The Experience is the Brand

Micropayment: Maybe

Everytime I read one of Clay Shirky’s essays, I get incredibly excited. He has a way of placing ideas about technology and culture in just the right context, and his latest essay about the past and future failure of micropayments is no exception.

Micropayments fail because, no matter how small the individual payment might be, they carry with them a mental transaction cost. No matter the price, users are interrupted in their flow and asked “is this worth a penny/quarter/dollar to access?” And as Shirky points out, reducing the dollar value of the transaction below a threshold where the user doesn’t notice the charge isn’t making the transaction more convenient for the user… it’s just the vendor trying to steal a small enough amount of money that the user doesn’t miss it. Micropayment vendors seem to think that a transaction involving less than a penny will be sufficiently frictionless that users won’t mind the cost.

Micropayments don’t and won’t work because the mental transactional cost will always be too high for most content. Let’s assume that it takes 5 seconds for the average user to decide, “yes, this is worth it” for a particular piece of content. If that user earns minimum wage ($5.50/hr in most U.S. states), then the time cost of that transaction is:

5 sec. X ($5.50 / 3600) = $0.0076 per transaction

That’s a little more than 3/4 cent in time costs for each transaction. If the average “frictionless” micropayment is $0.005 (half a penny), then 60% of the total cost of the transaction is wasted on mental overhead.

And that’s for a user earning minimum wage. Take your average internet user earning $50K/year (a rough approximate, see this and this) and the average time cost of each transaction is $0.035. That means that even a $0.25 transaction carries a 14% “mental tax”.

You can play with those numbers, assume that it takes 1 second to make a sufficiently low-cost decision (after all, what’s a quarter here and there), and it still doesn’t matter. It doesn’t matter because most transactions involving content online do not involve any mental cost/benefit calculation; they’re “tax-free”. Free is always cheaper than “not free”, no matter how inexpensive “not free” is.

There are a couple of ways that online content can be be paid for, but “by the pound” isn’t ever going to work as one of them. But clearly, a couple of “nearly-micro” payment schemes could, and do, work.

• Apple’s iTunes music service offers songs for download at $0.99 a piece. This seems to be quite acceptable to a significant number of people. Having an audience with the requisite software pre-installed helps, though it’s an audience with notoriously high expectations regarding their user experience. The fact that it has worked says something about the future viability of similar schemes, maybe.
• Though it doesn’t involve micropayments, the LA Times and NY Times both charge for access to their online archives. Both organizations are betting that users want older content enough to pay the ransom. And for a fairly limited audience (that doesn’t want to trek down to the library and haul out the microfiche) this probably isn’t a bad bet.
• Artists like Scott McCloud, who want to sell their content online, can do better than charging $0.25/read. I have no idea what a comic book artist makes in a year, even a really well known and talented one, but let’s say that $75,000 made him happy. He’s banking on 300,000 people paying a quarter each to read this comic. What if instead the comic were free to read, and he sold limited edition signed prints and original artwork instead? Less than two thousand people would need to pay $50-$100 for each print. That’s about .5% of the audience he would be banking on to begin with, and a smaller percentage than that if the comic gained wider distribution (as its low-low price of “nothing” would almost surely facilitate.)

Regardless, for-pay content that works seems to have one or more of the following components:

1. Payment is easier than non-payment
2. Payment offers access to something that is truly “premuim”
3. The content is not just unique, but incomparable (that is, there is no equivalent version of it available for free.)

Shirky argues that it’s more important that “payment is optional”. I think that there are some situations where this isn’t the case, but it would be interesting to see what would happen if you took two similar forms of content (say, music by a specific artist) and made the following experiment:

• Half of the tracks would be available for sale on iTunes
• Half of the tracks would be available for free download, but users would be asked to contribute some voluntary amount of money (via whatever payment mechanism they preferred.

I wonder which would sell more?

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