Monday, May 23, 2005

Fame vs Fortune: Micropayments and Free Content

This article (linked in title above) by Clay Shirky, first published in September of 2003, does a pretty convincing job of taking apart the web's great white hope of micropayments:
The people pushing micropayments believe that the dollar cost of goods is the thing most responsible for deflecting readers from buying content, and that a reduction in price to micropayment levels will allow creators to begin charging for their work without deflecting readers.

This strategy doesn't work, because the act of buying anything, even if the price is very small, creates what Nick Szabo calls mental transaction costs, the energy required to decide whether something is worth buying or not, regardless of price... Mental transaction costs create a minimum level of inconvenience that cannot be removed simply by lowering the dollar cost of goods.

Worse, beneath a certain threshold, mental transaction costs actually rise, a phenomenon is especially significant for information goods. It's easy to think a newspaper is worth a dollar, but is each article worth half a penny? Is each word worth a thousandth of a penny? A newspaper, exposed to the logic of micropayments, becomes impossible to value.

I, too, thought for the longest time that micropayments using PayPal or a similar online payment system would fund the next wave of Internet content, and that it hadn't happened yet only because the technology wasn't quite ready for prime time. But having a bit more perspective now, I find Shirky's argument more persuasive than Jakob Nielsen's 1998 pipe dream.

My wife loves the squash-a-penny machines found in tourist traps across the nation. The trouble is, we rarely carry cash around these days, and it's usually bills; coins are so difficult to transport (won't fit in a wallet, skirts don't have pockets) that we get rid of them at the earliest opportunity, whether it's in a tip jar or a charity bucket.

So when we do run into a souvenir penny machine, we rarely have the three coins-- one penny and two quarters-- needed to operate the machine. And then we don't spend the $0.51 to squash a penny, not because we don't want to, but because we can't. The machine takes only one form of payment, and we don't have it. We could go find a store to make change, but that's a lot of trouble for a little souvenir trinket. So we skip it.

Now think about how this happens on the web. How many people are using instead of actually registering for and giving away their personal information? I'll wager that for most people, it's not the privacy concerns that stop them, it's the inconvenience. You can put in fake information, but it still takes a minute or two, and why do that when it's just as easy to surf on over to and read the AP wire story there instead?

I don't know if advertising is the answer, but it's a good placeholder for now.

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