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Why do so many micropayment systems fail?

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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:

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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Very interesting April!


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)

sorry to always be pushing this little article i wrote last year (, but quoting myself:

"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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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.  :D

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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