They have FaceTime video conferencing in iPhones and, soon, iPads.

The $100 AppleTV, which runs the same iOS, has a USB port.

Hmmm, I wonder what could be plugged into that USB port to make the system act as a living room videoconferencing system.  A camera+mic perhaps?

That would be more than a little disruptive to the office videoconferencing world, also.

But increasingly I found myself depending on these tools.  Why?  Because of the new paradigm of collaboration that they enable.  No longer must you sit in a cave and perfect a document before tossing over the wall.  In the new era, you don’t have to wait for a document to be finished to get feedback on it; multiple people can collaborate on it simultaneously, and everyone always has the latest version at all times.  It’s a better way to work.

But we are still stuck with that clunky browser-based user experience, that is now 12 years old and not much better than it was two years ago.  It’s usable, yes, but let’s be clear: Google Spreadsheets cannot hold a candle to Excel in the tightness of the user experience.

So when Microsoft announced over a year ago that it was going to match Google Apps I thought, that’s kind of nice.  The documents will be accessible from any web browser, and Google could use some competition.

But why are they racing to give up their evolved user experience?  It really is a pain to use web apps within a web browser; there are countless little user experience compromises that we must still live with.  Why must we have either cloud-hosted documents or a modern user experience?

After all, it’s not the web browser that makes web apps special.  It’s the fact that the apps and data are available everywhere and are shared in real time.

Vision to steal: Why doesn’t Microsoft let you browse, open and edit cloud-stored documents directly from within Office apps?  Users would have the best of both worlds: ubiquitous access (even from a web browser when needed), continuous publishing, and the most comfortable and responsive UI.

If you and I are co-editing a document, we’d see each others edits in Word or Excel or PowerPoint in real time (as in Google Wave).  This is not just a parlor trick; it’s a fantastic way to work collaboratively over distance while on speakerphone.  (We can expect to see much more of this.)

As a bonus idea to steal, cloud-hosted documents can be kept in sync with local copies (which is what Google Gears does).  Opening a desktop .DOC or .XLS that you have shared on the cloud would keep all edits synched to both places whenever possible.  The user could do offline editing and have the changes propagated when their Internet access is restored.

If the competition is zigging, you should be zagging, because by the time you catch up to where the competition is today, they will be somewhere else.  Don’t make it easy for customers to continue to pick the leader.  Add some enticing benefits that catch the customer’s attention and make them make a choice.  Then, over time, fill in the parts where you are behind.

$10,000 Honeywell Kitchen Computer from 1969. No units were sold. You can visit it at the Computer History Museum.

One era’s flop is often another era’s success. The typical excuse given for failure is something vague like, “the market wasn’t ready for it” or “the product was ahead of its time.” I dislike these phrases, as they shrug off our responsibility to predict what customers will accept, and they shift the blame to the vagaries of customer behavior and psychology.

Yes, sometimes it’s true that mainstream customers need plenty of role models around them before they’ll even entertain the possibility of trying a new technology. It took some convincing to get people to try out the first microwaves, mobile phones, email and the Web.

But just as often, the early attempts at a product fail simply because they do not meed important customer needs at a realistic price.

It shouldn’t have been a stretch for Honeywell to realize that a kitchen computer that cost $10,000 in 1969 dollars, that required the housewife to take a two week course to learn to program the device, using toggle-switch input and binary light output, might not be a blockbuster. Despite its integrated cutting board.

3Com Audrey of 2000

A more recent attempt at a kitchen computer was a quick flame-out by 3Com called the Audrey in 2000. But that was before widespread broadband and WiFi, before large, cheap LCD panels and many other enabling technologies. For the price, it too was not about to earn its place under the cupboard.

We now we have enabling technologies lined up to make a device plausible: cheap computers, thin LCDs, fast, wireless Internet connectivity. Is the time right to make place for a computer in the kitchen?   There is anecdotal evidence of the demand: no fewer than three of my friends remodeling kitchens are designing a place for a kitchen computer. Lead users often portend larger trends (see von Hippel, The Sources of Innovation).

The need is apparently there, the technological ingredients are in place.  There is no external barrier, so now we await a major manufacturer to introduce a well-designed device and establish the category. (Waits like this are hard to predict. They could take months or years.)

Users can, of course, get by nicely today with a laptop in a cubby.  Many do.  But for high-end remodels that kind of retrofit won’t do.  So here are some specs that we can compare against the next wave of kitchen computers. These specs describe a relatively full-feature devices for big, fancy kitchen. They would be pared down for lower-end products.

Key scenarios for a kitchen computer

1. General lightweight web surfing
2. Family information appliance
3. Follow a recipe while cooking
4. Possible homework & surfing station
5. Audio controller, for background music and talk while doing kitchen activities
6. Decorative element, as a digital photo frame

Features of a kitchen computer

1. Attractiveness, since it’s part of the décor. Designed for a kitchen, not an office.
2. Different finish options to match with different décors. People remodeling choose from hundreds of tiles and paint colors and one style does not fit all.
3. Touch screen for most common tasks.
4. Wireless keyboard and mouse, normally stored, can be pulled out for more serious use.
5. Resilient to spills, oils, greasy fingers. Durable for kid usage.
6. Unobtrusive, since there is enough clutter in the kitchen.
   • Only a thin display is outwardly visible. The main unit is concealed within cabinetry, along with cabling.
   • Display takes up no precious counter space. It is mounted on an arm and, when not in use, folds under a cabinet or rotates flush against the wall. In use while cooking it hinges out. When used for homework or sit-down surfing, it lowers to a work surface.
   • The main unit (if there is one, apart from the display) is small like the Mac Mini to minimize consumption of precious cabinet volume.
   • Speakers are built into the display to further reduce footprint.
   • Quiet, fanless operation. Does not contribute to the background noise.
7. Central control – Display can completely control the device including powering it on. There is never a need to dig into the cabinets to fuss with the device.
8. Media playback, particularly music.
   • Hidden main unit includes amp for speakers and speaker output.
   • Remote control to control playback while across the room or in adjoining room.
   • If IR is used for remote control, the display includes the IR receiver, to allow for line-of-sight.
   • Display matches ambient light in room. When the room is dark, the display turns itself off.
9. Always on, or instant on. As an appliance it must have instant availability.
10. Low power consumption since it’s always on.

Special Software

The kitchen computer should be a standard, full-function personal computer for when it is needed for homework or general usage. For key tasks it should revert to a minimal, streamlined appliance mode with highly tailored apps that don’t require the keyboard or mouse.

1. Family calendar/coordination center visible at a glance, with alarms and reminders.[Has anyone cracked this critical user need yet?]
2. Digital photo frame when idle.
   • Automatic, smart photo syncing with other photo libraries devices in the house. You don’t have to do any management for the images to remain fresh.
   • “Best of” photos from prior years appear automatically.
   • They match the current season, so you don’t get inappropriate winter wonderland pictures in July.
3. Music controller
   • User can stream music from other servers in the house or from Internet radio
   • Can be controlled by the display, either with physical buttons or a touch-driven on-screen UI.
4. Recipe software? This is maybe. Recipes demand flexibility and resilience, something paper excels at. But if a simplified touch-screen UI were to be layered on an outstanding cooking site like Epicurious we would have something. Also: recipe videos on demand is a killer kitchen app, since it’s so much easier to see cooking techniques demonstrated.
5. Standard info appliance stuff to check out while scarfing down your cereal: Weather forecast so you know what to wear. Traffic so you know what to expect during the commute. Top news & sports items so you are up to speed on what’s going on. RSS feeds from the school. Buttons to most-used websites. Number of waiting email or voicemail messages.
6. Quick & dirty email checker. Quickly skim & read email messages & compose short replies, even canned replies, without having to pull out the keyboard & mouse. For full-on email answering mode, pull out the keyboard or switch to your main PC.
7. Family message center? This is another maybe. It’s a traditional scenario envisioned for a kitchen computer. But introducing yet another messaging medium could be a stretch, given how inundated we already are with messaging solutions. If it were to happen, here’s a viable way: Mom presses a “record” button on the display and speaks a message for Junior. The audio is stored on a server, and a link to it is sent via email or text message to Junior, who can retrieve it on a PC or cellphone. A bright button appears on the kitchen appliance for Junior, until he retrieves the message from any means.
8. Videophone — no longer a futuristic scenario, especially for Mac users. Dad can see that Jane, who is away at college, is available for videochat. This is simply a different wrapper around iChat, still by far the best-of-breed for video calls.
9. Integration with other home automation: distributed audio, lighting & climate control, alarm system. [Home automation is another field that is under-developed for the times, in need of an Apple-esque kick in the butt.]

With computers once again at a plateau, new outlets tend to emerge. We should expect to see a trickle of kitchen computers come to market. If they are designed around the usage scenarios they will be a welcome addition to the kitchen, not just gratuitous technology.

[Update 8/22/08 - touched up wording]

everyone can see the desktop is over. It now seems inevitable that applications will live on the web—not just email, but everything, right up to Photoshop. Even Microsoft sees that now.

Rumors of the desktop’s demise are premature. As described in my analysis of Hosted vs. Local Applications there are simply too many important scenarios for the desktop to go away. Information and creativity workers spend much of their waking lives using computers and require the fastest response possible. They require reliable access to them, even at 30,000 feet, even at overcrowded overseas cafés. They and the businesses and governments they work for require sovereignty over their sensitive information.

The solution to these needs is locally stored apps and data. This will not change for a long time.

Casual users & Internet Appliances

That said, most people on the planet are not information workers. They’re like my mom. Year after year, she uses her computer for communicating, browsing, light gaming and not much more. Her PC is both overpowered and sub-par for the job: overpowered with capacity she will never use, sub-par because it takes too long to bootstrap that capacity just to check email. The telephone gives a dial tone the moment the receiver is lifted — why can’t the machine show your latest messages the moment the email button is pressed?

Casual computer users like my mom would be better served by an inexpensive Internet appliance. For these users, it doesn’t matter whether apps and data are stored locally or remotely, as long as a stable net connection is available. New users in developing countries fall into the same camp.

This era of Internet appliances is almost upon us with new categories of products like the Palm Foleo, the OLPC, the iPhone, and the Nokia Internet Tablet. These type of portable devices (sometimes blended with, sometimes an adjunct to a cellphone) will become the only machine many people in the world will ever need. Especially when they become cheap and dockable to keyboards, mice and larger monitors for longer stretches of use (that’s a vision to steal).

Hybrid apps

Paul Graham and I need not argue about extremes like the death or immortality of the desktop. There is a happy medium between all-hosted and all-local applications, a Reese’s Peanut Butter solution. The best of both worlds is to download and cache first class applications in their entirety and run them locally with the highest-fidelity UI frameworks available. (Hint: not AJAX, not browser apps). The apps would update themselves from trusted sources when necessary — seamlessly, automatically, in the background, with no hands. They would give users access to data that is best stored locally (high definition movies, private data and photos, and so on). Since today’s OS platforms do not support this I’m counting it as another vision to steal.

A stepping stone to this future is the Either/Or Apps (EOAs) — web apps running in a web browser that may be local or remote. AJAX and Flex are pushing the boundaries of app richness within a browser frame. But they are still within a browser frame, an unsuitable container for a complete computing experience. Adobe, Microsoft and Sun are on the case with AIR, Silverlight, and JavaFX respectively, new platforms for rich internet applications (RIAs) that live on the desktop rather than within the browser.

As we look forward to the Internet Appliance era, we can put away the eulogy for the desktop. It will not be necessary.

8/3/07 Update: The Zonbu is directly targeted to the casual computer users described above. It is only $100! Great deal! I think. Plus $13/month for 2 years Linux PC with local applications, 4GB of flash storage and remote backup. Total cost $370.95 for 2 years. Optical drive and WiFi costs extra $49+$29=$78. Total so far $449. Monitor, mouse and keyboard are not included. Photo storage will be constrained. Flash video stutters. It’s Linux. It doesn’t work with iTunes or any other Mac-only or Windows-only app. Down the slippery slope we go. Maybe your mom would be better off with a Mac Mini?

See also:

• Hosted vs. Local Applications
• DabbleDB, FileMaker Pro, and Innovation

I ended with a vision to steal:

please come up with a consumer-grade way to let users of standalone desktop computers run web apps locally

With Gears, vendors like Google and Dabble may now offer “Either/Or Apps” — applications that are either hosted, or run locally, or both, according to the user’s desire.

One small step for the web, one giant leap for webkind

App developers today face the dilemma of whether to write new apps for the desktop or for the web. Each carried significant pros and cons. They can how have it both ways, building web apps now with the intention of allowing the app to work partially or completely offline once the technologies mature.

Some applications, like Google Calendar, sat in an awkward space between “nice to have on any browser” and “need to have when offline”. Those applications can now exist with neither limitation. Soon, browser-based email will be available to you for offline processing while on an airplane, isolated from the series of tubes.

Hopefully Gears does not preclude apps that are 100% local — where no Internet connection is needed and where no data is ever stored remotely. As the scenarios show, this is and will remain a separate, legitimate need.

Architects and engineers of hosted apps should start thinking through the implications of Either-Or-Apps — allowing sensitive information to be stored locally, allowing apps to be used completely offline, leveraging client-side storage for caching and increased response times. Understanding these tricky problems will be important skills in the years to come.

By Google’s own admission Gears is immature. There are many more important technologies to build out. One example: having the platform own the problem of keeping the two data stores in continuous sync.

Security will also be a concern. Today, web pages have a strict restraining order and may not come within 500 yards of our precious local data. By relying on Gears, our precious data is moving closer to the dangerous part of town.

But Gears represents more than an evolution in Web technologies. It is another crack in the dam for desktop-based apps. While rich native apps will never disappear as a whole, reasons for clinging onto any one of them are falling away one by one.

Better yet: we already have our phone numbers recorded on our computers. Shouldn’t we be able to leverage that data and all the effort it took to get it onto our computers?

Design to steal

• Let the user manage address book entries online, from the website of the mobile carrier. The actual experience would be akin to managing contact lists with Yahoo! Mail or eVite. Changes made online are quickly, quietly synced down to the user’s mobile phone. Just doing this much would be a godsend.
• Cellular carriers: insist that all future phones be made to support a single phone book standard, to insure interoperability between the web user experience and all future phones. (There is already precedent for carriers imposing standards on phone vendors: Sprint’s phones are converging on a standard battery charger connection.)
• Let the user import phone numbers into the web app from any of the standard address book formats: vCards, CSV, etc. This is a quick and dirty way to leverage data that already exists somewhere.
• Best yet, establish live syncing between the phone and the user’s data source (Outlook, Address Book). The Palm and Blackberry devices have always had this.
• Address books on the PC can get huge, with many old and obsolete entries. So let the user pick which numbers should be imported. Better yet, import everything so it’s there for reference, and let the user pick out the favorite numbers which take precedence when searching the address book.
• Don’t stop at just phone book entries: allow the configuration and management of the phone to be done using a web app. I’d like to be able to bring up a web link to the alarm configuration screen and tell my phone to go off at a certain time, rather than fussing with the little buttons and hard-to-use menu structure. I’d like to be able to add my preferred mobile websites to a bookmark manager on the phone, without using the clunky and slow phone web browser.

The broader principle

There have always been major compromises made when fitting an experience onto a small device, and there always will be. The devices have smaller screens, smaller print and their input methods are less efficient than a regular PC, monitor and keyboard.

Mobile devices should allow for configuration and data management using the richer desktop or web UI. They can and should still allow for editing while on-the-go. (The iPod, unfortunately, does not. If you hate a song, you have to delete it back at your computer. If you want to sort songs into playlists while riding the bus, tough luck.)

Palm was the first to grok this principle of managing a mobile device using a PC, with the very first PalmPilot. Its predecessors, the General Magic device, the Go Corp PenPoint tablet devices (which I contributed to) and to a large extent the Newton attempted to be worlds unto themselves; alternates or even replacements to the PC. Only the Palm Pilot conceived of the mobile device as a satellite to the PC and shipped with a sufficient desktop-based PIM. It was a visionary insight that, along with Graffiti input and long, forget-about-it battery life finally made the notion of a PDA viable. (Unfortunately, Palm Desktop has languished for years. The incompatibilities between its schema and that of the predominant desktop PIMs are a daily pain for millions.) But it’s nevertheless preferable that today’s Treos sync imperfectly than not at all.

The iPod got this right. Earlier MP3 players had no integrated way to manage your songs on your PC and on your portable music player. Because it was so hard to rotate the music, users wouldn’t bother. The players gathered dust. This integration between the iPod and iTunes desktop app was one of the key elements of the iPod’s breakthrough product vision.

The Harmony remote control gets this right. Rather than laboring over one of those loathesome programmable remote UIs, you program the device from the web. You pick out the model numbers of your home entertainment components, it downloads the codes to the remote via a docking cradle.

A prediction

The idea of setting up a cellphone from a web interface seems pretty self-evident, right? Wouldn’t you expect everyone to be working on this?

My guess is this won’t be mainstream any time soon. Why not? Because the gadget guys and the software guys are different people working in different companies. The natural propensity of the gadget guys will be to apply ever greater mobile horsepower to increasingly sophisticated functionality to the devices, despite the inherent limitations of the medium’s user experience.

To bring these two worlds together will take industry leaders with competence in both worlds, plus a pinch or two of vision and systems thinking. That gives Palm, Microsoft, RIM and Apple a sustained advantage, and will leave the commodity mobile phone vendors playing catch-up.

A recent NYTimes article, “With Popcorn, DVD’s and TiVo, Moviegoers Are Staying Home” describes the decline in moviegoing:

“With box-office attendance sliding, so far, for the third consecutive year, many in the industry are starting to ask whether the slump is just part of a cyclical swing driven mostly by a crop of weak movies or whether it reflects a much bigger change in the way Americans look to be entertained – a change that will pose serious new challenges to Hollywood.”

The lack of certainty about the underlying cause is not helpful. When a business is in peril it must identify the right cause: the correct explanation leads to action that can save the business; the wrong explanation can lead to actions which hasten failure.

This problem is of interest to us because it’s an instance of a common strategic predicament: an established class of products is being threatened by the emergence of a new class of products. Is the newcomer merely a passing fad? Or is it a disruptive innovation that will render the incumbent obsolete?

We will look at these questions using our preferred tool for the job, Formal Needs Analysis. We will first deconstruct moviegoing into the the primary customer needs it satisfies, then consider how well those needs are met by the competitors, in this case TiVo-style DVRs, Netflix, the web and videogames. This will isolate the points of overlap, clarifying when the alternates are as good or better than the incumbent.

What needs are met by moviegoing?

To model moviegoing and its competitors, we’ve established a needs space of seven primary needs and four supporting needs. Primary needs are the key reasons people purchase a product. For movies, we have:

1. The need to escape – to temporarily get away from the incessant stresses and pressures of life.
2. The need to feel good – to be put in a happy mood, say after a difficult week.
3. The need for stimulation – to be raised into a heightened emotional & physiological state.
4. The need to learn things – to be left with the new knowledge or insight into the human experience
5. The need for social interaction – to feel connected with others.
6. The need for social status – to feel worthy within the social group. With respect to pop culture including movies, it feels good to be in-the-know and it feels bad to be left out of the conversation everyone else is having.
7. The need for fun – to have a good time in the moment.

In addition, there are these supporting needs. Supporting needs help the product fulfill its primary needs better. They are like salt to french fries: salt makes the food taste better, but you don’t buy you buy the fries soley for the salt. For moviegoing, we have the following supporting needs:

1. The need for affordability – other things being equal, the more affordable a product, the more desirable.
2. The need convenience - another cost the customer incurs is non-monetary — the logistical hassle in using it.
3. The need relevance - Relevance of a piece of content is how well it relates to you. When it comes to matters of taste or interest, different folks require different strokes. Thus for content, relevance is largely a function of the breadth of selection available.
4. The need for long experience – the persistence of the experience.

Let’s walk through each of these to see how movies and the newcomers compare. We’ve assigned rough scores from zero to three to each competitor in the table below for reference.

Primary needs

Summary of needs fulfilled by moviegoing and its comparison points, rated from 0 to 3

1. The need for escape

Movies do a good job of providing escape. A darkened movie theatre away from home, interesting characters and an intriguing plot can immerse the viewer in an alternate reality.

Netflix shows the same movies, but at home. This experience is not as immersive as in a theatre, but the gap is narrowed for those fortunate enough to possess a decent home theatre. TiVo or web surfing can provide escape for hours, but today’s best videogames provide immersion to such an extent that time flies.

2-4. The need to feel good, for stimulation, to learn things

The movie industry is adept at crafting films that play directly against different emotional needs. The need to feel good is literally matched by the Hollywood “feel-good” movies. The need for stimulation, both emotional and physiological, is provided by thrillers, sci-fi, action and suspense movies. The need to learn things is met by watching characters in dramas and by documentaries.

As for the comparison points, Netflix has the same content and thus the same potential, minus some points for the less immersive experience. TiVo loses points for commercial interruptions (skippable though they may be) and for lower audio/visual quality relative to DVDs. (We could have added a/v quality as a secondary need.) Videogames can be extremely stimulating. Web surfing may not exactly be emotionally stirring, but it has great potential to help anyone learn anything about anything at any time.

5. The need for social interaction

While watching a movie is itself passive and solitary, going out to the movies is social in multiple ways. Going through an experience with friends makes it more enjoyable and gives common references for future conversation. A crowded movie theatre also provides a lighter version of the mob experience common at sporting events or huge rock concerts. Finally, if we take moviegoing to include activities before and after such as travel, dinner and drinks, there is ample opportunity for personal bonding.

Watching the same movie at home with Netflix or TiVo is rarely as social. Videogames played alone are decidedly not social. But endless hours spent playing videogames with friends is a strong bonding experience.

6. The need for social status

Coolness points are gained or lost based on how up-to-date one is with the latest trends. The movie industry plays this up well, fostering the notion of the must-see movie. You just have to watch it (otherwise what good are you?).

But while watching every top movie may necessary for hipness, but it is not sufficient. No medium has a monopoly on conferring social status. One must also be up to date on the latest TV shows, sports standings, celebrity gossip, fashion, videogames, news, technology and blogs.

We can say that the Netflix movie, arriving in the mailbox months after the playground or water cooler chatter has moved on to something new, is not so hip anymore.

7. The need for fun

The prior needs don’t completely capture the overall feeling of fun and excitement of going out to the movies, so we included it as another dimension of need. It overlaps some of the others, but that’s okay; we are free to choose the dimensions that give us useful insight.

Staying home and watching TV or TiVo or Netflix isn’t quite as fun. But high quality videogames can still be an addictive blast.

Supporting needs

8. The need affordability

Moviegoing is expensive. Aside from the ticket cost there are ancillary costs of parking and dinner. TV, Netflix and videogames are far more affordable per hour of use, and thus they get betters scores on the need for affordability.

9. The need for convenience

Going out to see a movie incurs non-monetary costs of time and logistics. One must get to and from the theatre, park and wait in lines. Staying home is far more convenient.

10. The need for relevance/choice

The Matrix and A Room With a View are highly compelling for their respective audiences, and highly irrelevant to one another’s. When it comes to content, relevance is gained through breadth of choice. The movies offer just a couple of dozen choices at any one time.

Regular TV has dozens of channels, yet there is often nothing to watch. TiVo, on the other hand, filters through thousands of channel-hours a week, leaving the viewer with a concentrated set of extremely relevant programming. Netflix offers an impressive selection of 50,000 movies, old TV programs and special-interest content findable nowhere else.

As for videogames, there is not as yet something for everyone. Many have no interest in videogames at all.

11. The need for a long experience

The moviegoing experience, fun and immersive as it may be, is fleeting. On the other hand, people can spend hours a day with TV, TiVo, videogames and web surfing.

Conclusions & Predictions

Now that we’ve broken moviegoing and its challengers into its component needs, what can we make of all this? Is the bad fortune of moviegoing due to a passing spate of poor product? Or is it indicative of deeper, long-term trends to other media? By walking through the chart above we can lay out some specific conclusions and predictions:

• Moviegoing is still a unique product. Its needs profile — its row in the chart above — is distinct from the others. None of the alternatives are a superset. This suggests that moviegoing will not be obviated by new media (the way that word processors obviated typewriters), but will live alongside them.
• Moviegoing has specific advantages. It is a better escape than home media, more engaging and more social. A night of moviegoing is simply more fun than staying home and watching the same thing at home. First release movies are also trendy and confer social status on those who watch the blockbusters early.
• Moviegoing has weaknesses relative to its competitors. It is costly, both monetarily and in convenience. The home media is far more convenient. Moviegoing is also a fleeting, and leaves discretionary time for other products to fill. The comparison points, TiVo, videogames and the web can occupy the user for hours without extra cost.
• The competitors pose real and specific threats. Videogames are an excellent escape. Netflix and TiVo let the user select from thousands of choices, thereby greatly increasing the relevance and appeal. Videogames played with friends fulfill needs for social interaction.
• All of these dynamics are about the medium of moviegoing itself, not the content within that medium. The threat is systemic, not a result of a spate of poor movies.
• Video-over-the-net has the potential to meet a superset of the needs met by Netflix. Current offerings are of lower a/v quality and limited selection, but this can change. Once it does, the DVD-by-mail model will become niche.
• While moviegoing will persist, it won’t be without pain to the industry. The competition for discretionary time is hot, leaving less of the pie for the movies than they are used to. Movie attendance can be expected to decline, even if quality recovers.

How can the movie industry respond to these threats? I will save that for another article.

.

For more on needs analysis, please see:

• Needs analysis technique at ProductVision.org
• Needs Analysis of Vehicles
  

Micropayments are a good idea. Today, providers of worthwhile content must make a difficult choice: do they charge for their content or for a subscription, knowing that a miniscule proportion of visitors will ever do so? Or do they give it away, hoping to fund their efforts via advertising? Micropayments will allow vendors to charge an amount small enough to be inconsequential to the buyer. If done in an unimposing and efficient way, they can open the floodgates to a torrent of impulse purchases.

How else can micro-payments be used?

Here are some scenarios:

• Content providers large or tiny could provide much of their content for free, convey how high their quality is, and charge a nominal amount for extra content.

• Pay to download: pay $0.50 and get a royalty-free photo, or a template or a sound or a font or a set of flash cards to study with.

• Web tools : charge per usage of speciality web apps, calculators, etc.

• New York Times: Read today’s editorialists, or any article from the archive for 5 cents.

• Video: Watch last night’s Jon Stewart without commercials for $0.50.

What are today’s precedents for micropayment user experience?

• Amazon’s One Click checkout – the ultimate enabler of impulse purchases

• Microsoft’s Passport: We know who you are and you’ve given us your purchasing credentials. When you log into a site you’re also all set up to buy something.

• PayPal: vendors, generate a button and stick it on your site. Visitors need only click it, authenticate, and be almost done with the purchase.

• iTunes Music Store: You’ve charged up your account in advance and can now make purchases based on it.

• BitPass seems to be on the right track. Their system is simple for vendors and for customers. [Anyone know how they are doing? Are there other more successful competitors?]

What are the ingredients for micropayments to thrive?

The concept of micropayments is not new, but after years it still hasn’t taken off. However the specifics play out, for micropayments to take off the systems need these characteristics. The absence of these factors has deferred the future explosion of micropayment.

• Standards and interoperability – Credit cards wouldn’t work if there were dozens of clearing houses and fragmentary usage among consumers. Desirous as we are for competition, we need a small number of standard providers of micropayment services for the concept to take off. If they can agree to interoperate it will be better for the entire market. (Think of SMS interoperability agreements that in Europe versus in the USA.) And as a natural consequence of any such market regulation will eventually be required to counterbalance the power of the monopoly or oligopoly.

• Tiny transaction fees – one penny for a five cent transaction, five cents for a 25 cent transaction. [Can someone tell me if there is a minimum transaction fee for credit cards?] Building up the infrastructure and demand will be expensive and we can expect impatient banks to want to recoup these costs quickly. And banks will walt to start from a price they can reduce later. Greed will kill the concept, however. Everyone needs to remember that the point is huge volume and no-brainer impulse purchases. (Steve Jobs understands this: consider his battles with the music industry to keep all songs at $0.99.)

• Instantaneous purchase. Avoids registration hassle with each vendor, a cost in its own right. Amazon’s one-click payment is the ultimate. Requiring authentication is the maximum amount of extra effort on the user’s part that would be imposed.

• Incubation time – Email is a pretty good idea, wouldn’t you say? But if you remember it took quite a while for it to catch on. Similarly it will take some time for consumers to get over the hump and fund micropayment accounts en masse. The more it catches on, the more it will catch on.

• Content worth purchasing – some think that micropayments will fail, then cite as examples things that are no more interesting than any random thing on the Internet. It will always be hard to sell such content in volume. Payments will work if the content is valued highly enough. The tricky part is getting users to trust that what they will get will be worth their dime as well as their time.

• Brand name sponsorship – There is an “activation energy” needed to get consumer over the hump and sign up for something new. A well-known, trusted brand needs to step up, offer something people want and put it behind a micropayment, to kick-start mass adoption. Notice Apple’s iTunes Music Store essentially did this, albeit with proprietary, Apple-only accounts and relatively large micropayments. People barely notice the new business model they are partaking in, and partaking in it they are, by the tens of millions. Similarly, for payment processors, a MasterCard or Visa will carry more trust and credibility than ElCheapoPayments.com.

• Anonymity – As a consumer, you have good reason to be concerned about what is being gathered about you over the course of decades of living online. (Expect this to come to a boil in the next few years.) Micropayments can do well without this need being addressed. But those establishing the standards now would do the whole industry a favor by offering consumers the peace of mind that the transaction is certifiably anonymous. Remember, the game is to maximize purchases by eliminating every barrier to purchase. Hopefully these factors will come together soon, so I can charge you a nickel or two to get in.

Visions to steal

What would a StealThisIdea article be without an idea or two to steal?

Vision idea #1: CMS and blog tool makers: integrate with micropayment infrastructure. Let bloggers indicate what content is paid and what is free. The visitor would see the title and excerpt of the article and a button: “Click here to continue reading. You will be charged 3 cents.” They click once and they’re in the article. Even better, facilitate Salon-style user choice between paying with loose change versus paying with a moment of your attention. On the server side, allow hits from search engines to get in for free once per day so they can index this valuable content and have it be findable by content.

Vision idea #2: Micropayment vendors and/or CMS & blog tool makers: set up referral incentives. So if B refers visitors to A’s page, B gets a cut of the take. Recommendations are important because the user needs to feel that what they buy will be worth paying for.

Vision idea #3: Micropayment vendors: provide web content vendors with a dynamic pricing model, where the cost adjusts itself automatically in response to demand. If a product sells well at 3 cents, raise it to 4, 5 and 6 cents, until total revenue — cost times volume — rate peaks out. The market could then value a piece of content dynamically and automatically.

Vision idea #4a: MasterCard and Visa: offer one-click web micropayments as an extension of credit and debit cards services. No special authentication is needed if you are using the same browser, say, transactions of 25 cents, up to $5 in purchases per month. Provide this service to millions of vendors as easily as PayPal does to its. (In other words, no merchant account required.) Micropayment totals are included on the regular credit card bill. This space is just waiting to be owned!

Vision idea #4b: PayPal: provide a special "instant payment loop" to content providers. The user would see a PayPal version of the "click to view. It will cost 5 cents" entry point. Present the customer with an option to buy with one click from this browser, to a maximum amount.

Vision idea #5: Web publishers and CMS tool makers: Once the user has bought two or three articles at 5 cents each, they may be reluctant to keep buying. Rather than charging 5 cents to view every single premium article, consider charging 15 cents to view all premium articles for a day. To be even more customer-focused: automatically top out daily expenditures per user once they’ve reached the daily rate. And stop collecting money from a user once they’ve hit the annual subscription maximum of $25. This is radical and the opposite of pricing theory. Th point is to experiment with the pricing mechanics to minimize the customer’s discomfort.

[Readers: got other ideas?]

Other reading

• Jakob Nielson has argued for micropayments for ages and thinks they should have happened long ago.

• Not everyone agrees that micropayments will ever happen. Clay Shirky thinks that micropayments will always fail because they are simply an untenable idea. (Compare his reasoning with the ingredients to success above. I think he is missing the psychology of the impulse purchase.) He reaffirmed his belief as recently in 2003 and was lucidly rebutted by cartoonist Scott McCloud (whose book Understanding Comics is required reading for everyone).

My lazy rebuttal: what if Apple were to charge ninety-nine cents to download a song? Would they sell any music?

• There’s a worthwhile discussion of micropayments at MetaFilter.

• Commentary of 8/19/05 on Amazon’s micropayment scheme.

Updates

October 2005 – The New York Times has decided to kill the goose that lays the golden eggs. I guess times are tough and they need more revenue. Their drastic response was to put their most popular content — their editorials — behind a new TimesSelect service that costs $50 a year. They will soon know whether this will pay off business-wise. Certainly their readership numbers will be slashed along with the powerful influence of its editorialists, who must be awfully sad at the loss. It would have been interesting to see them experiment with a micropayment scheme or at least a Salon-like forced ad choice. I expect they will.