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Author Topic: Why do so many micropayment systems fail?  (Read 8059 times)
app103
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« on: June 04, 2007, 07:12:42 PM »

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Four years ago, I wrote a piece called Fame vs Fortune: Micropayments and Free Content. The piece was sparked by the founding of a company called BitPass and its adoption by the comic artist Scott McCloud (author of the seminal Understanding Comics, among other things.) McCloud created a graphic work called “The Right Number”, which you had to buy using BitPass.

It didn’t work. BitPass went out of business in January of this year. I didn’t write about it at the time because its failure was a foregone conclusion. This isn’t just retrospective certainty, either; here’s what I said about BitPass in 2003:

Quote
BitPass will fail, as FirstVirtual, Cybercoin, Millicent, Digicash, Internet Dollar, Pay2See, and many others have in the decade since Digital Silk Road, the paper that helped launch interest in micropayments. These systems didn’t fail because of poor implementation; they failed because the trend towards freely offered content is an epochal change, to which micropayments are a pointless response.


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KenR
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« Reply #1 on: June 04, 2007, 08:01:32 PM »

Very interesting April!

Ken
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Kenneth P. Reeder, Ph.D.
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« Reply #2 on: June 04, 2007, 09:10:44 PM »

The response to this, IMO is that if your product is not wanted, whatever your business model, you are not going to last in business, look at all the small businesses in the 'real world' that dont last a year.  Planning, product, marketing all need to be right for success, personally I think micropayment schemes should work well with the right product.  I think of the microbank set up by some chap to provide small, very small, loans to people (mainly women) in impoverished nations, virtually no default, has been running for a number of years now and makes a good profit (last i heard, anyway)
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mouser
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« Reply #3 on: June 04, 2007, 09:29:36 PM »

sorry to always be pushing this little article i wrote last year (http://www.donationcoder....m/Articles/One/index.html), but quoting myself:

Quote
"The idea of micropayments has been around for quite a while. They've not yet taken off and many people think they never will. Our experiences suggest the opposite. We believe that if donating were safe, easy, and immediate, with a low overhead incurred for small donations, it would in fact become a viable funding source for many.

Our experience suggests that people are willing to donate, and donate non-trivial sums, if the motivation to do so can overcome the effort involved and the perceived security risk.

In fact, we believe that the paradigm shift required for successful adoption may not be the move to "micro" donations at all, but the move to super-easy-donations.

If users could simply hit a button on their keyboard to donate a dollar or two to a website, and be confident that their donation would be securely processed with no risk to themselves, and knew that their donation was going to the content creator and not some middleman, we think it would become a viable funding mechanism for all kinds of content creators including musicians, writers, and software authors. The key is making it easy, and giving donors feedback that their donations have a real and concrete effect on the content creation.

While there are a few small micropayment services in existence now, they don't have enough market share to make them attractive to users or content creators. Until users are motivated to donate into these services to create a buffer account of money they can donate, and until content providers support such payments widely, it's a lost cause. However it seems inevitable to us that eventually as digital payment systems become universally accepted and standardized, we're likely to see a standardized micropayment system where any user can buy anything on any web page, from any computer terminal, with a simple click or thumbprint swipe. When that happens, it should make micropayments considerably easier for individuals to make a living off of, rather than depending on the filters of large corporations, news organizations, software companies, music labels, etc."
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app103
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« Reply #4 on: June 04, 2007, 10:44:12 PM »

Mouser's well written article hits the nail right on the head in so many ways and is definitely worth reading.

Part of the problem with most of these micropayment companies has been that they require an initial deposit greater than the payment you originally wanted to make.

So you come along to a website that uses a particular micropayment company. You want to give the blogger or site owner $1. You click the link to go to the micropayment site and then have to make a $20 deposit.

You think to yourself "Hey, that's a lot more than the $1 I wanted to give. What am I going to do with the other $19 in my account after I send him the $1? Who else uses this micropayment company that I would want to donate to? Nobody. Forget this."

And then you close the page, and the guy you wanted to give the $1 to gets nothing.

The difference here at DC is that there is no minimum deposit you are required to make and there is a whole list of people you can donate to.

The idea of being able to use your DC account to make microdonations needs to be taken a bit more seriously by members. When you come across a developer of freeware that you would like to make a donation to and they are not DC members, drop them an email and let them know about the donation credits system here. It won't cost them anything to become a forum member here. Then they can be a part of it and even offer it as a donation option on their site, and in the about boxes in their software.

Of all the microdonation systems I have seen, ours has the greatest potential for major success, if it is more widely promoted by existing members. And the more it is promoted to developers and software lovers, the more new members we will end up with, making contributions to the community in other ways. We all know one of the best features here is the forum discussions that draw you in and beg for your input, so we will end up with more things to think about and discuss, and new people to do that with.

I look forward to the day when all software authors have a little pic of Cody on their site I can click and one can actually earn a living from receiving donations.  cheesy

This site has the potential of leading the way into the future where there could be sites like DonationMusician where you can donate direct to recording artists who offer their content for free and discuss all things music related with other music lovers and the musicians themselves, DonationArtist where you can donate to the guy that created your latest desktop wallpaper, DonationBlogger where you can make contributions to the writers of the blogs you read, etc.

OK, maybe I am dreaming...but if you are going to dream, dream big.
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« Reply #5 on: June 05, 2007, 04:19:28 AM »

hey! That sounds about perfect! (DonationMusician, and DonationBlogger). But isn't it covered by paypal already? Pavlina makes a lot of money out of donations with paypal. You can send as little as you want (er.. microdonations), and there's no big chunk of money you have to deposit first -it's tied to your bank.
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justice
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« Reply #6 on: June 05, 2007, 04:37:31 AM »

Why Paypal is not any good for microdonations:

http://www.ppcalc.com/


It takes 23 percent of a 1 pound donation.
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iphigenie
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« Reply #7 on: June 05, 2007, 02:02:52 PM »

there is one place where micropayments work and are successful and that is telephones - you make micropayments but they are totalled into your bill (cellular/mobile or normal phone).  You sign a contract with your mobile phone companies, and then services like ringtones or premium content gets added to your bill then paid on. This works because there is a compelling reason for you to sign the contract (the phone!).

Micropayments online all worked either on prepay or a contract system, but never had a killer app like a phone to coast on - the one exception might be second life.
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gjehle
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« Reply #8 on: June 05, 2007, 03:07:20 PM »

it has been stated before here i guess but nevertheless
"just because you can pay a small amount doesn't make users want your product"

eg. take the comic strip that was used as an example.
if you start something new that has already been done for free millions of times (web comics) the demand is low.
now if you want users to pay for it from the start, even if it is just 1ct...
if the user can get the satisfaction (reading a comic) elsewhere for less (free) they wont even start reading.
unless of course they want to (well known artist, great (free) story teasers, awesome artwork, whatever makes the producy unique and a must have)

if you have micro donation it implies that you can also get the product without paying up front.
so people use it and if the product is awesome enough for people to notice they might think: well, let's spare a buck for that poor coder.

it doesn't work the other way 'round unless people really, really, really, really want to have it.

in three words: "supply and demand"

micro payment doesn't fail because it's micro payment.
it fails because of other causes, one of the biggest IMHO is a gross misunderstanding or misinterpretation of the system itself.
« Last Edit: June 05, 2007, 03:09:48 PM by gjehle » Logged
mouser
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« Reply #9 on: February 10, 2009, 02:30:17 PM »

A new (pessimistic) essay by Clay Shirky on micropayment systems:

http://www.shirky.com/web...nts-wont-save-publishers/
Quote
Nickel-and-dimeing us for access to content made less useful by those very restrictions simply isn’t appealing.
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mouser
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« Reply #10 on: February 10, 2009, 02:44:35 PM »

Maybe a better question needs to be..

What alternatives do those of us who don't want to turn the entire internet into a giant advertising machine have?

It just seems unhealthy to me that we seem to be heading in the direction of all digital content being free, and all digital content being filled with advertisements.  Are we going to wake up in 10 years and find that all music is free, but there are advertisements in the middle of songs?  And same with books.. will all books become "free" but have advertisements on the odd numbered pages?
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zridling
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« Reply #11 on: February 11, 2009, 03:41:37 AM »

This is a complicated problem lined with good intentions. I've never had any problems with PayPal, but much like eBay, I feel they take too much of a cut that could be going to site/person you're donating to. The other problem justice mentioned is exchange rates. If your original currency is the Yen or USDollar, your contributions to European developers are [naturally] smaller than you want.

Making it easy is critical. And this is where DonationCoder.com excels. DC also has content, expertise, and an interesting group of people who never fail to bend my brain. Finally, I can't get a lot of the things DC offers elsewhere, unlike news or opinion columns, which I can find in hundreds of places rather than the NYTimes (which would need a refund button if the column sucked).

On the other hand, if I had to donate a micropayment every time I visited DC -- or anywhere -- I wouldn't return on principle.
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« Reply #12 on: February 11, 2009, 03:45:39 AM »

In the article i wrote on dc i expressed what i believe to be true -- that the magic component missing is EASY donating, not MICRO donating.

Paypal has gone a long way towards that but it's still not nearly as painless and safe as it could be, nor accessible to many people.  When everyone feels completely secure about making a donation to any site with one button click, i do believe we will open up a ton of possibilities for indie content creators to get direct funding from their audience.

ps.
this is partly why i get so frustrated with google spending all their time writing bullshit copies of every program on the internet just so they can squeeze a little more market share for their advertisements.  there are only a few companies with the trust level and reach to actually tackle this kind of thing, and i wish they would do it.
« Last Edit: February 11, 2009, 03:47:49 AM by mouser » Logged
justice
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« Reply #13 on: February 11, 2009, 03:57:44 AM »

When everyone feels completely secure about making a donation to any site with one button click [...]
Actually you're exactly pointing out the problem. With donationcoder you're donating to a person, with most other micropayment schemes you're donating to an entity - or even worse bits, paragraphs, links and other things people couldn't care less about. If you change the donation button and put it next to the thread instead of next to the picture you'll see donations going down.

Even cartoon websites live on the merchandise shop - because people won't donate to a 8 panel story - but they will want to buy clothes to promote it.

So even if it was really easy to microdonate with one click, I don't think many people would microdonate to an article. Only if they can relate to the person behind it, which mouser is very good at I think. An exception is donating to a community, as it is a group of people - for example sponsoring NANY by third parties.

Well that's my experience anyway, without any prove to back it up tongue
« Last Edit: February 11, 2009, 03:59:56 AM by justice » Logged

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« Reply #14 on: February 11, 2009, 04:04:41 AM »

As an experiment then running a blog created by many expert authors each with a proper profile with picture, links etc.. Think like an community version of wired, or columns (as they're personal opinion) would be more suited to such a scheme.

Maybe microdonations are just a very good problem but for only a very select few projects. And maybe it's not in the interest of big 'faceless' organisations to put energy in something that would benefit the opposite.
« Last Edit: February 11, 2009, 04:06:40 AM by justice » Logged

app103
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« Reply #15 on: February 12, 2009, 04:57:25 PM »

Here is another idea in line with microdonations, but not quite what others have often thought of it as being like: http://www.editorandpubli...vnu_content_id=1003940234

This one could actually work.
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mouser
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« Reply #16 on: February 12, 2009, 05:13:40 PM »

app, i think the approach is a smart one.

i've actually suggested the same basic idea for music sites.

the idea can be boiled down to this central idea:

1. Users pay a monthly subscription price, and then have access to all conent.
2. The system then keeps track of what actual content they view.
3. The system then divides up their monthly subscription poportionately to the authors of the content the user viewed.

The site mentioned in the article (Kachingle) extends this idea to distributed sites by letting site authors put a medalion on their site that users can click to mark that site as one that the user wishes to have their funds contributed to.  (They also let the user decide how much to put in per month, unlike a fixed monthly subscription fee.

I think it makes a huge amount of sense -- it makes it really easy for the user, which makes all the difference.
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« Reply #17 on: February 14, 2009, 02:57:28 PM »

It might be useful to look at why subscription systems seem to work where micropayment systems don't.

First, a little theory...

Disneyworld/Epcot is a very popular vacation spot in the US. It is not cheap to go to, but it experiences some of the best bookings of any "family vacation" offering. One of the key factors that makes this happen is Disney's deliberate policy of "divorcing pleasure from pain" whenever possible.

Here's how it works:

Thanks to some clever marketing and discount incentives, most Disney vacations get booked (and paid for) months in advance. By the time the family shows up in Orlando FL (usually after school gets out) the pain of shelling out a few thousand dollars for the trip has receded into the background of Mom and Dad's psyche. And in the meantime, the anticipation of a 'dream vacation' has continued to build.

So the concept of 'expense' has been effectively removed from the family's experience of Disneyworld. All the family remembers is how much fun they had, thereby minimizing any second thoughts or "buyer's remorse."

Subscriptions (even though they may be more expensive) divorce the pain from the pleasure. Micropayments (no matter how small) keep shoving it in your face.

Add in Mouser's observation about the inconvenience of using micropayments, and it's small wonder (to me anyway) that they're not popular enough to be workable..


Just my two cents
 Wink

BTW: the subscription/divy-up system is how ASCAP and BMI handle music royalties for many web sites.
« Last Edit: February 14, 2009, 03:06:52 PM by 40hz » Logged

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« Reply #18 on: February 14, 2009, 03:06:43 PM »

that is a really excellent point about "divorcing pleasure from pain" -- that has to be a central element of any viable system like this.

netflix is another example of how appealing and how much people love the idea of being able to decide how much they want to spend for a subscription, and then not have to worry about how much they use, view, etc.
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40hz
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« Reply #19 on: February 14, 2009, 03:27:47 PM »

netflix is another example of how appealing and how much people love the idea of being able to decide how much they want to spend for a subscription, and then not have to worry about how much they use, view, etc.

We subscribed to Netflix Kiss for exactly that reason.
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