Why micropayments are (still) a terrible idea(leehower.com)
leehower.com
Why micropayments are (still) a terrible idea
http://www.leehower.com/2009/05/why-micropayments-are-still-terrible.html
34 comments
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.
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.
> 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.
You know what banks are doing? That's exactly how they operate transfers. Only it seems, not cheap enough. (However, almost every bank in Germany allows you to make transfers to people with accounts at other domestic banks for free. Since ages. It's just not convenient.)
You know what banks are doing? That's exactly how they operate transfers. Only it seems, not cheap enough. (However, almost every bank in Germany allows you to make transfers to people with accounts at other domestic banks for free. Since ages. It's just not convenient.)
> There is no real opportunity to test this on the Internet.
I imagine you could set up an HCI test that makes it look like people are going to be able to micropay, and observe their reactions.
I imagine you could set up an HCI test that makes it look like people are going to be able to micropay, and observe their reactions.
Definitely shouldn't be easy. Whichever company goes big time with micropayments in the next decade is sure to become a multi-billion dollar company (I'm positive Paypal is worth that much).
What a micropayment system needs to succeed is to drop the transaction cost, so that very small payments 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.
You don't need to actually move money every time for that. Just have an easily accessible widget/meter. (OS X Widgets, but connected to a page in the browser would be perfect for that.)
You can also give the user tools, like a 'Max burn rate' setting that prevented you from spending money at a rate faster than you're comfortable doing. (This would appear as the site restricting access based on pay.)
The people to make this happen are actually Google and Mozilla with cooperation from Opera. If you make it a part of the web infrastructure like the little lock icon for SSL is a part of it, or like the (default) Google search field in the upper right corner, then it will work, so long as it's voluntary. (Tipping) Make it an open protocol, and provide the centralized back-end processing for free, and the webapp hosting companies will throw it in, and everyone will have it.
You don't need to actually move money every time for that. Just have an easily accessible widget/meter. (OS X Widgets, but connected to a page in the browser would be perfect for that.)
You can also give the user tools, like a 'Max burn rate' setting that prevented you from spending money at a rate faster than you're comfortable doing. (This would appear as the site restricting access based on pay.)
The people to make this happen are actually Google and Mozilla with cooperation from Opera. If you make it a part of the web infrastructure like the little lock icon for SSL is a part of it, or like the (default) Google search field in the upper right corner, then it will work, so long as it's voluntary. (Tipping) Make it an open protocol, and provide the centralized back-end processing for free, and the webapp hosting companies will throw it in, and everyone will have it.
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.
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.
The 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%.
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%.
Well, there are a few things where you pay first - books, as you say, but also movies, theater, fast food and so forth. Unsurprisingly, this involves high marketing and a tightly controlled supply chain to be profitable, or else a very qualified consumer (no way am I going to pay >$30 for the privilege of reading a paper in Nature or something that I might find interesting, but if I was a specialist in that field that would be different).
I don't worry about the free/non-free thing. I see lots of stuff on the web that I'd consider worth a nickel, a dime, a quarter or even a dollar. The issue for me is that I am not going to get my credit card out and go through the 2-3 minute process of submitting all my billing information for such a tiny amount. Affiliate and adwords-type stuff is faster and better from the consumer point of view, but of course that often results in content degradation: as pointed out on HN recently, why write expertly about an obscure topic when there's more money to be made writing crap about a popular topic.
I don't worry about the free/non-free thing. I see lots of stuff on the web that I'd consider worth a nickel, a dime, a quarter or even a dollar. The issue for me is that I am not going to get my credit card out and go through the 2-3 minute process of submitting all my billing information for such a tiny amount. Affiliate and adwords-type stuff is faster and better from the consumer point of view, but of course that often results in content degradation: as pointed out on HN recently, why write expertly about an obscure topic when there's more money to be made writing crap about a popular topic.
What if Google hosted something like TipJoy, and the scheme was built as a very specifically formatted REST call with open source server-side software that authenticated and forwarded the transaction. If Mozilla built this into Firefox, then it would quickly become a part of what the users perceives as the Web Infrastructure, just like the (default) Google search box on the upper right hand corner, or the SSL lock icon.
Whenever micropayments come up - and specifically with the idea of making the payments from some kind of broker account so that the transaction cost isn't a hassle - it colours my thinking for the next couple of days.
It gets tied into my "vote up" reflex that I've gotten used to from reddit and HN. Normally I'll come across something I like, think "I should vote that up" if I found it from some place with votes. After I'm primed with the idea of micropayments I think "I'd micropay for that".
I don't know what I'd pay, but I get the feeling that the thought corresponds to the same payment amount. It would be nice to have a configureble browser widget that would make paying the default amount as bookmarking something or tagging it for delicious.
The troubling thing is that I'd spend a bit on stuff that I'd optionally get for free, but I don't know how much I'd pay for something like the new york times - the "you must register thing" really bugs me (even now, after I registered with a mailinator account to avoid the hassle). I guess I've just gotten used to trying before I buy (thanks torrent people...)
It gets tied into my "vote up" reflex that I've gotten used to from reddit and HN. Normally I'll come across something I like, think "I should vote that up" if I found it from some place with votes. After I'm primed with the idea of micropayments I think "I'd micropay for that".
I don't know what I'd pay, but I get the feeling that the thought corresponds to the same payment amount. It would be nice to have a configureble browser widget that would make paying the default amount as bookmarking something or tagging it for delicious.
The troubling thing is that I'd spend a bit on stuff that I'd optionally get for free, but I don't know how much I'd pay for something like the new york times - the "you must register thing" really bugs me (even now, after I registered with a mailinator account to avoid the hassle). I guess I've just gotten used to trying before I buy (thanks torrent people...)
You're right on the money: your momentary attention to a HN post has a value, and that accumulates with authors you like - you're more likely to upvote someone who has already impressed you.
What if tipping is free for the consumer of a blog or video or tune, but the tips are redeemable for a discount with online retailers? Tips and/or comment depth presumably have some kind of analytic value and might be orthogonal or inversely proportional to the the kind of SEO-hackery designed to pull adwords bidding.
What if tipping is free for the consumer of a blog or video or tune, but the tips are redeemable for a discount with online retailers? Tips and/or comment depth presumably have some kind of analytic value and might be orthogonal or inversely proportional to the the kind of SEO-hackery designed to pull adwords bidding.
This is precisely why something like Tipjoy should succeed. (A shame that it probably won't.)
Transaction costs are a killer. It hurts on cups of coffee which I sell a lot of.
Merchant services are bastards.
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.
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.
True, I am currently researching giftcards for that reason.
Merchant services are still bastards.
Rich, rich bastards.
Merchant services are still bastards.
Rich, rich bastards.
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.
> It will aggregate all your "store" purchases across iTunes desktop, iTunes on devices, and the App Store on a weekly basis.
I don't know how they do it exactly but for what its worth I made a purchase on Monday and then again on Tuesday and I recieved seperate charges for each. Though each charge came 2 days after the purchase( Wednesday and Thursday).
For what it's worth I use the Canadian iTunes store.
I don't know how they do it exactly but for what its worth I made a purchase on Monday and then again on Tuesday and I recieved seperate charges for each. Though each charge came 2 days after the purchase( Wednesday and Thursday).
For what it's worth I use the Canadian iTunes store.
Amazon does. I use their mp3 store on Android. They appear to only charge my credit card at the end of the day so that songs can be grouped.
I really don't think the buying credits would work better. It would work, but not better. The whole point of micropayments is spending a tiny bit of money. How is buying $10+ in credits beforehand a micropayment? Defeats the purpose.
It sounds like somebody needs to create a micropayment service.
I don't have the coding chops, but I know a lot of the people around here do.
You put $10 into a micropayment account that can then be used across websites like facebook or blogger, or whatever else service decides to do this.
I could even see ISPs rolling this into part of your payment plan for internet...$50 a month for access, $10 a month that gets picked at by people that use micropayments.
If anybody does this, will you buy me an Ariel Atom?
I don't have the coding chops, but I know a lot of the people around here do.
You put $10 into a micropayment account that can then be used across websites like facebook or blogger, or whatever else service decides to do this.
I could even see ISPs rolling this into part of your payment plan for internet...$50 a month for access, $10 a month that gets picked at by people that use micropayments.
If anybody does this, will you buy me an Ariel Atom?
Isn't this exactly what your bank or credit card company should be providing? (Only massively cheaper than they do now.)
I've always wondered about this...I live in SF, where a huge number of the little coffee shops are cash only or have a $10 minimum or whatever. As a result, I don't go there, I go to Starbucks instead. I get that the transaction costs of $.25 + 3% is brutal on a $1.50 cup of coffee, but wouldn't it be better to just raise the price of the cheaper items in the store by $.25, or even just $.15? The COG on a cup of coffee is what, like ten cents? So your gross profits are good, you just need more volume. Are consumers really so price sensitive that they'd go elsewhere over a fifteen cent increase? I wouldn't...I value convenience and a good cup of coffee over fifteen cents.
Why not just two different prices? Just make sure to call it a cash discount, instead of a credit card markup.
This way the store does not care how a customer pays, and the customer can decide for herself whether fifteen cents are worth the convenience.
(By the way, why aren't you paying with cash? I find it much more convenient in general than plastic cards.)
This way the store does not care how a customer pays, and the customer can decide for herself whether fifteen cents are worth the convenience.
(By the way, why aren't you paying with cash? I find it much more convenient in general than plastic cards.)
Cash is easier than a card?
You swipe the card and your done, how can it be any easier?
With cash you have to constantly go to the atm, and deal with change.
You swipe the card and your done, how can it be any easier?
With cash you have to constantly go to the atm, and deal with change.
Why not just two different prices? Just make sure to call it a cash discount, instead of a credit card markup.
Someone correct me if I'm wrong, but I'm virtually certain that this violates the merchant agreement with the card networks.
Someone correct me if I'm wrong, but I'm virtually certain that this violates the merchant agreement with the card networks.
StarBucks, and I assume other retailers, have figured this out and offer refillable cards.
The idea is that you put say $25 on the card and that is a one time VISA charge. Then each time you use the card there is no additional merchant charge to them.
At the price of say $3 drink this can save them 7 of the 8 flat fee credit card processing charges, the variable charges for using the credit card are of course still there.
The idea is that you put say $25 on the card and that is a one time VISA charge. Then each time you use the card there is no additional merchant charge to them.
At the price of say $3 drink this can save them 7 of the 8 flat fee credit card processing charges, the variable charges for using the credit card are of course still there.
I go to Starbucks regularly and rarely see anyone using the Starbucks card. Though I see it being advertised near the cash register everywhere.
Does it offer any advantage to consumers? (I don't drink coffee.)
Yes, if you register a Starbucks card you become eligible for "rewards" according to: https://www.starbucks.com/cardrewards/default.asp
My wife gets free soy(instead of milk) in her Chai latte. Normally this is an extra 50 cents each time.
I have a bunch of issues with this post, regardless of the feasibility of micropayments.
First off, saying that people didn't go for the $0.xx/kB data plans on cellphones due to 'mental accounting' that people have when the price is <$1 is bogus. People didn't go for it because people don't have a clue how many kB the websites they visit or the email they download are. It would have been too much of a task to keep track of that information. This had nothing to do with the cost, and everything to do with the amount of micromanaging that people would have to do. In addition, people have no gauge on the amount of kB they use in a day, a week, or a month. So they have no way of knowing if this price is a deal or a rip-off. This in no way reflects on people's willingness to make a bunch of <$1 purchases against their credit card.
Second, the proliferation of prepaid credits has less to do with people getting over some mental hurdle to spending money in <$1 increments. It's the hurdle of effort. Whenever I go to a website that is selling something at <$1 prices, I possibly have to sign up, fill out a bunch of forms, pull out my credit card, etc. If this is presented in a way where the purchase is one-click (i.e. I already have credits with this seller or service) then that barrier is broken down and people are more likely to make the purchase.
The mental hurdle that people have isn't some difference between spending $0 and spending $0.01. It's the difference between not getting something and spending 5 minutes going through a process to spend $0.01 on something.
First off, saying that people didn't go for the $0.xx/kB data plans on cellphones due to 'mental accounting' that people have when the price is <$1 is bogus. People didn't go for it because people don't have a clue how many kB the websites they visit or the email they download are. It would have been too much of a task to keep track of that information. This had nothing to do with the cost, and everything to do with the amount of micromanaging that people would have to do. In addition, people have no gauge on the amount of kB they use in a day, a week, or a month. So they have no way of knowing if this price is a deal or a rip-off. This in no way reflects on people's willingness to make a bunch of <$1 purchases against their credit card.
Second, the proliferation of prepaid credits has less to do with people getting over some mental hurdle to spending money in <$1 increments. It's the hurdle of effort. Whenever I go to a website that is selling something at <$1 prices, I possibly have to sign up, fill out a bunch of forms, pull out my credit card, etc. If this is presented in a way where the purchase is one-click (i.e. I already have credits with this seller or service) then that barrier is broken down and people are more likely to make the purchase.
The mental hurdle that people have isn't some difference between spending $0 and spending $0.01. It's the difference between not getting something and spending 5 minutes going through a process to spend $0.01 on something.
Micropayments are a great idea. It's just that current financial systems don't support them.
What we need is an Internet protocol for accepting payments and transferring value between electronic banks. This will happen eventually.
What we need is an Internet protocol for accepting payments and transferring value between electronic banks. This will happen eventually.
Ringtones 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.
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.
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.