Is the future micropayments?

Until quite recently I’d never used the iTunes Store, and had very little exposure to ‘micropayments’. Now, I have to confess – I’m a huge fan and convert, and wondering how the micropayment system can be used in the future.

I hadn’t bought anything from iTunes until the middle of this year. For one thing, I had an antique iPod that was already stuffed full; and for the other, I didn’t even have broadband until the start of this year and so downloading MP3s just hadn’t been on the agenda.

With the arrival of broadband, I did finally make my first MP3 purchase, which for the record was “Eyes” by Rogue Wave for 79p, a track I’d really liked from numerous outings on the TV series “Heroes”. Even then, I probably wouldn’t have just bought one track – it’s just that it wasn’t available on any album in the shops, so it was because of not having any alternative that I was manoeuvred into breaking my iTunes duck.

That got me through the hurdle of registering and entering my credit card details, but it didn’t exactly open the flood gates and I didn’t return to the iTunes store until well into the autumn. The trigger was undoubtedly getting a new iPod – or iPhone in fact – since that suddenly made getting new music that much more appealing as a way of playing with my new shiny toy.

And of course the other thing about the iPhone is … all those enticing little Apps to download. I originally decided I’d only ever try the free ones, a philosophy that I did indeed stick to for literally a day. Maybe two. But in the end, I found it hard to resist or argue against getting an app costing 59p. The most expensive app I’ve bought from iTunes is Bylines for £3, an RSS reader with the specific feature of working through my Google Reader account and keeping synchronised.

It seemed positively churlish to start wavering about a few odd pennies here or there, and the amounts were negligible compared to almost every other purchase I make during the day. For the price of a Starbuck’s coffee I could get three MP3s or a couple of pretty decent paid apps, after all – and how much thought do I give to a morning coffee?

So at some point in the past month, my subconscious mind had come to the conclusion that buying things on iTunes of this sort of cost is just not worth bothering my conscious mind with. Go ahead, do it, the time spent hesitating and thinking about it is worth more to you than the pennies we’re contemplating.

Which is of course the power of micropayments – and especially so in the deadly combination of one-click payments used by the iTunes Store.

But it certainly surprised me how I was turned around from being disinterested in the iTunes Store, to being so casual that I’d buy a specific track just because I’d heard it on a TV soundtrack seconds earlier, or an app for my phone because someone had just shown it to me on theirs.

This kind of casualness with online payments is the Holy Grail of online commerce. At the start of internet commerce, online shops first had to overcome the basic hurdle of persuading people that any sort of transaction online were safe, but now that battle has been one and people will book hotels, hire cars, and buy goods from books, CDs and DVDs right up to washing machines, furniture and cars without too much concern.

But the small, casual purchase is still a problem – partly because of the economics of micropayments. The costs of credit and debit card transactions make charges of less than a pound uneconomical in general. (iTunes gets around this by aggregating a week’s worth of purchases and charging for them in one go, hoping that by this point you’ll have made up enough sales fees to make the transaction worthwhile. It’s not ‘real’ micropayments, but it’s the nearest, best equivalent around at the moment.)

The experience of the iTunes Store shows that – if a retailer can make the economics work for them – then micropayments are by far the best way of getting people to buy things online, because they’ll quickly demote the purchasing to their subconscious brain and not have the same conscious resistance to pressing the ‘buy’ button that comes with larger purchases.

In other words: think of how many things you can sell if you can persuade people to buy online as casually as they buy a coffee or a newspaper at the train station.

Ahh yes, newspapers. Here’s a very real and very specific case in point. The newspaper industry is in crisis worldwide: people don’t need to buy a newspaper any more (the news is out of date before the paper gets to the stand) and they’re not paying for the information online either. So how are newspapers going to keep afloat?

You can argue that newspapers are relics of the mid 20th century and really won’t be missed if they disappear for good, but I have to disagree. Even in these days of Web 2.0 user generated content, an awful lot of the most interesting stuff that gets passed around via social media is material produced by journalists for one publication or another. Without the journalists doing their investigative work we’d all be poorer and have a lot less to Twitter about – and at the end of the day someone has to pay for it.

But how, when experiments have repeatedly shown that people just won’t stump up for online content?

I think they would, if access to their day’s news content cost no more (and preferably rather less) than the kind of money they are used to forking out for a daily paper. Trouble is, the economics against micropayments have meant that online news sites have only ever been able to try out the long-term subscriptions – asking $99 for 6 month’s commitment. That’s a very big barrier to most people, and certainly engaged the conscious brain which is immediately hostile to the idea.

But it’s not quite as easy as each site charging 50p (or 50¢) for access to today’s online site. Because the deeper problem is that people don’t want to buy an entire site for a day, they may only be interested in one or two articles. And they’ll be interested in one or two articles from maybe a dozen different sites – and if you’re asking people to shell out £6 (of $6) for one day’s reading, then once again you’re starting to rouse the conscious mind which is going to start getting deeply irked about this.

The iTunes system realised this early on and its why Apple insisted that they should be able to sell individual tracks and not just whole items. The difference is huge: when I hear a track on TV, I don’t think about buying the entire album – and more often than not decide against it because I don’t know if I’d like any of the other tracks and don’t want to waste the money just for the one I know I do like.

It’s the same with newspapers. I no longer want to pay for an entire paper just because there are one or two articles in it; I want to just read those specific articles. And if a whole paper is worth 50¢ or 50p then a couple of articles can only cost 1¢/1p tops, right?     Well, newspapers have never tried that because there’s no way that they can make 1¢ or 1p charges work financially. But it’s about the only way that users are ever going to accept the need to pay for their online content.

So okay, here’s a suggestion: let’s get the newspapers to join up and create an iNews Store. All of them. Then you can either sell them a day’s access to all the partner newssites for one 50¢/50p payment triggered the first time you try and access a pay-for article, or else you count up and aggregate all the 1¢/1p charges through the day and the week and bill at the end.

It won’t be popular at the start because people are used to getting something for nothing. And the longer this problem is left hanging in the air, the harder it will be to get people to come back into the spirit of paying for content of value at all – even subconsciously through micropayments and one-click.

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  1. Seb Crump

    It’s certainly important to find some way for quality news outlets and newspapers to “monetize” their content. However, I’m not convinced that iNews could work for the following reasons:
    1) linking to content to cite references is one of the fundamentals of the web, it’s already difficult when there is free registration – if the content required payment people wouldn’t link and therefore the participants of iNews would be self-gagging;
    2) there are too many quality news sources that wouldn’t join in – CNN & BBC probably the biggest – where the traffic would divert. This would not only limit the coverage, but create a moral dilemma of the news being biased and skewed;
    3) text is just too easy to copy – while the barrier to redistribution of MP3s is too high for most, even if there is no DRM (not an option for text) – anyone blogging on a free platform would be able to republish the news story text. I’m sure there are technical solutions, but another technical arms race isn’t going to help anyone really; and
    4) I think it would be more than “It won’t be popular at the start because people are used to getting something for nothing”, the backlash from ‘freedom of speech’ types who are very vocal and seem to have influence are quite prevalent on the web.

    Unfortunately, I don’t have a better idea at the moment. My only suggestion is that the ‘virtual tip jar’ concept could be more prevalent – linked in with a system like PayPal could make micro payments more economic. But NetBeans and many others have been tried before and failed – were they just ahead of their time?

  2. andrewlewin

    Hmm, while I agree that iNews doesn’t have a hope in hell, I’m not sure I agree with your points:

    1) Registration IS a pain the neck and people hate logging in at all these sites. So it would have to be one, central system. Do it once, like with iTunes, not for each record label. As soon as the conscious mind gets invoked and starts asking questions, you’ll lose the ‘sale’.

    2) This is actually the reason so many people think the BBC hs to be killed – because in almost any media revenue stream, the BBC’s fee-less presence distorts the market. So the trick has to be to make the pay-for stream so large and compelling, and so economical, that it stands comparison even with the BBC.

    3) Again, the system has to be so easy and subconscious that then the process of cut and paste and reporting elsewhere looks like an annoying inconvenience by comparison.

    4) I don’t think even the most zealous free speech advocate could seriously object to an author and publisher’s right to charge for their own material!

    But no, I don’t think for a minute iNews has a chance in hell. For one thing, the publishers would all insist on outrageous prices (either long term subs or full cover price per day’s access, despite the fact that most of that cost is relating to newsprint and physical distribution.)

    Also, they’ll never team up to work together – they’d rather die alone than risk working with a rival.

    And finally – the technical investment to get the system working just isn’t practical. Many sites have already tried subs models and got burned and dismantled them, so they’re not going to try it again.

    But if they don’t … Are all these sites going to go out of business? We’ll miss them when they do. It’ll take an “Apple of the news work” to push it through in the way that Steve Jobs made it happen for music, but sadly the newspaper industry just doesn’t know HOW to stay alive.

  3. I remember back in college when my friends and I used Napster and Limewire and never paid for music online. We said we couldn’t imagine paying for mp3s.

    Now just seven years later, that’s almost the only place I buy my music.

    I think an iNews service could work. Plus, it would provide a good platform for organizing all your different news services into one place, based on topic, region, etc. Thanks for thinking positively about the current journalism situation and figuring out solutions rather than declaring the end of newspapers, as many other sources tend to do these days.

  4. andrewlewin

    Hi Ricci, thanks for visiting.

    Wow, Napster – there’s a blast from the past! Doesn’t that feel like a lifetime ago?

    I’d be very sad to see newspapers go, I’m a lifelong fan of the daily paper and worked in the magazine trade for several years. But things really are looking bleak and unless someone comes up with some ways forward, I fear for the industry – at the moment they all seem paralysed and don’t know which way to turn.

    In the meantime – there’s an interesting post on Technoviaabout how Apple may expand the App Store model for software in general for the Mac platform, which maybe factors into this issue.




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