Slashdot Mirror
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."
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.
Damn, there goes my plan to make cash off my years of collected ascii-art pr0n. :-(
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...
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.
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.
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...
If you want the site's content enough, you'll pay. If you won't pay, it's obviously not worth that much to you. Economics 101. I have no objection to your choosing either option, but don't pretend that there's something fundamentally wrong with charging a fee for web content or that you deserve to get the content for free despite the author's wishes.
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.