Getting Past The Hurdles Of Micropayments

from the neat dept

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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Companies: flattr, kachingle

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Comments on “Getting Past The Hurdles Of Micropayments”

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52 Comments
Anonymous Coward says:

Re: Re:

Maybe if ISP’s had an option to allow you to pay the ISP extra (but you don’t have to take that option) and have the ISP either distribute the funds or hand it all directly over to flatter co or whoever to distribute it to whoever you “flatter.” This way flatter doesn’t have to get any of your personal information, that stays with your ISP that already has that information regardless.

I still really don’t see this as much of an improvement though.

Also, why should flatter take a flat 10%. So if, hypothetically, someone donates $1000 then flatter gets $100? Seems like a lot. but it makes sense that 10% of $10 isn’t so bad. Perhaps it either be a constant rate or it should be 10% up to a limit of $10/month? Or maybe they can have brackets, the more you donate, the smaller percentage that flatter takes?

Uhm… out of every sale how much does E – Bay get? I don’t think it’s 10%, that’s seems like an awful huge tax.

Anonymous Coward says:

Why then–despite having collected and disbursed something in the order of half a billion euro since the year 2000–have some industry people still never heard of AGICOA?

Going back to AGICOA, in effect it works by issuing a blanket license to individual cable operators and then collecting royalties for all programming the operator retransmits. In order for a producer to collect the money owed, it first must register with AGICOA and then prove title to the program in question. The first such agreement was issued by AGICOA in 1984 in Belgium, and following a 1993 directive by the E.U., it is not possible for an individual producer to try to collect royalties directly. The only way to access this money is by registering with AGICOA. Although AGICOA only exists to work on behalf of producers and broadcasters, it continues to have the right to negotiate individually with cable operators.

However, the good news, explained Geneva-based Pierre Oberholzer, AGICOA’s Customers and Distribution director, is that, “the process rights holders have to follow to be considered for royalty payment is simple.” And, it is also free. “Firstly,” explained Oberholzer, “the production company must be registered with AGICOA, providing contact and bank details and stating who at the company is authorized to deal with AGICOA. Once this is done,” he continued, “AGICOA will assign the company a portfolio manager, whose responsibility it is to ensure that his/her assigned rights holder experiences as smooth an interaction with AGICOA as possible.”

“Once all of this is done,” said Oberholzer, “all that remains is for the rights holder to declare the copyrights they hold, e.g. ‘I have the copyright for the film The Amazing AGICOA for rebroadcasts spanning 2002 to 2010 for the French version in Belgium.’ And that can be where the registration process ends, and the fun starts.”

http://www.thefreelibrary.com/The+mystery+of+AGICOA.+Europe's+best+open+secret-a0198210248

See also

Profit From The Digital Age
http://www.agicoa.org/english/about/corporate_brochure_08_uk.pdf

Horst JENS (profile) says:

Re: Details

flattr gets a cut of 10% of all incoming donations to an author. Also payout does not start before you earned 10 Euro.

The fact with the monthly donation is very bad published, also in the interview, maybe because the policy changed over time.

You pay once any amount you like (say 20 Euro) and then you must decide a minimum monthly flattr money of 2 Euro (or more) to spend monthly. if you do not flattr anything this month the 2 Euro will go to charity, else your monthly money will be divided equally between all the authors you flattered.

The cool thing is you can flattr as much as you like each month and you can until the end of the month decide how big you monthly fee (for this month!) shall be…but it must be 2 Euro at minimum.

This is not clearly stated even in the flattr faq and i was very happy as i understood it… the idea of having to decide an monthly fee that get subtracted from my credit card or bank account was uncomfortable for me but that is not so. You pay once and spend this money over (amount / 2) months, or faster if you decide to spend more of your money at some months. Ideally, you will earning more money from flattr than what you spend; in this case you will never have to transfer money to flattr and can instead transfer money from flattr to your bank account 🙂

But i must say that even spending money on flattr is fun. It may be only a fractoin of a cent for the author, but it is nice to flattr someone. And it is nice to be flattered.

Leo Ghost (user link) says:

Re: Details

To answer the questions;

What are the fees for using Flattr?
– When you add or withdraw money you only pay the fees of the payment provider you choose. This fee is displayed when you add or withdraw money (you can see it on your payment history as well). We take 10% of your incoming revenue as a fee to keep the Flattr systems afloat, hope that’s ok?

What happens if I don’t flattr anything a month?
– Then your monthly amount is given to charity, we will not keep it.

Both answers taken from the Flattr FAQ.

Crosbie Fitch (profile) says:

Exchange rather than donation

I reckon exchange (money for the production of intellectual work not yet received) is a better transaction than a donation (reward for work already published and received).

Supporting donations and minimising their decision cost may be a lot easier than supporting exchanges and minimising their decision cost, but I reckon the latter have the edge.

We’ll see.

cc (profile) says:

Re: Exchange rather than donation

“I reckon exchange (money for the production of intellectual work not yet received) is a better transaction than a donation (reward for work already published and received).”

I agree in principle, but I think I should also point out that people will have a much harder time deciding how much a piece of art is worth if they haven’t already seen it.

It’s similar to cinema releases: you aren’t “supposed” to know how good a movie is until after you’ve watched it and paid for it. Hence, the success of movies is judged by their opening weekend, which is pretty much a reflection of how well the movie was advertised, rather than the quality of the product.

Could your suggestion entail very intensive pre-production advertising and a cheap, sub-par product at the end?

Crosbie Fitch (profile) says:

Re: Re: Exchange rather than donation

cc, there are two obvious exchanges:
1) Commission an artist to produce good work one is confident they will produce.
2) Pay artist for unpublished work they offer for sale (with previews, samples, reviews, etc.)

In both cases the commissioning party comprises thousands of fans (micropayments collected into payment).

It’s a familiar problem with exchange (since time immemorial). The worker doesn’t want to produce/deliver the work until they’re confident they’ll get paid what they expect for it, and the commissioner doesn’t want to set aside or part with their money until they’re confident they’ll get the work they expect for it.

All I can say is that there are no guarantees even in two party exchanges, but that doesn’t prevent, let alone discourage, MANY successful exchanges.

Remember, each party has a reputation to maintain, and each trusts the other in proportion to their reputation and the consequences for default. And that’s long before the law needs to step in to apply more severe consequences than loss of reputation.

The smaller your reputation the smaller the value of your transaction that the other party will risk. That means a thousand fans with small reputations and small value payments can easily balance a reputable artist hoping to exchange a high value product for a large value payment.

There’s many exchanges of tens of readers’ pennies for prosaic paragraphs that can happen before you scale up to millions of movie fans stumping up dollars for sequels.

keith (profile) says:

RTB?

Interesting article Mike, I’ll admit I was thinking “wow, cool” through the post. I agree that potentially it could be very useful as an indicator because people have actual money on the line. Reminds me a lot about studies done on ‘betting markets’ (http://www.econlib.org/) and how they produce accurate predictions.

I noticed you didn’t mention an important point you typically highlight … what is my RTB? What value, addition, incentive is there for the consumer? Why am I giving them money? Because I have too? Because I want too? Until there is a clear RTB beyond “we want you too” … I don’t see the point. I do think they are on to something though – it just needs the proper incentives. Very innovative thinking.

Crosbie Fitch (profile) says:

Re: RTB?

Rather than ‘reason to buy’, it’s more ‘reason to patronise’.

The fan (patron) enjoys the art, appreciates the artist, and would reward them for what they’ve done whilst simultaneously incentivising them to produce more work (in expectation of further reward).

If it’s any kind of exchange, it’s an asynchronous one.

Very similar to tossing coins in a street performer’s hat, i.e. “Thanks for entertaining me! If you keep up the good work, I, or someone with my taste, may well reward you again”. And the hat says “If you’ve enjoyed my performance or would encourage me to continue then consider depositing a comensurate amount”.

keith (profile) says:

Re: Re: RTB?

Then it doesn’t sound like a very effective business model.

I think this is a very innovative way to allow the consumer (fan) to choose how to allocate payments to services they find valuable. I won’t deny that the patron model will garner some support … but I see legitimate opportunity in this model to make a significant impact on the market – something it won’t do as a ‘coin tossing’ enterprise, but could do with adding real value.

Crosbie Fitch (profile) says:

Re: Re: Re: RTB?

It is superior to ‘coin tossing’ in that it is ‘share tossing’ (tossing an equal share of my weekly street performer budget) and thus has lower decision cost.

It’s an improvement on TipJoy, but it’s still essentially donation – a unilateral payment.

There is considerable groundswell pressure to enable a means for fans to pay/reward/commission artists – without seeing a large (or even a small) chunk of their payment end up in the pockets of middle-men. Even PayPal’s single digit commission is a bit steep in some people’s eyes.

And remember, this is money in exchange for intellectual work, not for copies (which are free).

keith (profile) says:

Re: Re: Re:2 RTB?

I agree with you.

I myself was excited reading the article … with ‘at last / how cool is this?’ type of thoughts.

When I finished the article though I realized exactly what you assert, that it is still essentially a donation.

If I do a ‘mental game’ and picture myself with two options, a $10 credit in a bank account where I have to manually allocate (and track) my outpayemts ($0.01) at a time it feels very different vs setting the amount I want to pay per month, and then allocating it equally via my selections.

I can see how the latter is much less emotionally ‘costly’, as it is much easier to pass out payments because I already consider that $10 “gone” … so, in the end, it is very likely that as a consumer in this system I end up spending MORE than I would have had I been required to make decisions $0.01 at a time. This is why it is an ingenious innovation.

Which I think helps me be more clear on my point: This has the potential to completely change the way online payments are made to content creators — or maybe a better way to describe it would be to say it has the potential to create a significantly large new revenue stream. But, they still need to convince me why I need to pay $10 a month, or $20, or $50. Give me an additional RTB and I’ll gladly pay it. Simply asking for donations isn’t going to be a game changer.

cc (profile) says:

Re: Re: Re:3 RTB?

How about: RTB — 100% of your donation goes to the artist?

Flattr keeps a large chunk out of every donation for itself, and I think that’s what is discouraging people from using it (I recall the comments on TorrentFreak when the service was announced last year were all pointing this out). It feels like the industry middlemen have been replaced by another middleman.

If such a service ever becomes large enough to survive from ad revenue and bank interest on members’ monthly quotas without having to take money from the donations, I expect it will be a huge success.

Also, just as importantly, it would be awesome if a service like flattr is integrated into the Pirate Bay, and it keeps track of what you downloaded and can remind you to donate later. Of course copyright won’t allow this to happen, and the labels probably wouldn’t know where to begin creating a new service that does something like this.

Anyway, I feel Jamendo is taking steps in the right direction, though that is limited to Creative Commons music.

out_of_the_blue says:

Bookkeeping kills creativity.

Though the specific scheme has merits worth trying, it has a basic flaw just like the current system. In short, it’s that there’s no noticeable relation between rewards and the value of art or invention.

The general problem is that almost all of what’s produced is and will be *crap*. Doesn’t matter what definition of *crap* is used: there’s plenty of it by all definitions. Micropayments won’t improve the level of “art”, and inherently dilutes returns to the few anyone finds worthwhile. — Yes, I’ve read the scheme, but what will happen if spreads is a proliferation of people wanting in on the cash stream producing a bunch of *crap* targeted to lowest common denominator, besides that I’d feel a bit obliged to pick more than a few to encourage those on the margin of what I like.

So my thoughts for solution return to outright subsidies from the gov’t for “artists”, however anyone wants to define themselves as one.

I recognize that in the US at least, there’ll be resistance to this as “freeloading”, “welfare”, and “mooching”. As I’ve pointed out elsewhere, there’s never an objection to The Rich living without laboring, at thousands of times subsistence level, and really the *only* difference between “on welfare” and “born filthy rich” is how much can be demanded from those who *do* labor.

I hold that most people are imbued with the desire to *work* and *create*, to share their creations with others for the general enrichment, and that those natural inclinations are actively perverted by The Rich, who *steal* from the poor and keep them oppressed in as bad a condition as possible, preventing even innovations that ease their labor. — Besides that The Rich simply don’t deserve much for what we get from supporting those parasites. There’s a definite need to reduce the depradations and power of The Rich for other benefits to society, but note that I don’t propose mere “re-distribution of the wealth”; what I want is for The Rich to be punished for *crimes* already committed, and prevented from larger ones now in the works, that’s just self-defense in the class war which The Rich start and foster. In a war, you can’t finely discriminate and mete out punishment in precise proportion, and I don’t even attempt to. — As a class, The Rich are dangerous parasites.

Now, as prefaced: though no one wishes to subsidize the production of crap, that’s *inevitable* in both *current* and *any* proposable scheme. So I say, don’t worry about it, just hand out subsistence level benefits to anyone who’ll assert that they’ll try to produce something of value to society. Then we hope that now and then, probably at about the current rate, something judged worth while, again by one’s own criteria (typically 99% considered *crap*). Now and then we’ll get some delights from a unique mind. That’d all be much as current. We can’t predict where genius will appear. — THOUGH, we can predict where it will *not*, and that’s among The Rich who have their every wish fulfilled by merely saying it aloud, and so have no incentive at all to create. It’s only among the poor that production and creativity occur. — And there won’t be *new* entanglements or limits if anyone’s project takes off, pretty much as at current, they’ll just be assumed to “pay back” their subsidies through taxes, again without specific bookkeeping, at steeply progressive rates that they can complain about (meaning brag of).

Mike Masnick (profile) says:

Re: Bookkeeping kills creativity.

The general problem is that almost all of what’s produced is and will be *crap*. Doesn’t matter what definition of *crap* is used: there’s plenty of it by all definitions. Micropayments won’t improve the level of “art”, and inherently dilutes returns to the few anyone finds worthwhile. — Yes, I’ve read the scheme, but what will happen if spreads is a proliferation of people wanting in on the cash stream producing a bunch of *crap* targeted to lowest common denominator, besides that I’d feel a bit obliged to pick more than a few to encourage those on the margin of what I like.

Um. If it’s crap, then people won’t flattr it.

I’m confused over your confusion.

Anonymous Coward says:

Forgot the privacy concerns, security concerns and some other concerns.

Privacy:

– Micropayments over the internet are recorded, you can’t be anonymous, that is a problem for many.

– Micropayments still use an account that could be hacked, so no one should put a lot of money in there and it should not have bank account information.

I like little anonymous cards that you can by at convenience stores, or prepaid cards that have a limited value to it so it doesn’t matter if it got stolen.

Compartmentalization to mitigate damages is a good thing.

Crosbie Fitch (profile) says:

Re: Does iTunes count?

It’s paying the retailer and copyright holder for a copy (of which a royalty MIGHT be paid to the artist), so, a complete transaction. It’s neither paying a tiny amount for part-use, nor paying a tiny share of a whole payment.

You could argue that the copy royalty (if any) represents a micropayment to the artist for their art. The trouble is, this is an extremely inefficient mechanism, i.e. when 99.99% of the revenue ends up in pockets other than those of the artist. And that’s why it’s permitted by RIAA.

I don’t think ‘micropayment’ is really the issue. The issue is enabling those who want intellectual work produced to exchange their money for it with the producer – without significant losses. And of course, bearing in mind that copies are free and no longer a viable revenue mechanism.

The Happy Infidel says:

Re: Re: Does iTunes count?

Good points. Thanks.

I agree with you. I’m not sure that ‘micropayment’ is necessarily the issue, either. If nothing else, Apple has demonstrated that the “mental transaction costs” can be overcome with a slick h/w and s/w combo and a gigantic library of content.

Not sure why TV hasn’t gone that route. For $10-$15/month or $1.29/program, you’d think that we’d be able to download (on-the-fly) every TV program ever produced using a digital cable box. That way, families could watch science prorgramming or other semi-useful stuff, for instance. We might skip another generation of vidiots.

James Carmichael (profile) says:

Communism

So if your monthly subscription for what you ‘Flatter’ is exactly the same as the amount you receive from your ‘Flatter’ed products and services, and everyone ‘Flatter’ equally, then everything will cancel out, we achieve perfect ‘communism’ of sorts, and we can get rid of any ‘currency’. Basically: Star Trek TNG.

Eh I can dream.

Seriously though, I’d love to see the idea take off. And what he said at the end was brilliant; I applauded.

EdB (profile) says:

re "details"

Actually, Flattr’s cut has a lot to do with the article given that the article says 10 bucks a month with 10 clicks means a buck per recipient. At that rate flattr makes no money for their effort, which obviously is unsustainable unless people flattr flattr for some reason.

JS-powered button = lame.

Nice idea though. As to the reason to buy, I could see tying having a flattr account to simple stuff like commenting (for example). If you’re not willing to maybe click some coin to the authors then maybe the authors will not bother to listen to you? So that could be a reason to buy … if you already know the content is compelling. OTOH do I really want to invest any money every month just to maybe leave a comment somewhere? I dunno, but this is a pretty good idea.

keepsea says:

Problems

Flattr seems really interesting, but I see two major problems with this.

1. How long it takes before someone makes same dirty JavaScript that “clicks” on that button instead of me?

2. If I don’t flattr anything a month, then my monthly amount is given to charity. This is a deal-breaker for me. It breaks the whole “you pay only if you like something” concept.
It’s not that I am not charitable – but I want to be able to determine what I support with my money. Flattr takes that away from me. And there are some charities I would really NOT want to support. Why is it not like “If I don’t flattr anything a month, then nothing gets paid this month”?

staplegun says:

It's a start

I think it’s too soon to determine if/how this would become a full-blown ecommerce system. All it aims to do is allow you to make a nominal payment in appreciation for a service consumed. It seems to improve on the hassles of shareware, postcardware, DRM, etc.

If it catches on, it will be interesting to see how people use it, how it affects their behaviour, and in what direction its journey will take us.

toivo (user link) says:

How you define micropayment? 10$ for a amazon book is a micropayment when you compare the ratios. Payment per written word = 10$ 200 pages = 5 cents for a page . But a book (Tipping point, Blink etc.) usually introduces just 1 or 2 ideas. Payment per idea = 10$ an idea. It’s just that people are uncomfortable paying 5 cents and more used to paying 10$. There is a natural minimum limit for lump micropayments and one-off credit card payment. It turns out to be 1 – 3 – 10 $. Not cents.

These microeconomic factors have changed how books are written. Most of the current books are fluffy and full of air.

PS. kindle books are way overpriced.

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