Walter Isaacson, former editor of Time Magazine, wrote “How To Save Your Newspaper” where he suggests a new system of micropayments to pay for any type of digital content on the web. Newspapers are dying, suffering from rising costs, reduced advertising budgets, and free content on the Internet. Micropayments (less than a dollar) have been tried many times in the past by companies like CyberCash, PepperCoin, DigiCash, and others. None have gained much traction, and making money from such systems is challenging at best. PayPal is useful for larger transactions but the overhead costs make it impractical for micropayments.
So what is the difference between free and a penny? Friction…inertia…hassles. Most people would be happy to pay five cents or even 50 cents to read an article in Time Magazine or the New York Times, or to get access to other useful content like pictures, video, audio recordings, etc. The problem is not the cost, it is the friction in getting it done. For micropayments to work they must be simple, fast, and universally accepted, with the click of a button. Oh, and if everyone paid just a penny to view content it would translate to a $10 CPM rate, which is double or triple what most web content commands. Think about that for a minute.
Mr. Isaacson explains how newspapers and magazines got into this mess;
The easy Internet ad dollars of the late 1990s enticed newspapers and magazines to put all of their content, plus a whole lot of blogs and whistles, onto their websites for free. But the bulk of the ad dollars has ended up flowing to groups that did not actually create much content but instead piggybacked on it: search engines, portals and some aggregators.
Another group that benefits from free journalism is Internet service providers. They get to charge customers $20 to $30 a month for access to the Web's trove of free content and services. As a result, it is not in their interest to facilitate easy ways for media creators to charge for their content. Thus we have a world in which phone companies have accustomed kids to paying up to 20 cents when they send a text message but it seems technologically and psychologically impossible to get people to pay 10 cents for a magazine, newspaper or newscast.
Unwittingly, Mr. Isaacson also illustrates why micropayments have not worked, and why the web advertising model is a challenge in many cases. There are too many players looking to take a piece of the transaction. In the web advertising world that $3 CPM (1,000 impressions) gets split between the host web site, the ad serving network, an ad targeting service, the ad agency, and sometimes other intermediaries. At the end of the day the overhead costs associated with managing all the players percentages translates to fractions of a cent per impression.
Micropayment systems would also have many parties looking to take a fraction of each transaction. The host web site, the content provider, the micropayment technology provider, the bank clearing house, the company that signed up the end user, etc. When the transaction is only pennies to begin with, the “supply chain” can’t sustain itself.
Another quote from Mr. Isaacson; "The key for attracting online revenue, I think, is coming up with an iTunes-easy, quick micropayment method. We need something like digital coins or an E-Z Pass digital wallet – a one-click system that will permit impulse purchases of a newspaper, magazine, article, blog, application, or video for a penny, nickel, dime, or whatever the creator chooses to charge."
Freemium model – Many companies use the Freemium model, meaning the base service is free, but you pay premiums for added services, capacity, or convenience. This model works because people value the free service, make it a part of their routine, and are willing to pay a premium for added services. Usually just 3% to 5% of all users upgrade to paid services but the scale is such that it can be a profitable business.
Consumers are willing to pay for content. But, the price must be reasonable, and the payment system must be simple and frictionless. The technology is available to do it. The problem is the players in the “value chain” need to adjust their expectations on their percentage of the revenue. Micropayments may be a perfect opportunity for an open source solution funded and supported by the largest players in the web community. The world would be a better place for everyone on the web if we had a universal micropayment system.