Micropayment Solution Keeps On Searching For A Business Model

from the one-of-these-days-we'll-find-it dept

We’ve never been big on the idea of micropayments. It’s a concept that seems to infatuate a new crowd of people every few years, who never seem to look back on why micropayments don’t work — especially online. However, each time a new company comes along with an idea for micropayments, we’re subjected to a bunch of articles about how it’s going to change the web and let all those publishers start charging for content instead of offering it up for free. Of course, this won’t happen because the value of the web is in the content that’s readily available. Locking it all up behind pay walls just means no one will pay attention to it. It has little to do with the fee amount, either. It’s just the simple mental transaction costs of having to think about how much something costs and whether or not it’s worth it, that takes away much of the appeal. The big champion of micropayments over the past couple years has been Peppercoin, who claimed we’d all be paying pennies to look at online comics and read newspapers by now. That didn’t happen, and the company announced last year that it would shift away from internet transactions and look for general ways to make micropayments via credit cards. Apparently, they’re finally making some progress, as they’ve announced a deal with Master Card to better handle small transactions. It makes for a nice headline, but it’s still not clear that anyone really wants to make these small transactions.

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Comments on “Micropayment Solution Keeps On Searching For A Business Model”

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Greg Nash says:

micropayments.. maybe

I once would have thought the “mental transaction costs” part significant, but then I saw how SMS took off in spite of initially costing more than a 30s voice call.
Now there are vending machines that you can pay by SMS, making payment less conspicuous at the time of purchse. This would have to qualify as mini-payment, getting closer to micro-…

Just one guy says:

1$ is still too coarse...

The problem with micro-payments is not the lack of content people would be willing to pay for… in fact, there is a huge amount of copyrighted content that is not legally available because of ill-conceived business models, and that could be put online if the model was right.
The real problem, as I see it, is that a) micro-transactions in the order of $1 are still too coarse-grained to be interesting for all types of content and b) people might not be willing to pay premium prices for non-premium uses of the copyrighted content. On the other hand, they would be happy to regularly pay very little amounts for sporadic access to copyrighted content, if the overall amount paid during an online navigation would remain reasonable.
Let me explain: currently, copyrighted content is either a) not available at all (plenty of, say, recent novels that still can’t be found anywhere on the Internet, neither legally nor illegally), or b) illegally downloadable on P2P networks, or c) free of charge (because it is in the public domain or because the copyright owner makes it available at a loss) or d) available at a price (music for 1$ a piece, scientific papers for $3 thru $30, etc.), or e) available under a subscription plan (say, 15-30$ per month or so). Of course there is plenty of overlapping of available content in category b and d… 🙂
All the lawful schemes imply that I buy perpetual right of access to dowloaded content: I buy a copy of it, and whether I store a file on my computer and access it a thousands times in the next 15 years, or just rapidly browse it once, the price does not change.
My point is, that 90% of the times I am not interested in perpetual right of access. Most of the times I just want to read it fast, have fun, and go somewhere else. These lawful schemes, by definition, prevent idle curiosity, exploration, lazy surfing and hypertextual investigation of facts.
Now, the typical scenario: a friend of mine points me to a Nature article on something we idly discussed about a few beers ago. I go online, and am asked either $30 for the article, or $200 for the subscription. Nowhere a discussion over a beer is worth $30. I just don’t read the article. Another scenario: a friend of mine points me to the latest hit single of the (say) Nosepickers, the latest mania in the West Coast post-punk scene. I can either blindy buy their whole CD on Amazon (15$), or download their hit single on Apple Music Store (1$), or illegally download it on Gnutella (free, but it takes a whole night because the connection keeps dropping and it is only being offered by a couple of guys online). Again, by the time I have the song, the discussion has gone on, I don’t like the group, and throw away the record and the file.
Consider on the other hand if we were given an additional option: a copy-protected PDF document of the Nature article, fully readable, for $0.05. A copy-protected music file of the Nosepickers hit single, immediately available, fully listenable, for $0.05. The copy-protection scheme allows you to read the paper, or to listen to the song, a maximum of 5 times. The copy-protection scheme is soft, and an unprotected version of the song or the article is available for $1. The full physical CD is still 15$, and the full Nature subscription is still $200.
Now if I were to read the article or listen to the song out of curiosity, I would not mind paying $0.05 for just five times. Maybe I could find another option, a copy-protected file I could listen for 15 days for 0.50$. If I really liked the song, I could either break the copy protection, or find online someone who did, or simply not bother the trouble and just legally buy the fully unprotected song for $1.
The idea here is to make the amount of money to be spent on legally having the music comparable to the hassle and the trouble of finding the same content illegally online. Rather than exploiting the sense of guilt of customers, create a distinction between owning a piece of music (for which real fans happily spend the money that they are been asked) and just paying for listening to it a few times, in order to create a liking, to interest curious onlookers, etc. If the amount of money really is negligible (say I can spend an hour with my friend legally listening to her 10 preferred songs for $0.50), I probably would not bother spending whole nights trying to download the same songs for free on Gnutella, and would end up the following day buying the full (unprotected!!!) files of the best of them for $1 each. Why not? I already know they are worth the price.
The point is that we’re provided with a lot of content we first have to pay and then decide, and pay dearly. Let me listen to it, paying just a small amount, and then let me buy the things I really liked. I probably would end up spending the same amount of money I am spending now, but would listen to thousands of new songs every month, just because I legally can and I don’t need the trouble of finding and downloading them on Gnutella.
The only problem is, again, in the whole idea of micro-payments: $0.05 is just too small an amount to interest banks and credit card companies. That is why the real payment scheme we should be interested in is not micro, in the whereabouts of $1, but nano, in the whereabouts of 0.01$, below the threshold of worthyness of behaving illegally. This requires giving up individual centralized transactions on the credit card computer systems, small (say between 1$ and 50$) rechargeable accounts at the shop, and a (limited) trust in the shop’s accounting and reporting procedures. Not difficult, but not done.
Just my 2 cents… 🙂

Brian Bartlett says:

Re: 1$ is still too coarse...

Just one guy, you just created a (lengthy) presentation on what we call “opportunity costs” in economics. And did it rather well I might add especially in the context of the media industries. They still don’t get it and probably never will until some new players come along after they have crashed and burned into bankruptcy.
Sub-dollar payments are the way to go, in my not so humble opinion, if you are truly interested in collecting payments that people are willing to pay without a thought. That’s why Apple is trying to stick by its guns on the 99 cent pricing level as people, for some reason, have a psychological pricing threshold at the one dollar level. Why? We don’t know but do think about the popularity of ninety-nine cent stores. In any case, when you keep the price level below the (perceived) opportunity cost of piracy, people are willing to pay. Sub-micro-payments only extend that model for limited use sampling rights and people won’t bother cracking even a simplistic DRM, except for those that get a thrill that way, as it’s simply not worth the bother.
The problem is that the transaction costs, as they stand today, are higher than the sub-micro-payment total. If I recall correctly, the best they can do is get it down to around $.50 per transaction which means that a five cent transaction for the media sample provider costs fifty-five cents total and many merchants can’t perceive a return on value for that, especially when fraud is taken into account. You keep ending up hitting over that one dollar speed bump which quashes the idea in field trials.
If they can cut those transaction costs then it may come into play. Until then, I don’t expect it to ever pan out unless the whole economy can transition low transaction cost electronic currency.

Just one guy says:

Re: Re: 1$ is still too coarse...

Brian, thank you for your reference: I just checked wikipedia on “opportunity cost“, and am trying to reformulate my impressions in terms of that (not here, I’ll spare you this time… 🙂

The point you make about the transaction costs are true, but only as long as the system requires a third party (the credit card company, in our case) to be aware of, and explicitly approve, each individual transaction.

Smaller amounts of money implies that a certain amount of risk can be shared between the bank and the merchant: If you start providing each individual online shop with trusted software that automatically approves large numbers of 0.01$ transactions, and only sends back summaries every $100 or so for post-facto batch verification and reimbursement, you are risking individual frauds in the whereabouts of a few cents, which is a negiglible risk and can be shared equally by the bank and the merchant.

It only makes sense that precise fraud verification is provided for high amounts of money and high returns on investments: anyone that bothers to deal with fraudulent online purchases just to get a bunch of time-limited songs at 0.05$ each has something bad going in his head.

If we started allowing automatic approval of very small payments, with time-deferred batch verification of big quantities of transactions, and black lists of refused customers being held at the merchant and updated by the system at regular intervals, we would end up providing a reasonable environment for nano-payments with fairly restricted room for large scale frauds.

Or so I believe…

Machiavelli says:

So much misunderstood...

Why should they have to share the risk for the x number of transactions? That will likely never happen. Too much potential abuse for people repeatedly scamming the first several dollars on a wide scale. What will happen is what we see now for so many things: buy up front credit to reduce fraud and risk to the content provider.

The whole idea of micropayments is that they are small enough to not exact the mental transaction costs associated with them. How many people consciously think about spending an extra minute on the cell phone, or not responding via text message because of the one cost? The answer is fewer and fewer people as they learn to set up their monthly plans that properly fit their usage, or make broad changes in how they use the technology.

The jury is out on whether the current ad-based market is sustainable. The advent of Ad-blockers is a huge thing. I hate ads, and I hate the stupid people who resort to decrying that using ad-blockers is unethical. The problem isn’t the people using blockers, it is that the ad-serving business model is potentially flawed when consumers have control over how the pages they receive are rendered.

Maybe ad-blocking will never make an appreciable dent in the market. Or maybe sites will have to make the decision to: take a loss on the content they provide for free, go to a monthly subscription based service, go to a micropayment system or do a combination of two or more of the above. Personally, I think micropayments will win out over trying to balance the free/subscription services.

The issue here is that Mike was wrong when he said in the comments of a previous article that the marginal cost of content online is zero. That is mathematically absurd. It is just “really small,” hence the idea of micropayments.

The Wikipedia article on Micropayments is a good read.

Mike (profile) says:

Re: So much misunderstood...

The issue here is that Mike was wrong when he said in the comments of a previous article that the marginal cost of content online is zero. That is mathematically absurd. It is just “really small,” hence the idea of micropayments.

How is it “mathematically absurd”?

There may be a marginal cost depending on how you buy bandwidth. But assuming you buy unlimited bandwidth, or bandwidth in a large enough bundle, I’m afraid I don’t see where the marginal cost is.

Machiavelli says:

Re: Re: So much misunderstood...

And unlimited bandwidth doesn’t cost more than metered bandwidth? Just becuase you can pass the marginal cost along to someone else doesn’t mean it doesn’t exist. 🙂

That being said, I recognize my earlier argument was flawed, because even though marginal costs aren’t mathematically zero, those aren’t the costs that micropayments need to pay for. Next to the costs of content creation, the marginal cost of an extra page of bandwidth is effectively zero.

This doesn’t negate that ad-based revenue stream is unsustainable without removing browsing control from consumers. I’d prefer very small per page charges for sites I’m likely to visit rarely if ever again, over larger monthly subscription charges.

Mike (profile) says:

Re: Re: Re: So much misunderstood...

This doesn’t negate that ad-based revenue stream is unsustainable without removing browsing control from consumers. I’d prefer very small per page charges for sites I’m likely to visit rarely if ever again, over larger monthly subscription charges.

I agree with you, for the most part. I don’t think ad-based revenue is a great place to be either. It’s way too cyclical a market.

However, there *are* other business models besides micropayments and ads. It’s not one or the other. It could be neither.

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