Why micropayments are (still) a terrible idea
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Why micropayments are (still) a terrible idea
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Re: Why micropayments are (still) a terrible idea
#2Transaction costs are a killer. It hurts on cups of coffee which I sell a lot of.
Merchant services are bastards.
Re: Why micropayments are (still) a terrible idea
#3I don't really buy his argument. At first he says that most online purchases are too big to really be considered "micropayments." Well, duh -- there's no micropayment infrastructure, so no true micropayments. The business models that exist today are the ones that somehow get the customer to cough up a couple of bucks.
Then the main thrust of his argument is that consumers won't accept micropayments because there's a big difference between "free" and "very cheap." I think this has some merit, but the success of not-very-micro payment services like iTunes shows that consumers are willing to pay for content while the value proposition is right. They just don't want to be hit with a continuous stream of charges that can add up to a massive bill at the end of the month. That's why metered data plans were such a PITA: it's hard to see how much you're using when you're surfing, and there were a lot of horror stories about people getting bills for thousands of dollars at the end of the month. Nobody wants that.
What a micropayment system needs to succeed is to drop the transaction cost, so that very small payments (maybe even fractions of a cent) are feasible, and then they need to be transparent to the user. The charges can't just happen silently and then end up on a bill at the end of the month; that makes (smart) people understandably nervous. You need to show how much money people are spending so they can see that it's a comfortable amount to spend.
I think if you had a system that let you toss virtual pennies around, people wouldn't hesitate to spend them any more than they hesitate to spend real-world pennies (which is to say, not much). As them for a few bucks and they will stop and think, but a couple of cents? I don't think they will. People just need to get used to spending money again, rather than the false sense of "free" from ad-supported services.
Re: Why micropayments are (still) a terrible idea
#4I don't really buy his argument. At first he says that most online purchases are too big to really be considered "micropayments." Well, duh -- there's no micropayment infrastructure, so no true micropayments. The business models that exist today are the ones that somehow get the customer to cough up a couple of bucks. Then the main thrust of his argument is that consumers won't accept micropayments because there's a…
At first he says that most online purchases are too big to really be considered "micropayments." Well, duh -- there's no micropayment infrastructure, so no true micropayments.
Exactly. There is no data in his argument - you can argue that people wouldn't want to pay a little versus nothing but how can you know? There is no real opportunity to test this on the Internet. In real life, there are people who make a living from busking, which implies that there is no universal psychological barrier to tossing a quarter in a tin can for a snatch of a tune that put a smile on your face. (You can argue that there are people who never give to buskers, but that is not really the issue).
As for the transaction cost - well indeed, this is why the micropayment problem has not been solved. This isn't really my field, but I imagine the way forward is to somehow "warehouse" and broker payments until they are no longer "micro". For example if I make 10 micropayements of $0.25 to 10 different recipients, i am debited $2.50 once, and all that debit goes to one recipient, with everybody else's money shuffled around until all recipients ultimately get their money in as few transactions as possible. Nobody said it is an easy problem to solve.
Re: Why micropayments are (still) a terrible idea
#5Ringtones cost $2.40 because the cellular carrier takes 50%, as do other middlemen. If it were a direct market, a much smaller micropayment would work.
There is no reason good micropayments, such as http://twitpay.me and http://rt2buy.com/ (no affiliation) can't work in all the markets he dismisses, other than Amazon and Paypal costing too much to effect the transfer. But the cost is coming down, Amazon payments way undercut Paypal for small transactions. Its only a matter of time.
Re: Why micropayments are (still) a terrible idea
#6Transaction costs are a killer. It hurts on cups of coffee which I sell a lot of. Merchant services are bastards.
I imagine that you wouldn't actually have to process the transaction until somebody owes a largish ammount of money (relatively).
Something around $10-20.
What would work even better (this is how allofmp3.com used to work) would be to buy a bunch of credits...$10-$20 worth of them, then as you make "micropayments", it draws from this supply.
Google's ad program also works this way. You pay in $50 or so, then each click costs you $0.90 or $0.10 or whatever it is, it doesn't process a transaction for each one, it just draws from your reserve.
This is good because it encourages people to continue using the service until their balance is gone. This causes the cost of moving to another service to increase.
The idea of this isn't new, it's just stupid.
Re: Why micropayments are (still) a terrible idea
#7The enormous psychological gap between "free" and "non-free" definitely exists, at least in my own mind.
There is yet another issue, which I have never seen brought up. Unlike physical goods, with information you know practically nothing about what you're buying until you've non-refundably consumed it, almost by definition. The only possible exceptions are very large aggregates such as books. And most available information, by volume, is simply worthless.
Let's say that a dime were deducted from my bank account every time I read a HN article, and given to the author. I would feel that most of the money is spent unwisely. Not necessarily because almost everything is garbage (Sturgeon's Law applies!) but because I have not had the chance to evaluate it before purchasing, since doing so is effectively impossible.
This makes the common comparison of proposed Internet micropayments to costs such as my electric bill rather specious, since every KWatt/Hour which comes out of my breaker panel is worth the same to me, and I know exactly what to expect from it.
I refuse to participate in any scheme which rewards the worthless 90% of a Sturgeon's Law universe equally to the valuable 10%.
Re: Why micropayments are (still) a terrible idea
#8Transaction costs are a killer. It hurts on cups of coffee which I sell a lot of. Merchant services are bastards.
I imagine that you wouldn't actually have to process the transaction until somebody owes a largish ammount of money (relatively). Something around $10-20. What would work even better (this is how allofmp3.com used to work) would be to buy a bunch of credits...$10-$20 worth of them, then as you make "micropayments", it draws from this supply. Google's ad program also works this way. You pay in $50 or so, then each cli…
Doesn't Apple do this? If you make a purchase, you won't get a receipt until a few days later. It will aggregate all your "store" purchases across iTunes desktop, iTunes on devices, and the App Store on a weekly basis.
Re: Why micropayments are (still) a terrible idea
#9The enormous psychological gap between "free" and "non-free" definitely exists, at least in my own mind. There is yet another issue, which I have never seen brought up. Unlike physical goods, with information you know practically nothing about what you're buying until you've non-refundably consumed it, almost by definition. The only possible exceptions are very large aggregates such as books. And most available infor…
This is precisely why something like Tipjoy should succeed. (A shame that it probably won't.)
Re: Why micropayments are (still) a terrible idea
#10I don't really buy his argument. At first he says that most online purchases are too big to really be considered "micropayments." Well, duh -- there's no micropayment infrastructure, so no true micropayments. The business models that exist today are the ones that somehow get the customer to cough up a couple of bucks. Then the main thrust of his argument is that consumers won't accept micropayments because there's a…
People just need to get used to spending money again, rather than the false sense of "free" from ad-supported services.
You say that like it's simple. Changing people's thinking is about the most challenging goal a startup can take on. It can take an awfully long time. I'd love to hear (tipjoy) Ivan's thoughts/plans on this topic.