
Why micropayments are (still) a terrible idea - ChrisO
http://www.leehower.com/2009/05/why-micropayments-are-still-terrible.html
======
Kadin
I 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.

~~~
frossie
_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.

~~~
eru
> 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.)

------
asciilifeform
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%.

~~~
anigbrowl
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.

~~~
stcredzero
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.

~~~
dave_au
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...)

~~~
anigbrowl
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.

------
dan_the_welder
Transaction costs are a killer. It hurts on cups of coffee which I sell a lot
of.

Merchant services are bastards.

~~~
blhack
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.

~~~
teej
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.

~~~
chollida1
> 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.

------
pyr3
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.

------
mleonhard
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.

------
rjurney
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.

