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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."
My dictionary defines venerable as meaning:
PayPal may be old, but it doesn't command any respect whatsoever as far as I'm concerned.
Is this truly the only Earth I can live on?
Peppercoin is still limited, though, things like music downloads, for instance, don't seem to be viable on their payment scheme. They seem to be mainly concerned with content, such as 'pay .01 cents to see this web page.'
Paypal of course offered their own payment scheme for micropayments as well, but they are limited ONLY to music.
Where I'd personally like to see micropayments is in the services department. You can charge 1.00 per transaction to perform a service, and not get raped by the 33% service charge that forces most of these types of service-oriented businesses to use subscriptions.
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
I think this is a lesson that micropayments will work if you have an in demand item (like resonably restricted music), but you're never going to make money on your crappy MS-Paint web comic.
This message is encrypted with Quad ROT-13 to protect the author's copyright under the DMCA.
It's not stuff in most cases, but intangible goods, like articles, papers, etc. We're not talking about the $5000 IDC papers, but about $.05 John Doe web site selling content. Sometimes the content is even free, but the micropayment is an option to allow users to help keep the site costs down.
I thought of using this on my site Geekzone. The idea of keeping the content free, but being rewarded by happy readers is quite cool. It's being use in on-line comics, e-zines, and sometimes even with tangible goods too.
I have to say that I have Donate Paypal button and some users do act on that - mainly adding messages like "Thanks, your content helped me doing this and that", or "Keep the good work".
This is about knowledge sharing, and helping the people who put these things together and make available.
The micro payments system erodes our privacy. With a cc number connected to micro payment id numer connected to every user id in many websites, a lot of web activity will be recorded on your credit card statement as a summary of what your micro payment bill was. Thus, your isp, micropayment company, and your credit card company (and the govenment via patriot act) could see your activity. If you throw it all into a database, anyone who wants to can infer via datamining all sorts of fun information about you.
A href="http://www.ctrlaltdel-online.com/">CAD, the webcomic seems to do pretty well for itself, i guess the guy actually makes enough to live off of from advertising and donations.
"Sic Semper Tyrannosaurus Rex."
Damn, there goes my plan to make cash off my years of collected ascii-art pr0n. :-(
I really don't think that the idea of a 1-click micropayment system would be appealing (to me at least). It doesn't matter how little each payment is - if enough sites start demanding I pay them in an ongong basis to see their content, I would just give them all up. I can't stand the abstract psychologcal thought of each of these inputs that I'd rarely use individually taking their own bite, no matter how small, from my income. I can stomach an up-front cost, a known trade of resources, or even a subscription with an opt-in approach to re-subscribing, but there's something about the the leech-like nature of these micro-payment schemes I have a strong urge to stay away from.
Ryan Fenton
Virtual gumball machine! Where children can access a rendered image of a traditional gumball machine, place in the virtual coin which will deduct a micro payment from the folks CC, and in just under a week, they get a real gumball delivered by UPS/FedEX.
Gumball.... 25 cents
transaction charge... 35cents
shipping / handling... $5.50 for express delivery per unit
Seeing the horror on the parent's faces when little timmy maxed out their credit cards on gumballs... priceless!
There is no sanctuary. There is no sanctuary. SHUT UP! There is no shut up. There is no shut up.
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.
--
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.
There's a big problem with micropayments vs. cash or credit. The problem is that most people don't already have micropayment accounts set up with cash available. This tends to inhibit the kind of on-the-spot impulse buy that micropayments are supposed to be good for.
For example, for $.25, users can download a custom ring-tone for their cell phone. If you rig it up so that a user has to go to a website, try out the ring, set up an account either with a credit card or paypal, and THEN debit a resulting micropayment account for the $.25, you're going to get a lot fewer customers than say, charging their cellphone account for the ring.
What about items that are soley online? Let's assume some author or artist (or director) puts out a series online. Every weekly installment costs the user $.25. If you're a die-hard fan, it'd be easier to prepay $5 for 20 episodes, than go to to the trouble of setting up a dedicated micropayment account JUST for the show. Conversely, if you just want to try it out, it'd be smarter to let you download a free episode in order to hook you onto the show, than to try and convince you to jump through the hoops of getting an account just to try the show.
Now, in both scenarios, it wouldn't be a problem if users ALREADY HAD ACCOUNTS with balances. The question is, how do you promote widespread adoption of these accounts, and convince people to keep money in them? Paypal pays interest on their accounts, but I'll be most users initate a transfer to their bank account the moment their Paypal account starts carrying a balance.
The best idea I can think of so far is to treat micropayment balances as play money - similar to gift card balances (I know they're real money, but you can't get that money back out again unless you buy something) or casino chips (where you can get real money back out again, but they're designed to look like play money to get you to spend freely.) With this idea in mind, you need to seed the market somehow. eBay/Paypal is already doing this with their points system, where you can purchase items on eBay and pay with a combination of cash/credit and eBay/Paypal points. Convincing an ISP to issue automatic BitPass accuonts to their customers upon signup, for example, would be another way of seeding the market.
With all this said though, BitPass only recently (just toward the end of December) came off of their beta program. Since the number of merchants using it is still pretty low, it may be much too soon to judge how well BitPass is doing. Personally, I think someone should pick up the eCash idea that PayPal originally was built around - anyone remember that? Beaming crypto-derived credits from one Palm device to another - there are a hell of a lot more handheld devices (phones, PDAs, etc.) now than there were in 1999. They'd be a heck of a lot cheaper to get into circulation than smart cards, especially since DirectTV tends to sue anyone trying to do research into using smart cards in the United States...
Get a prepaid debit card and/or a gift card that has the mastercard/visa logo like the kind you can get at some malls.
shirky clay has an interesting article on why he thinks that micropayments won't work. the main gist is that it's not a question of technology, but rather that users don't want to have to be constantly making decisions about whether or not to buy something, irrespective of the amount.
My idea that requires some sort of micro-payment system to be viable is a service that does auto-translation of file formats for you.
Sent the service an AbiWord document and it sends back a real 100% Microsoft Word document in a ZIP file. Instead of thousands of people with their own copies of Microsoft Word, thousands of people use this service occasionally for those rare cases they must have a TRUE file.
The interesting part is when the service changes polarity and everyone starts insisting on receiving files in open source formats. "Write your resume in any word processor you like, but send it to us in XMLRESUME format"
If secure connections get usable for the average joe, then perhaps a non-partisan government could get in on things. Define a standard that anyone could implement for things like tax filings and public bids (or maybe just death notices and zoning changes to start on a local level)
Anyway, it's not a service that can be done without a lot of bandwitdth, good hardware, security, and trust from your customers so it looks like something that has to be funded somehow. Micropayments? I hope something makes this financially feasible.
If you have a merchant account on PayPal, or before you get one, I would advise going to this site. It discusses the problems with paypal in good detail. I am in the process of setting up a merchant account, and the kinds of things they do are rediculous. There's a class action lawsuit currently against them. They have a great system if you're looking to pay for an item, but if you're selling one, watch out.
First, BitPass uses a pre-paid card model, so there's only one charge on your credit card, the charge for buying the card itself. No individual transactions are listed. Your wife isn't going to know you're looking at micropayment pr0n, if that's what you're afraid of.
Second, the internet has no privacy in the first place. There are IP logs and traffic sniffers galore out there. If you want total privacy, stay off the internet and build yourself a cabin in Montana.
He who refuses to do arithmetic is doomed to talk nonsense.
Sorry about that (I guess I should have used the preview function).
I mean, as it is, much of the free little "perks" that companies offer for their products are little things - little conveniences. Now, as it is its not too practical for them to charge, but we all know that if the means are available, they will. Hmm...just think on that I suppose.
Technology such as this has many good uses, but it also has the ability to become a nuisance.
Wthis all these payment systems, if you have no credit card, that's it..you can't use these systems...what abiut the future, when there will be pressure to add all sorts of extra charges for things like cross-border transactions etc..size of transactions etc time of day etc..
As someone interested in graphic design along with general nerdery, I think the best example of a micropayment system is the stock photo site iStockPhoto. There seems to be a benefit to the whole idea of micropayments in that realm.. Why pay $50 for a photo when one that cost maybe a dollar works just as well?
It's a pretty smart system, and other companies seem to be building on its success (Adobe offers free iStockPhotos with registration of their Creative Suite).
I think there's a good product there, and I wouldn't mind to see that site succeed, if any.
ShortFormBlog: Writing a little. Saying a lot.
Back in the day, micropayments for online content were the norm. Any one remember compuserve? They had a captive audience with accounts, tons of "premium" services including freebies, and it didn't catch on too well.
Even scientific publishers are having more success selling subscriptions (per seat/site license) than pay-per-view. Cable operators are having difficulty making PPV work, as well.
Let's face it; people are cheapskates and publishers are greedy. That's why things are either free or much too expensive.
SCO employee? Check out the bounty
Instead of trying to nikel and dime visitors I've just gone to low cost subscriptions which get you unlimited access for a time period set by the subscription you pay for. The lowest one can go using PayPal and still be worth it is $1.00. So for $1 I give 7 days unlimited access to the site.
It's simple to set up and with IPN and a couple scripts and a modified htpassword.exe it's mostly automated. I could fully automate it but that just invites hackers. When I first started someone tried various user names for something like 8 hours using a dictionary attack. I had a username that could be found in a dictionary. That was one name he didn't try. I reported him to his ISP and that problem went away.
The entire site is browsable so you know exactly what you're paying for. Some subscription sites have this idea they can hide content behind door number 1 and expect people to pay to see what's there.
If you're selling articles, have one or two opening paragraphs vistors can read. If you're selling pictures, use thumbnails of reasonable size. If you're selling comics, keep some strips for free. Maybe sell access to an archive of comics that are greater than X days (months, years) old.
As for PayPal being evil. Stop using them like a bank. They are not a bank. I move funds out every 20 bucks or so. I've never had a problem with them. They offer a money market deal. I use TD Waterhouse.
If you don't trust them on certain aspects it's very easy to avoid those dangerous waters. Every on-line commerce site has attempts by people to scam their users out of their username and password.
Ben
Work Safe Porn
micropayments are a vendor problem.
Until vendors can provide a benefit to consumers that motivates them to use a micropayment system, people aren't going to care about the overhead on their transaction. As far as they're concerned they've already paid the money with their credit card and could care less about how the vendor processes the money.
If the only reason motivating consumers to use micropayments is "so the store I'm doing business with makes more money" it just isnt going to work.
--
|-_-| . o O ( bEef!)
After reading the Shirky article, and Scott McCloud's rebuttal, in which he rakes Shirky over the coals for criticizing Bitpass based on its state that the time when Shirky looked at it, I took another look at Bitpass, and also at Peppercoin.
My fellow Slashdotters, this is rubbish. There's not a single thing there that I want to buy, not for a quarter, not for a penny, not for a mill, not for a peppercorn.
Nobody forced Bitpass and Peppercoin to put up "Grand Opening" signs and hire brass bands to promote a giant warehouse store with nothing in it to buy but two magazines and three candybars at the checkout line. It makes them look really stupid. If they didn't want people to see them before they were ready, they could have waited to crank up the publicity machine until they were ready.
There's nothing to argue about here (unless you're personally invested in the systems). Bitpass and Peppercoin can prove me wrong any time they want. McCloud implies that Bitpass is the next eBay (by saying that eBay wouldn't have looked any more impressive when it was the same age Bitpass is). Fine, maybe I'll have accounts with both of them in a year. In which case I'll be glad to say I was mistaken.
But as of today, it sure smells like dot-bomb smoke to me.
PayPal made sense practically from day one. I joined PayPal because there was a guy that had a self-published book I wanted to buy--a very good book about the history of Apple--and his website offered me the choice of mailing him a check or signing up for PayPal and using a credit card. Nobody had to talk me into it. I didn't have to engage in theoretical arguments about whether PayPal was a viable system. There was something I wanted to buy. I wanted the convenience of buying by credit card from someone who didn't have a merchant account. I glanced a leery eye at PayPal's terms and conditions, shrugged, and signed up. PayPal has been continuously useful to me every since.
Peppercoin and Bitpass are a joke. Spare me articles about them until there is something worthwhile I can buy with them.
Move along, folks, there's nothing to buy here.
"How to Do Nothing," kids activities, back in print!
The savings on transaction costs can be the difference between a profit and a loss. For a lot of products, this may be the silver bullet.
Point 1)You missed the .com days didn't you?
Point 2) Although my guess the trend will soon be to take previously free content, and now charge for it, rather than adding additional premium content *cough*IGN*cough*. See, that way you're offering the same product, but now getting paid more for it (usually, see 1)
Buy Steampunk Clothing Online!
blah blah micropayments suck blah blah
What, is this discussion a cron process? Every couple of months we trot out Bitpass, Peppercoin, PayPal, online comics and copyright and criticize them for how "l4me" they are.
The most entertaining part is how willing people are to, in the same thread, proudly proclaim how they will steal anything that is placed online, yet bitch and gripe when spammers steal their bandwidth.
If micropayments truly sucked, PayPal would have gone out of business years ago. Period. End of story.
Now let's have another story about spam! Anyone see the irony? Anyone?
Business isn't willing to pay for products, innovation and careers, so we get brands, mortgage commercials and layoffs.
The problem with 'micropayments' is that when web companies try to introduce them, then they seem to think that their customers think that paying a dollar or more for a single article is considered a micropayment...
But what is a micropayment on a CEO or CFO salary is usually not worth the money for the rest of the world. So, many companies who claim to have tried micropayments failed, because they were charging too much.
Other forms are micropayments for email are talked about by people who never heard of mailing lists... Even a cent per email will make a tremendous amount of mailing lists shutdown. And I'm talking about true opt-in mailing lists, not about spam.
--- Hindsight is 20/20, but walking backwards is not the answer.
Dude, iTMS is not a micropayment system. It's analogous to long-distance phone calls (remember when you didn't use your cell phone for those?). You have an existing relationship with a business whereby you can easily make small charges against an account that you pay for in a monthly bill. That doesn't require an intermediary; the customer does business directly with the producer or service provider.
The whole point of micropayments is that you can make lots of little payments to different parties without having to set up billing arrangements with each. This almost requires a business to facilitate; this intermediary will have established relationships with a multitude of customers and a multitude of businesses, so that any customer can easily make a payment to any business.
The proper analogy for micropayments is a credit card system (or currency itself). It is not analogous to a store like iTMS. Note that it's not the cost that prevents iTMS from being a micropayment system; even if every song were literally a millionth of a cent, it would still be a store, not a financial intermediary.
Gates' Law: Every 18 months, the speed of software halves.
Bitpass is either a depository institution, like a bank, or a "check seller", like companies that sell money orders. Either way, they should have the appropriate license and be subject to bank regulations and audits. You can't just go into business handling other people's money without oversight.
Everybody seems to have accepted without blinking the statements made by Apple on the cost of selling iTunes where they conclude that Apple only makes money by selling iPods. But if we think about the algorithms described in the article then it is clear that there is nothing to stop Apple charging customers for multiple transactions instead of just for one. In which case the cost per transaction would drop dramatically. And the profits to Apple of iTunes would be much higher than stated.
At the very least it is clear that Apple has a lot of room to maneuvre to either bring its prices down, or increase its profitability.
PayPal, Inc. is pleased to announce that we are preparing to introduce PayPal ( Europe) Ltd., a company incorporated in the United Kingdom, as the service provider for PayPal customers in the European Union.
We anticipate that PayPal (Europe) Ltd. will begin operating in February 2004, subject to receiving authorisation from the Financial Services Authority (FSA) in the UK. Please note, no action will be necessary on your part. You will be a ble to continue using your PayPal account as you do today.
This sounds like a good thing to me. I expect the UK financial regulators will keep them on a tighter leash. "Fair negative mods are being marked fair, moderate to improve the s/n ratio."