Past Is No Prologue for Micropayments

My monthly Publishing: Free to Fee column publish today over at ClickZ.com is a re-examination of the premature dismissal of the future viability of micro-transactions as a mechanism for paid online content. I specifically focuse on Clay Shirky‘s influential dismissal of it. I think that Shirky is brilliant theorist of the social effects of Internet technologies, but not so good when it comes to the economic effects. In this case, I think his dismissal of future viability of microtransaction is based upon some faulty logic and intellectual constructs.

Bear in mind, however, that the latent purpose of Shirky’s essay wasn’t necessarily to torpedo the concept of microtransactions, but to remark on the truly epochal changes that new-media communications technologies have wrought in information supply and demand. He’s quite right about that.

I intentionally omitted something from my ClickZ essay, something that wasn’t particularly pertinent except to newspaper publishers. In his essay, Shirky wrote:

    Worse, beneath a certain threshold, mental transaction costs actually rise, a phenomenon [that] 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.

No. Not really, it doesn’t become impossible to value. In that paragraph, Shirky was using the rhetorical equivalent of Zeno’s Paradox. Zeno’s paradox basically states that if I shoot an arrow at you, then the arrow must fly across half the distance between us, then fly across have of whatever distance remains, then fly across half of whatever distance thereafter still remaining, then half of whatever distance still remains after that, etcetera, etc. The paradox states that because the distances between us can itself be infinitely divided and the arrow must cross each of those infinite divisions, then the arrow’s flight will take an infinite time to hit you and thus never actually hit you. Or in Shirky’s usage, if a newspaper is worth a dollar, an article must be worth half a penny, each word half a penny, each letter a tenth of a penny, etc….until it becomes impossible to value. This makes for a great arc of rhetoric, but as anyone in history who has been shot by an arrow would have been able to tell you (if they weren’t then in shock), Zeno’s Paradox is a reducto ad absurdum, a logically constructed but absurd argument.

Shirky states that “a newspaper, exposed to the logic of micropayments, becomes impossible to value.” However, Shirky has no actual experience valuing the online price of newspapers. I’ve had ten years professional experience evaluating the online price of newspapers (and also have won archery awards). I can tell you that, just as an arrow expertly shot at you will hit you, a price can easily be set for the value of newspaper content online. (My only regret is that most publishers have such lousy aim when attempting to hit that price.)

3 thoughts on “Past Is No Prologue for Micropayments

  1. Interesting article, though I disagree with your examples for disproving his mental transaction costs. The cases you cite are different circumstances, where you’re discussing items which are basically considered necessities – and where there has been (historically) little to no competition. Already, in the telecom space where competition has been heating up (in part, thanks to VoIP), you see that everyone is offering a cheaper and cheaper flat-rate plan and getting away from the metering system.

    More at http://www.techdirt.com/articles/20040609/1111240_F.shtml

  2. Mike, I understand your points. In micropayment markets where there is competition, supply & demand economics do indeed force the price of a commodity even lower than amounts that we currently term micro. For example, when the price of a a long-distance telephone call starts to drop below a penny per minute (a minute being the minimum quantum to measure) then the price effectively becomes ‘free’ and the vendor must resort to charging only a fixed monthly service rate (such as $20 per month with unlimited long-distance).

    But you forget that in such cases the price isn’t really free because the vendor is still charging the user a monthly fee ($20). By contrast, Shirky’s contention was that information will really be free, with no costs at all (neither monthly nor metered) for the consumer. I don’t think that will happen. I don’t think that advertising revenue alone will support professional production of online content nor millions (or eveb tens or hundreds of millions) or amateur blogs.

    As readers of my ClickZ column probably by now know, I’m against 98 percent of publishers’ attempts to charge for online content. But I do think there is a need and market for that other 2 percent, particularly at microtransaction levels. We just don’t yet have the mechanisms by which to do that.

  3. Like Shirky, I think micropayments may never arrive.

    One, there are better ways to monetize micro-content: advertising and subscriptions.

    Two, water and electricity have meaningful marginal costs which account for the need to meter. Telecom and microcontent have marginal variable costs leading to non-metering.

    Three, in fact all modestly successful micropayment schemes are proprietary (water, phone, electricity, itunes). Making a scheme general purpose introduce too much transactional cost.

    Four, schemes like iTunes are barely micropayments considering they take the obvious route and aggregate. Further, half of iTunes tracks are purchased as $10 albums. Further, the Apple experience goes further to suggest that proprietary schemes are more likely: the mental costs are well-known and consistent, $1 per track and $10 per album.

    Five, who cares if micropayments might hit in 20 or 50 years?

    Six, companies will continue wasting a ton of money trying to come up with general purpose micropayment schemes despite little evidence that there exists a market need.

    Seven, micropayments will never be the greatest business considering that the financials will be, well, micro.

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