Micropayments: The business model that never was

Micropayments make a lot of sense intellectually. One problem. They don't work.

Gordon Haff
Gordon Haff is Red Hat's cloud evangelist although the opinions expressed here are strictly his own. He's focused on enterprise IT, especially cloud computing. However, Gordon writes about a wide range of topics whether they relate to the way too many hours he spends traveling or his longtime interest in photography.
Gordon Haff
3 min read

Micropayments are once again being broached as a way to pay for online content. It's not that micropayments have a proven track record. Some of the recent pieces on this topic include:

I'm with the skeptics here even if I don't fully agree with all the individual arguments. I'm certainly not opposed to the basic idea. In fact, I think it mostly unfortunate that we don't have more viable means to directly monetize the creation of valued content. But the evidence suggests that micropayments don't work in the main.

There are a lot of separate threads to this discussion. I'm going to try to tease some of those apart here.

We see the iTunes Music Store (ITMS) presented as an example of a working micropayments scheme. I don't buy it. For one thing, the amounts involved ($1 give or take) are more in the realm of what I call "midi-payments." I think of micropayments more in the vein of a penny, a nickel, or a dime--what I might pay, at least in principle, to read a magazine article or a newspaper column. For another, songs are different from short written pieces. We've generally heard them before and we're buying them because we want to listen to them again--many times.

The transaction costs problem. One issue though is that an approach that requires people to make lots of very small purchases also carry a lot of transaction costs. Clay Shirky, among others, has long raised this objection against micropayments. Some of these transaction costs can be mitigated with technology (the actual cost in gear, bandwidth, etc. to process the transaction and the  ease with which the payment can be made). However, the buyer still needs to make a lot of individual purchase decisions. It's well recognized that there's a huge gap between free and cheap (even very cheap) when it comes to buying things.

But subscriptions mostly don't work either. Based on my own behavior, I'm sure there's something to the transaction cost argument but it's unclear to me that alternatives to "nickel-and-diming" (to use Sharky's phrase) work in a broad way either. Subscription-based  music services like Rhapsody haven't been especially popular. (Although I use and like it.) And the examples of at least reasonably successful online subscription content, such as the Wall Street Journal, strike me as exceptions that bring very specific value to a population that's willing to pay.

Micropayments are a worse fit with today's Web environment than during their first boomlet in the dot-com era. Part of this is simply that people have gotten used to free news and other content on the Web. There are also more sources of news than ever--albeit much of it duplicative and often relying on major news organizations for source material. However, more broadly, linking and search have become such fundamental drivers of traffic that anything behind a pay-wall (as subscription-only content inevitably is) will take a huge traffic hit. This makes such content less relevant; it also hurts ad revenue.

I agree with those arguing that micropayments are again raising their head not because changes in technology or consumer behavior now make them viable. Rather, the alternatives have largely failed as well. Yes, online advertising is ubiquitous and it does bring in revenue, but the level of that revenue often seems more attuned to blogs cranking out quick-hit posts than to traditional news organizations with investigative reporters, editors, and so forth.

I don't claim to know which model or models will click for newspapers and their successors, what that industry will evolve into, and what we all may collectively give up because we're not willing to pay for certain things. But chalk up micropayments as an idea that seems really appealing but just doesn't work in the general case.