News Represent A Huge Opportunity... For The Smart News Org That Avoids Them

Mike Masnick — Fri, 6 Feb 2009 02:58:07 PST

We just went through how dumb it was for newspaper folks to keep on insisting that they need to start charging, so I almost skipped this one, but a bunch of people have been submitting Walter Isaacson's laughable plan to save newspapers: micropayments! I thought we'd done away with that last month, but Isaacson gets attention, so let's end this once and for all, and explain why micropayments for news won't work. I can go through all the basic arguments about mental transaction costs and the cost side of managing micropayments: but there's an even simpler answer.

If most newspapers switch to micropayments, someone much smarter when it comes to business than Isaacson will create a new news site that doesn't charge. And they'll make it high quality, and they'll be able to make money through other means. Hell, it will be easier because all the fools who follow Isaacson and others in demanding payment will take all the competition out of the market.

These old journalists may know something about the inverted pyramid and how to put a news story together, but they might benefit from an economics class on how competition works when it comes to pricing. In the meantime, you just know there's a smart business guy out there, just drooling over the prospect of these old line media companies destroying their own businesses.

Oh, and one final point: just as in the article we saw yesterday, note that nowhere does Isaacson talk about giving people a reason to pay for the content. He just assumes they will. I'm sure the buggy whip makers expected people to keep spending money on buggy whips as well.

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Newspapers Again Thinking About Micropayments

Mike Masnick — Mon, 19 Jan 2009 20:38:00 PST

There's been a lot of hand-wringing in the paper journalism world lately about business models, so it's no surprise that bad ideas for business models are springing up again. Specifically, some are beginning to wonder if micropayments could work. As Clay Shirky notes in the article, any time people bring up micropayments as a solution, it's a hail mary pass -- a last ditch effort by someone who has no other ideas. Now, every time we bring up micropayments, we get some pushback, but no micropayment system has ever been shown to consistently work on a large scale -- especially when it comes to news. People will. undoubtedly point to iTunes or even the iPhone app store as micropayment examples to the contrary, but both of those pale when compared to free music and free apps in terms of volume -- and considering the business models we've seen adopted that don't rely on those sorts of payment structures it's difficult to believe that such systems will really be dominant over the long haul. They work in the short term, mainly due to the convenience factor -- but they're a stop gap -- not a true strategy to deal with digital economics. Micropayments add in an element of unnecessary friction -- which represents an economic inefficiency. They may work for some time, but eventually someone comes up with better business models that get rid of that inefficiency.

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You Don't Need To Make Money From Every Person Who Enjoys Your Product

Mike Masnick — Tue, 9 Sep 2008 09:11:00 PDT

One of the points of contention we sometimes have with those who disagree with us about the role of free in a business model, is how you deal with the issue of "freeloaders." People often respond to our posts on business models that use free to point out that many people who get the content will never pay, and thus the business model is somehow a failure. Amusingly (and, perhaps, tellingly), most often these sorts of comments come from individuals who insist that they, themselves would never pay -- and basically suggest that copyright and artificial scarcity is necessary to protect artists from folks like themselves. But that's missing the point, entirely. The point isn't to get everyone to pay. In fact, it need not be to get the majority of folks to pay -- it's to build up your audience so that it's big enough that when you offer a scarce good of value, enough people do pay for that good. In such a world, the "freeloaders" aren't a problem -- they're simply providing free advertising.

Another way to think about it is that BMW creates some entertaining advertisements -- and plenty of people enjoy those ads without ever buying a BMW. Yet, those same people don't complain that folks who watch BMW ads without buying a BMW are "freeloading" off of BMW -- despite the fact that they are. Instead, they understand the nature of advertising is that not everyone buys the product that's actually for sale. In fact, a very small number of people may actually buy the product, but that's okay. It's not freeloading, it's just the nature of a promotion.

Cory Doctorow has taken this concept a step further in explaining yet another reason why micropayments aren't the solution for content online:

I don't care about making sure that everyone who gets a copy of my books pays me for them -- what I care about is ensuring that the everyone who would pay me decent money for a book has the opportunity to do so. I don't want to hold 13-year-olds by the ankles and shake them until their allowance falls out of their pockets, but I do want to be sure that when their parents are thinking about a gift for them, the first thing that springs to mind is my latest $20-$25 hardcover.

We've long pointed out plenty of reasons why micropayments aren't a real solution for the "online business model" question surrounding content, with most of the focus being on the mental transaction costs, and the fact that competitors will always beat micropayment solutions by eventually embracing business models using free, but Doctorow makes another good point about the failure of micropayments. Beyond the reasons we've discussed in the past, micropayments also focus too much on shaking the pennies from every passing individual, rather than recognizing the real win is in getting someone else to spend more on a bigger scarce product down the road.

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The Hidden Costs Of Micropayments Go Beyond The Penny Gap

Mike Masnick — Thu, 31 Jul 2008 14:12:58 PDT

For as far back as I can remember, there have always been folks who insist that micropayments are the solution to the "free" content question. That is, they believe that the solution to "free" content is to set up a system where content can be accessed for such a low price that it's "close enough" to free and people don't mind. However, as Clay Shirky pointed out many years ago, it's not that easy at all. As soon as you add in some cost, even a small one, it creates mental transaction costs that go beyond the payment itself. Basically, just the fact that you need to think about whether or not it's worth it, creates a disincentive to consume that content. And, indeed, most micropayment schemes haven't gone very far. Last year, VC Josh Koppelman named this phenomenon "the penny gap" to explain how the "gap" in getting someone to go from $0 to $0.01 is much bigger than the gap from getting someone to go from $0.01 to $0.02 (in some ways, it's the same as the difference from going from 0 mph to 1 mph -- inertia is a powerful force).

However, Andrew Parker is questioning whether the real problem isn't an economics issue, but a usability issue. That is, if it were really easy to pay that $0.01, people wouldn't mind so much. In other words, a big part of that "mental transaction cost" that Shirky talks about is (according to Parker) the effort needed to establish that payment (a login, supplying payment info, etc.). As proof that this may be the case, Parker points to the early distribution numbers for the iPhone App Store which show more $0.99 apps sold than free apps downloaded. His point: since the iPhone makes it so easy to get an app and pay for it, the "penny gap" or the mental transaction costs really aren't that high.

This is a really good point -- and it is a testament to what a good job Apple did with the App Store to make it so seamless to the user. You absolutely can reduce the mental transaction costs, and that shrinks the penny gap significantly. However, I wouldn't be so quick to jump to the conclusion that micropayment solutions will become that big a deal. First off, these are only the initial results from App Store sales, when you're dealing with early adopters. I'll be interested to see if the results remain this way over a longer period of time.

Even more importantly, though, there may be other hidden costs that should deter certain publishers from focusing on micropayments. Mainly, you are driving away the ability of your users to share and promote your content for you. In other words, you're shutting off one of the best tools to get your app more widely used and recognized. So, even removing the transaction costs from the equation, going to a micropayment solution over a free one doesn't always make the most sense.

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Have Micropayments Succeeded Long After They Were Dead And Buried?

Mike Masnick — Mon, 27 Aug 2007 08:32:49 PDT

In the wake of yet another highly touted "micropayment" startup going away, the NY Times is challenging the notion that micropayments will never succeed, specifically pointing to things like iTunes, AdSense and iStockPhoto as examples to the contrary. The article, not surprisingly, references Clay Shirky's explanation for why micropayments don't work, and then suggests they do. There are just a few problems with the argument however. First of all, AdSense isn't about micropayments, no matter how hard the article tries to stretch the definition. Then, neither iTunes nor iStockPhoto are true micropayments in the classic sense of what we were promised (fractions of cents, and so forth). Rather, both are standard normal "payments." There's nothing particularly micro about either (again, unless you stretch the definition). Also, in both cases, the services provided better overall service than alternatives. There was a lot of additional value in using those services, which is what helped them find initial success. However, there are still plenty of folks who find it easier to not deal with the mental transaction costs and the additional burdens provided by things like Apple's DRM and prefer to go free. It remains to be seen if these small (not micro) transaction offerings really do have long-term staying power. As new models evolve -- especially in the music space -- things like iTunes may not be quite as dominant as some believe.

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