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Why Xbox Live Doesn't Take Exact Change
With ever-more tempting content on Xbox Live (like the awesome Exit), it's really frustrating to have to 'overpay' and buy Points in bulk. 1up got an official response from Xbox 360 group product manager Aaron Greenberg on that issue, explaining why the service always leaves you with a little bit left over: "The reason why we do that, the core reason, is around credit card transaction fees ... If we do this in bulk, we don't have to burden the consumer with the transaction fees, or ourselves or publishers. It's about keeping infrastructure costs down and I know sometimes it's frustrating because you end up with odd points, but we don't have any plans to change that." Greenberg also addressed why the service limits you to 100 friends on your friends list.
"We make more money this way."
What a load of PR crap! We know why you can only "buy in bulk", it's because very few things on XBL come out in 500 point increments. You almost always buy more than you need, but then next time if you're 20 points short for what you want to purchase, you get more and have a 480 point surplus. It's obviously specifically designed to be a vicious cycle of always having either too much or being just short.
The iTunes store doesn't have an issue selling me downloads a buck at a time, obviously the credit card fees aren't breaking their balls. WTF Microsoft?
I believe the reason they do this is the same reason when you go to a carnival you have to buy tickets for a ride. So you never really know how much things cost. After all if it was just about making bulk payments easier then the price of things would match those bulk costs. Basically you'll always end up with change and figure you might as well buy so more so you can get rid of your leftover. All in all I hate the system.
Say there are 2.5 millions users with 160 points left over ($2.00). That 5 million for Microsoft. Plus having some extra unspendable cash in someones account makes then more likely to add a few bucks to buy something else. Then they have change left over again, rinse, repeat.
Every interest cycle that has them keeping more of your pennies means more interest in their pocket. And if you have enough of these copper babies, they add up, and so does their interest. Sure, they'll have to 'pay' out the content eventually, but meanwhile they are the ones collecting the interest, not you.
By the way, this is the same reason the Fed's are quite happy to help you over-estimate your income tax burden when you prepay.
I hate it when stores use transaction fees as an excuse for not accepting credit cards (or creating artificial minimums). I can't tell you how many times I'd eat the fee and buy something, but walked away instead because that wasn't an option.
I'm fairly confident the real reason they don't allow small increments is the same reason they use points -- to obscure the real cost from the consumer. As an engineer I have virtually no background in physcology, but I can say from personal experience, it's easier to spend 1000 points than $5 (even when the value of points is much greater than the dollar amount). I'm also confident that designing the system so it's easy to end up with an odd amount of points that requires a bulk purchase to do anything again was intentional (eg. I have 200 Wii points right now and the cheapest purchase is 500).
Sadly, PS/2 was yet another victim of USB, which doesn't care what you plug into it, the electrical slut.
Credit card processors charge you a per transaction fee. That is just how it work, that is how they make money. Every time you accept money, regardless of the amount, on a card they charge you. That's why you'll find restaurants with things like "$5 minimum credit card purchase." At a certain point you literally don't make any money on a transaction because the fee eats it all up.
So, suppose MS allowed you to buy points in arbitrarily small amounts. This is going to decrease the amount they make because people will do it. There will even be transactions (like people buying 1 point) that they lose money on. This means they have three choices:
1) Make less money. They aren't going to pick this. XBL is not run as a public service, they are in this to make money. As a practical matter they need a net profit here to help offset the costs of the Xbox hardware.
2) Pass the costs on to their developers in the form of lower payments. Bad option, you don't pay enough, people just won't develop for XBL.
3) Pass the cost on to the consumer. This is what would happen.
It is the same problem with micro-payments you've seen elsewhere. If you want to have small payment increments, credit card fees can kill that. This is one solution to the problem. Maybe not the best solution, but then if you've got a better one perhaps you should propose it to them? "Just eat the fees and make less money," isn't a solution.
Please remember: If you disagree with their business model, you are free to not buy their products. The Xbox in general, and certainly XBL and the marketplace, are not necessary to life. You can just not play their game if it is unacceptable to you.
I think it would be more fair if you could buy points in multiples of what you anticipate buying. So there could be an option to purchase 1200 points, 2400 points, etc. MS claims to be concerned about many small CC transactions. So just give more options when buying points above 10 dollars or whatever (as opposed to having to buy in multiples of 500 no matter what). This would seem to be trivially easy to implement. I think Microsoft intentionally does this so that virtually everyone carries a balance, allowing Microsoft to earn interest or in some other way capitalize on what is effectively a large savings account to them.
There are a couple of reasons for this. Most are mentioned elsewhere, so I'm not going into details.
1. Is the per-transaction fee with the merchants, they don't want to do a bunch of tiny transactions and eat fees.
2. Breakage, every point on used in the system is excess profit.
3. Increase spending - companies found that the majority of gift card receivers spent MORE than the card was for. Makes sense, if you get a gift card for $25, and decide between $20 and $30 items, your choice is "lose" $5 and get the $20, or spend $5 and get the $30 to use all the value... that's why they push gift cards for the holidays.
4. Abstraction from cost, you think (I have X points, I need Y, let me get it) and not the cost of the items. It probably helps with the International business to charge constant "points" across regions and just price the points locally. Sure beats having to price everything EVERYWHERE. International pricing isn't simply the exchange rate + VAT once you have real marketing projects. But if they price the points right, they can single-price the stuff, keeping marketing costs down.
5. Accounting Rules. Depending on their accounting rules they may (or may not) be able to book this revenue. If the points never expire, they shouldn't be able to book it, as they collect the cash and have a liability (to provide you with a service), that becomes revenue when you use the points... that's typically why gift cards expire after 1-2 years depending on state (actually, eaten with monthly small transaction fees), so they can start eating up the balance that's sitting on the books as a liability to by taking the transaction fees out.
Since the points are probably non-refundable and the service virtual, they may have convinced their auditors that the revenue is incurred when the points are received, as there is no liability. OTOH: if they pay the content providers on a per-deal basis, this may not apply. But revenue recognition plays a role in these decisions as well.
6. Kids/Allowances, I assume that with passwords, etc., you can only allow the parent to log in and put "points on the account" that the kids can spend. Rather than having to fish out the credit card or give an 8-year old access to it, you can recharge their points weekly/monthly, and know that it's a fixed expenditure. That makes it MUCH easier for parents to control the spending without having to fight with their kids over it. It's easy to say "well that's parenting," but I like to focus my parenting time enjoying my time with my kids and focus my "parenting" on things that will impart values to them, fighting over video games is not at the top of my list.
Much easier to add 1000 points/week to the kid's account and let them stockpile points for things they want than have to have them run to you for each purchase. It's the same reason parents give kids the allowance, it let's them learn money management on their own through trial and error, instead of preaching parents.