Revisiting the Micropayment Concept

2009-10-27T20:00:00.000-07:00

Ever since the internet became popular, people have been creating websites. And ever since people started creating websites there have been costs to run them. Websites require hosting fees, various development costs, and lots of time and effort. Typically webmasters supplement their sites with ads to help pay the bills, but that usually results in minimal returns and can actually require more maintenance to support.

An alternative to advertising has always been micropayments: very small payments (less than a dollar) in exchange for specific content. For example, a website charging you 10 cents to access an article, or a music program charging you half a cent for every song you listen to. These payments support the development and maintenance of such services, but are typically impractical due to transaction fees of such small payments. Popular payment provider Paypal charges a base 30 cents for every transaction, meaning asking anything under that price is pointless.

There have been several companies that tried to implement a feasible micropayment system for websites, but all of them have failed. Remember any of these attempts? BitPass, Peppercoin, CyberCash, DigiCash, Flooz, Beenz, Bee-Tokens…I can go on. Countless times webmasters have been teased with the promise of steady income, only to be let down.

Why micropayments fail

Many publishers have shared their thoughts on why micropayment systems don’t work. Contributors on Wikipedia describe the concept of a mental transaction cost. “Each price, no matter how small, carries a burden of deciding if the content is worth that price; accumulated over a large amount of content, this burden would pose an extreme inconvenience to the users." With micropayments users have to make a conscious decision of “Is this article really worth $0.05?” Those decisions are hard to make, and often the user will simply give up. Research has shown that deciding on a fixed-price subscription is a much easier decision than a low-price granular purchase.

Another downside is the cost of customer service. A merchant could potentially spend enough time and money dealing with a single customer complaint that it would offset the payment received by many others. Even though something may just cost a dime, they’re still on contract to deliver the goods as promised. On top of that, some credit card gateways charge extra for issuing refunds, further diminishing the returns from others.

Clay Shirky, a popular blogger on internet and economic concepts, explores the idea that publishers on the web are not interested in money, but instead popularity. Fame and fortune do not always coincide in today’s internet world. Someone can be famous without being rich, and that’s ok to them. I agree with Shirky that fame can be a prime motivator for many of the bloggers out there. However, too much popularity could have a toll on their server costs, and once the bills come I doubt anyone would turn down some monetary support that would help them stay afloat.

Scott McCloud, a webmaster who had temporary success with micropayments, refutes Shirky’s argument. “The artists among us are relegated to noble failures and lovable martyrs—giving away their art for nothing ‘til the rent is due and they have to go back to flipping burgers. I know far too many of these people to accept Shirky's placid scenario. They're tired, they're frustrated, and they're quitting in droves.”

McCloud could be an example of his exact words. He ran a website to showcase his comics for several years. In order to make ends meet, he used a micropayment system called BitPass. It proved to be a huge success, charging $0.25 for users to view new releases of his comics. After BitPass closed down in 2003 his site struggled. Its has now been over 4 years since it has been updated.

The problem with ads

There are lots of websites that provide great content or services but don’t necessarily have a great business model. When asked about how they will monetize the sites, lots of webmasters say “Oh, I’ll just put up some advertising.” But once advertising is implemented and they realize how much work it is to maintain and how little return it is providing, websites either go down or their services and content suffer. I hate seeing great sites shut down. I’ve come across many of my old bookmarks whose sites no longer exist, and it makes me sad.

In addition to advertising not working very well for the publisher, it also annoys users. The other day I was on a website and I couldn’t read the article because there were too many distracting ads. I’m not talking about pop-ups and flashing images (which make me want to kill myself). This one was a streaming video advertisement for a new horror film coming out shortly. I eventually became so disturbed that I closed the page. Most users have become so used to this that they are now ad-blind – they can mentally tune out the advertising – offering absolutely no income for the webmaster. If mentally ignoring ads is too much work, there’s now software that will block ads for us, defeating the purpose of putting up advertising altogether!

Even worse, the content on pages with ads can start to suffer due to hidden agendas. Webmasters realize that more people will click on ads if they promote the ads in their articles. If I’m reading an article about the best TV to buy, I don’t want to be persuaded to buy the one that offers the webmaster the most commission, I want to be taught about the one that’s best! I’m beginning to see sites that were set up for the sole purpose of getting people to click on ads. The content is 100% misleading and dishonest. Get that stuff off the internet!

I’ve heard some people say “If you like a website, support it by clicking on its ads every once in a while.” This could work, except for two problems. First – there’s no way to spread this idea around because any site who promotes it would surely be banned by all affiliate networks. And second – it would decrease the conversions of such ads, which would decrease the amount of money advertisers are willing to pay, which would in turn decrease the profits for sites. It could provide some results, but they would surely be short-lived.

We need a solution

I think we’re in another internet bubble. Take one visit to techcrunch.com and you’ll hear about venture capitalists giving out millions of dollars left and right to any new startup that has a partial idea. Slashdot has a great discussion about it, using all the hype around the search engine Cuil as evidence. It’s just like we’re at the end of 2001 all over again - and that’s what worries me. There are too many websites that I love, and I would hate to see them suffer through another downfall. I don’t want my favorite sites to go belly up – in fact I would even pay for them to stay afloat. Pandora, Slashdot, Mailinator. One of my favorite sites JustinGuitar already has a home page that begs for donations. I don’t want to see these sites die!

Luckily there are still a few companies in existence that are trying to help websites make money through online donations, but they all have their drawbacks:

TipIt – Users leave tips for sites and get billed when they’ve accumulated a chargeable amount. I would get scared that I’d tip so much that I’d have quite a bill to pay at the end. I need something that caps how much I spend.
Tipjoy – Similar concept to TipIt, but webmasters can only get rewarded with Amazon gift cards. That doesn’t help pay the bills. UPDATE – Recently shut down!
Indiekarma – Users prepay into an account. Everytime they visit a site their accounts automatically get deducted. I don’t like having to prepay and keep your account funded at all times – too much work! UPDATE – Recently shut down!
Paypal – Webmasters put up a “Donate Now” button, where users can make a one-time donation of a specific amount. This solution is the most popular, but users have to enter their payment info every time they want to donate – big hassle!

These all come close to being a practical solution, but I think if anything is going to work it would need to have the following attributes:

Redeemable – webmasters need cash. Popularity and gift cards cannot pay the bills.
Subscribable – makes it easy so they don’t have to provide payment info multiple times.
Consolidated – aggregates payments to minimize transaction costs and reduces the mental transaction effect.
Voluntary – if it’s unenforced it won’t require the overhead of access control and customer support. The honor system works.
Liquid – have no stored value. People worry about whether they will use it in the future. If they can’t they don’t want to waste their money.

Introducing .Thanks

That’s why I’m interested to see how a new website “.Thanks” works out. I created it out of frustration from everything that didn't work. I combined the best ideas from all, and left out the annoying ones. It has a monthly subscription model, and your dues are split amongst a list sites that you choose. This avoids the mental transaction cost. And this way your tips are capped at an amount I specify so that you know your monthly expenses ahead of time.

Consider .Thanks a subscription to the internet. Yes, I know we already pay fees for internet access, but that is for the wires, routers, etc that allow you to connect. The internet publishers do not get any of that money. We should be paying fees for internet content. I’ve replaced many of my magazine subscriptions with blogs simply because they are better. I won’t have a problem donating to the blogs what I used to spend on magazines.

Today more than ever there is a crying need for webmasters to have monetary support. They need to be able to continue to provide honest content, great services, and reliable sites that won’t become extinct with the upcoming bubble burst. Even if it requires users to shell out a little cash I think it will catch on as long as it’s easy. Someday we’ll eventually get it right.

.Thanks Launch!

2009-10-07T17:31:00.000-07:00

We've launched .Thanks! We're excited to provide this service for you. Please give us feedback (email: admin@dotthanks.com) and help us grow!

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Revisiting the Micropayment Concept

.Thanks Launch!