How Micropayments Enable Digital Content Shopping

Following on from my earlier blog post Micropayments – Saviors or Enablers?, I decided to check out how well they fare as enablers of digital content shopping.

Going back to Walter Isaacson’s essay in the TIME magazine, I agree that newspaper and magazine publishers should introduce the “pay-per-drink” model whereby they let customers buy and pay only for the specific article or video or whatever content they wish to buy. From my personal experience, I can easily relate to how badly a lack of this model has affected publishers’ ability to generate revenues.

I recall a number of occasions when I’ve come across an article or research report that I was so keen on reading that I wanted to buy it. But, the only way to do so was to sign up for an annual subscription costing a couple of hundred dollars. Even if I could afford that kind of money, there was no way I was going to spend it because (a) I was interested in only one item at that time (b) I’d no way of knowing if I’d ever visit that website in future, or (c) even if I did, if I’d find anything interesting enough, or (d) even if I did, whether the publisher be charging money for it or giving it away free. In a couple of cases, the website would quote a price for that item that was one-fourth of the annual subscription fee, which was a rude way of telling me that the publisher did not encourage pay-per-drink.

In all these occasions, I’ve been forced to give up my intention to purchase and the publisher has lost revenue opportunity.

The thrust of Isaacson’s argument was that, a modern crop of micropayment providers allow pay-per-drink, so they can save the newspaper and magazine industry.

In a larger context, let alone save, even to enable digital content shopping, it’s crucial for micropayment providers to support the pay-per-drink model. Since subscriptions cost 2-4 figures, they’re served well enough by conventional payment methods like credit or debit cards, so micropayment and pay-per-drink are inextricably linked to each other.

To see how this link played itself out, I decided to test-drive modern micropayment providers like SpareChange, BeeTokens and TipJoy mentioned in Isaacson’s essay and a few more like Onebip, SurfPin, PayMate and ZipCash that I came across subsequently.

On the face of it, all these micropayment methods support pay-per-drink. But, if you scratch the surface, you notice that all of them introduce a ‘subscription effect’ by which I mean that far more of the customer’s money (than the cost of the digital content) is stuck somewhere in the chain. 

Let’s take the example of SpareChange to understand the subscription effect.

You first need to open an account with SpareChange. Then, you need to fund the account by linking it to your credit card or bank account. Since the premise of Isaacson’s essay is that credit and debit cards charge high processing fees that make them unsuitable for purchases worth a few cents or dollars, it’s natural to expect SpareChange to specify a minimum pre-funding limit, just the way Skype and a few music download websites specify $10-20 as their minimum. Even if SpareChange doesn’t specify any minimum, you’re going to find it too time-consuming to enter your credit or debit card details (estimated at around 80-100 keystrokes) every time you want to pre-fund your SpareChange account just for your current purchase. So, either way, you’ll end up pre-funding your SpareChange account with $$ (say, $20) and spend this for multiple ¢ (say 10¢) purchases from multiple websites over a period of time. 

Effectively, you’ve avoided paying $$ to the publisher (aka web merchant) for a subscription, but you’re forced to pay $$ to SpareChange when all you wanted to do was buy something for 10 cents. This subscription effect vitiates the basic principle of pay-per-drink model according to which the customer should have a safe and convenient method for paying out just the exact amount of their present purchase, and not more.

This subscription effect is not unique to SpareChange, so it appears that none of the modern micropayment methods support genuine pay-per-drink.

Of course, SpareChange and others would argue that you can always spend the remaining credit on other websites that accept SpareChange. But, that’s not very different from the subscription-seeking publisher’s argument that you pay once for an annual subscription and keep downloading as many articles as you want for the whole year.

Genuine pay-per-drink will happen only when micropayment providers (and merchants themselves) understand and cater to one basic reality about digital content shopping, which is, when customers come to the checkout, it’s to pay for something costing a few cents. At that time, they’re not interested in buying anything else nor willing to commit to buy anything else in the future, so they shouldn’t be asked to shell out anything more than those few cents.

Given its strong need to support pay-per-drink, the adoption and success of micropayment methods will depend upon how well their operating model addresses this fundamental reality.