Thoughts On Micropayments

I became excited about the topic reading Scott McCloud's hopeful 'Coins of the Realm' [ part 1 | part 2 ]. Wanting to get a sanity check, I read the bearish The Case Against Micropayments by Clay Shirky. Mr. Shirky makes some good points that will apply to some content, but not all, I believe.

I think the micropayments issue has many facets and cannot effectively be reduced to 'micropayments will work' or 'micropayments won't work'. I think there are situations where micropayments could thrive, and situations where they probably won't. In short, they could work where

  1. Publishers find the right match between the 'size' of the content and the price
  2. Content creators have loyal followers
  3. Payment systems honor reader's preferences and are optimized for the new mental models resulting from micropayments
  4. Readers perceive there are human creators behind the content and the importance of supporting these creators

Business Failures

I agree with most everything McCloud has said. The quotes below are from Shirky:

There have been a number of attempts to implement micropayments, and they have not caught on in even in a modest fashion - a partial list of floundering or failed systems includes FirstVirtual, Cybercoin, Millicent, Digicash, Internet Dollar, Pay2See, MicroMint and Cybercent. If there was going to be broad user support, we would have seen some glimmer of it by now.

I consider myself a tuned-in web surfer, but I've never encountered a site using any of these systems. Maybe it's not the lack of user support that killed them, but rather lack of publisher support. I think we'd need to see case studies of why these businesses failed before blaming the users.

User Preferences and Amazon

Why does it matter that users hate micropayments? Because users are the ones with the money, and micropayments do not take user preferences into account.

I think the Amazon Honor System is coming close. They already have your billing account information, so this user preference is used. But the interaction could be improved. Here's a shortest path use case of how it works now (see an example on McCloud's home page):

  1. Reader sees a 'click to pay' link.
  2. Reader clicks the link.
  3. Reader is shown an Amazon page that briefly explains the system and offers a pre-filled text box for the payment amount and a 'Pay now with 1-Click' button.
  4. Reader clicks the 'Pay now' button.
  5. Reader is shown a result page.
  6. An email, acting as the receipt, is emailed to the reader.

One problem I see is that you're asking the reader to make a crucial decision - placing a value on the content - when they are looking at a page on Amazon's site, instead of looking at the content they're paying for. Additionally, the language puts the burden of valuation on the reader (yes, the amount is pre-filled, but, at least in McCloud's case, there's no indication that the content creator suggested this default value. Here's an alternate use case:

  1. Reader sees a 'click to pay' form which includes a message such as 'I suggest a payment of...', a pre-filled text box for the payment amount, and a link to get more information.
  2. Reader clicks the 'pay now' button.
  3. Reader is shown a result page.
  4. An email, acting as the receipt, is emailed to the reader.

These four steps are simpler than the six above, and let the reader determine if the value is appropriate while they are consuming the content. Also, the payment mechanism could make it clear what the creator thinks the value is worth, possibly saving you the effort of deciding for yourself (like looking at a price tag on a physical product). Is presenting the price up front too much of an 'in your face' experience? A little user testing would determine this.

Technically, the existing Amazon page does not establish a secure https connection, so kicking off the transaction from another site should be possible (thank you Andi for the technical info). I just wish Amazon's fees weren't so high ('15% of the total payment per transaction plus $.15') and the minimum of $1.00 was lower. This is the fault of the credit card companies of course. McCloud compensates for this by matching the price to the amount of reader consumption, requesting 'Just a buck or two for every year you've enjoyed my online comics...'

Mental Effort, Habits, Aggregation, and Subscriptions

...users want predictable and simple pricing. Micropayments, meanwhile, waste the users' mental effort in order to conserve cheap resources, by creating many tiny, unpredictable transactions. Micropayments thus create in the mind of the user both anxiety and confusion, characteristics that users have not heretofore been known to actively seek out.

On the surface I agree, there's more cognitive effort involved than what we're used to, which is ignoring banner ads. But it's no more cognitive effort than what we do in the offline world, which is evaluate the value of every cup of coffee we buy. Shirky's point is that 'tiny' transactions are too small, and of course they are, and reason must prevail when deciding what is tiny and what is merely small. If customers were charged for the napkin, milk, and sugar packets separately from the coffee, they would buy their coffee somewhere else. Similarly, online content creators must establish, through trial and error, the smallest content chunk which can be reasonably sold. A website is probably viable, a page might not be, an essay could go either way.

Consumers are also creatures of habit. They go to a favorite coffee shop with a familiar menu, they know where to find the sugar, and generally like the atmosphere. The consumer has determined the value of that experience and doesn't have to do this cognitive work of valuation repeatedly. Online this valuation can happen the same way, in cases where readership is repeated, or the recommendation of new content comes from a trusted source.

Shirky points out that aggregation has worked well, such as that of a newspaper with many writers and subjects. Online, we might explore new forms of aggregation. Imagine building your own portal in which each piece of content in the portal was automatically charged to your account when you consumed it.

Shirky also discusses the value of subscriptions. I think micropayments could, as in the offline world with magazines, act as an easy way to try content, and over time could lead to subscriptions, as consumers come to trust the reliability of a content source.

Subscription also serves as a reputation management system. Because producer and consumer are more known to one another in a subscription arrangement than in one-off purchases, and because the consumer expects steady production from the producer, while the producer hopes for renewed subscriptions from the consumer, both sides have an incentive to live up to their part of the bargain, as a way of creating long-term value.

I agree. But I wonder if this relationship becomes more tenuous on the Internet, where content creation and consumption are different? Publishers may be independent, and not incurring huge media and distribution costs. Likewise, readers can more easily subscribe and unsubscribe.

Minimum Mental Transaction Cost

There is a minimum mental transaction cost created by this fact that cannot be optimized away, because the only transaction a user will be willing to approve with no thought will be one that costs them nothing, which is no transaction at all.

Why doesn't the concept of a 'considered purchase' apply here (a considered purchase is something that requires some thought and research before deciding to commit to the cost, e.g. an automobile for a middle class family)? McCloud gives an example of how a content creator could break even with each reader paying only 2 cents ($US), and making a fair salary if each reader paid 25 cents. Deciding to pay this amount requires almost no thought, and again should be subject to user testing to determine the reality of the situation.

Conservation of Preferences

Micropayment advocates mistakenly believe that efficient allocation of resources is the purpose of markets. Efficiency is a byproduct of market systems, not their goal. The reasons markets work are not because users have embraced efficiency but because markets are the best place to allow users to maximize their preferences, and very often their preferences are not for conservation of cheap resources.

Sad, but true, especially in the United States. But his use of the word 'cheap' seems to imply both the cost and the value of a resource, but I think, like in the 25 cent example above, a resource can have low cost but a high value, if the work of the content creator is important to me.

New Infrastucture and Payment Paradigms

The closest thing we have to functioning micropayment systems, Qpass and Paypal, are simply new interfaces to the existing credit card infrastructure. These services do not lower mental transaction costs nor do they make it any easier for a user to value a penny's worth of anything - they simply make it possible for users to spend their money once they've decided to.

True, but only because e-commerce hasn't established a critical mass allowing other parties inroads to the credit card infrastructure. Credit card companies are simply creditors that sit between a consumer and their bank, and there's no reason Microsoft or others couldn't play the same role. When the credit part of the equation is removed, it becomes a simple debit transaction that can will be happily served by technology companies.

Mentally, the nature of how we consume content is rapidly changing, so it seems natural that the way we pay for content would also change (are we allowed to use the word 'paradigm' again?).


In the end, Shirky takes a very pragmatic look at the market, and raises some useful questions. McCloud is a lover of content and wants to see piracy end, as do I. I don't see enough cooperation and standardization to bring McCloud's ideal to fruition, but neither do I think it's as hopeless as Shirky's view.

There's an emotional part of the equation that McCloud touches on - when the reader recognizes the creator is a human being who will create more and better artifacts when they have financial support. For micropayments to work, it will be essential for creators to put a human face on their work, and find the right tone in which to request payment for services rendered.

Though I have yet to wade through it myself, there's a lot of conversation on the topic at the Reinventing Comics Message Board.