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Micropayments Going Mainstream? Not Yet.
DotEdu writes "Today's NY Times has an interesting article on two new micropayment companies, BitPass and Peppercoin, and the venerable PayPal. More interesting than the companies are the critique: Micropayments are not the silver bullet. You still need to actually have a viable product that you can sell."
Loosening Visa/MC/AmEx's grip on e-commerce is a Good Thing, and this might represent a way to yet again improve the flow of services (more likely than goods, since shipping costs remain).
But, anyway, here's the article:
The early days of Internet commerce offered many promises, none of them brighter than the chance for people to set up Web sites and sell inexpensive digital goods like songs, articles and photos.
But most of the pioneering companies that devised transaction systems for low-cost online purchases faded away, dogged not only by the giveaway ethos of the Internet but also by cumbersome technology and fees that ate up the profit on items that often sold for less than a dollar.
Times have changed, though, and electronic micropayment systems may yet be born again. In the past few months, several new companies dedicated to processing small cash transactions on the Web have introduced commercial services, and some older companies, including one inspired by Apple's huge success in selling 99-cent songs at its online music service, have modified their offerings to accommodate some lower-priced sales.
This time around, innovative technology may make the difference for the micropayments market. For example, two highly regarded scientists at the Massachusetts Institute of Technology have founded a company that they say has the technical expertise to let people sell digital content profitably on the Web for prices as low as pennies.
Ronald L. Rivest, the R in the public key encryption system RSA, which he helped invent, and Silvio Micali, whose honors include the 1993 Godel Prize in theoretical computer science, founded Peppercoin (www.peppercoin.com) and introduced it commercially in December. Peppercoin hopes to reduce online merchants' transaction costs substantially, particularly the number of credit card charges they pay. These are typically about 25 cents per sale, said Robert W. Carney, vice president for marketing at Peppercoin.
The company's software uses advanced encryption and mathematical models to avoid charging a seller a fee each time an item is sold. Instead, the system statistically selects a representative sample of the transactions for billing.
For example, the software might randomly select one sale of a $1 song from among 20. It multiplies this one sale by 20 to represent the other 19 sales, and passes along $20 to the seller. But by lumping the sales together, only one transaction fee, not 20, is charged.
"Would you prefer to be paid $1 minus a 25 cent transaction fee each time you make a sale," Dr. Micali asked, "or zero dollars 19 times and $20 minus a 25-cent transaction fee once?"
Algorithms that were developed and refined over the past 20 years are used for the process, Dr. Rivest said. With a large volume of transactions, the errors that derive from the sampling are negligible.
One of the companies Peppercoin has signed up is Smithsonian Folkways Recordings of Washington, which is about to begin offering individual tracks from 33,000 folk recordings for sale electronically. Richard Burgess, director of marketing, said that the organization was comfortable with Peppercoin's complex algorithms. "Probability cuts down on the number of transaction fees," he said, but "there's no probability attached to the purchases - we know who bought what."
Thomas Frey, executive director of the DaVinci Institute, a research organization in Louisville, Colo., recently sponsored a seminar on micropayment systems. While such systems failed in the past, he said, their future now seems brighter. "Having people like Ron Rivest solving problems opens the door for interesting things to happen," he said.
Dr. Frey predicts that one day people might buy low-cost items ranging from ring tones for their cellphones to weapons upgrades for their video games. "They could even buy cool sunglasses and new hairdos for their avatars," he said.
BitPass, another new micropayment company, st
Search Google for (paypal class action), and you'll find consumers' desperate attempts to protect ourselves from their online payment monopoly, like the PayPal Warning. If regulators were doing their jobs, PayPal itself would be on a leash. Their acquisition by eBay offers a monstrous power in eCommerce, which the PayPal unit has been steadily abusing. Any meaningful alternative in any online payments would help, whether they get micropayments right or not.
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make install -not war
From what I've seen of the two, Bitpass is a lot easier to set up on the user end. Peppercoin requires the user to download and install software, while Bitpass doesn't. While you and I might not be too troubled by this, many people are. That's a significant advantage for Bitpass. Also, Bitpass appears to be considerably easier to set up on the server end, though that's just my impression from reading the docs. I haven't actually implemented either yet.
This could change if Peppercoin managed to convince the major browser players to include their software with the browser. Certainly having Rivest onboard will go a long way toward getting some credibility for Peppercoin.
A potential problem with such payment systems would be the websites that trick you into accepting, then try to feed you the information piecemeal. Pay $0,10 to access the article... and when you accept, it's another $0,20 to see the essential graphs and pictures, and $0,30 to get the conclusion. A bit like the $1 / minute phone services with a voice-response system..... that..... speaks..... really..... slow.... and has menu's of 22 levels deep. Not very honest, but not exactly illegal either.
If construction was anything like programming, an incorrectly fitted lock would bring down the entire building...