Who says micropayments “don’t work”?

When we were proposing micropayments for Open TV Network’s RSS-driven system, one reporter started her article with “Market trends be damned, the Open Television Network launches this week. ”

Such is the conventional wisdom that micropayments have been tried and don’t work. But there is a big difference in “being tried” and “being tried in a way that doesn’t get in the customer’s face all the time”. Micropayment technologies that “get in your face” and require significant data entry for every transaction, or make it really, really obvious that you’re spending money – even if it’s a penny a page.

So, I agree that micropayment models that get in your face all the time have failed. That’s no surprise at all. Although the “penny a page” model has been tried, it could work if it were designed so that there were no big warnings that you were going to spend another penny! (Heaven forbid.)

Because the Open TV Network is RSS based, we used the same “Get” button in the aggregation software (mostly Apple’s iTunes) as the “download and buy button” by pre-pending the file name with the price. We designed our system to work with payments as low as a penny a file (1c) although no-one has yet priced content that low.

Although originally considered to be as low as 1c per purchase, micropayments are now considered to be any amount that would be unprofitable to transact through the credit card system with its current charging models.  Like Apple we aggregate the charges until it is profitable to post to a credit card on file. (Apple, I believe, transacts every week.)

Others use the “buy some currency in advance”. Microsoft use this model as do iStockPhoto.com. You buy some currency and the “exchange rate” may not be one-to-one. Generally you can only spend these currencies on the one site.

Whichever model, I’d like to propose that micropayments, when done frictionlessly – without intruding into the customer’s enjoyment – are definitely successful. The examples that follow are from my own experience, but there are in-game economies in many multi-player games. For example  World of Warcraft Gold, Microsoft Points (X Box) and the Wii game store, use the advance purchase of their currency model.

The secret, I believe, is to create a disconnect between the act of buying and the act of paying.

Ringtones

The mobile industry has the most widely accepted micropayment model: you buy minutes of air time and consume them one at a time. However the bigger success model is for ringtones. $2 for a 30 second snippet of a song (they probably already own) is a multi-billion dollar industry for the Telcos. Any sort of micropayment is easy to add to a phone account. Ringtones are purchased on the phone, on the go and simply added to the phone account. A phone account is a big amount to pay every month so a few ringtones don’t appear to add significantly to the account.

iTunes Store

A 99c music purchase is most definitely a micropayment, one that has now brought-in over $6 billion worth of gross revenue to Apple and its partners. What’s more interesting here is that these micropayment purchases are of content that is mostly available free via various bittorrent sites or services. Despite being available free, people prefer to use the very simple purchase method (Amazon’s One-Click) used in the iTunes Store. Charges appear weeks later on the customer’s credit card of choice. The music purchases – in iTunes or on the iPhone/iTouch – are frictionless during the transaction and the payment essentially disappears into the aggregated credit card bill at the end of the month.

App Store

Apple’s App Store for iPhone/iTouch applications is another example where the most common price for an Application is $0.99. Frictionless. Click buy, confirm purchase and it’s done. With iPhone OS 3 Apple are offering developers the opportunity to charge similar amounts (developer chooses) and the small payments appear weeks later on the aggregated credit card bill.

Open TV Network

As I said, frictionless purchase through an RSS feed that constantly offers new audio, video or print (PDF) content of interest to the viewer, right where they’re viewing the content (in iTunes). Like Apple, this requires an account to be set up in advance, but the purchase is a frictionless as clicking a button. (The confirmation of responsibility happens when the feed is subscribed to.)

Micropayments might not save the Newspaper business (as opposed to the news business) because there are so many sources of news that it’s hard to create the artificial scarcity that would be required to make charging viable. However for tangible benefits and the simplicity of consumption of media or applications, I see a very bright future for micropayments.

Perhaps, ultimately, major established content creators will see the wisdom of offering fairly priced downloads as a way of deterring piracy. When they do, we’ll be ready with the perfect mechanism!