The Internet has progressed in mind-boggling leaps and bounds over the last ten years. A surprising laggard is the concept of micropayments.
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.
Clicking into paid content with BitPass lets you login (not shown) or create an account (above) in a minimum of steps.
Once your account is created and funded you are prompted to confirm the transaction.
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.
