Will micropayments transform publishing and the internet?

Micropayments on the internet have been a major topic of discussion since the mid-1990s. The internet supposedly creates a “liquid economy” in which products and services can flow easily around the planet. Yet a foundation for any business is the ability to get paid. Most transactions are done through credit cards, with Paypal a rising alternative, yet these systems are either not appropriate for very small payments, due to high transaction fees, or are not widespread enough. As such, it is almost impossible to charge for anything worth less than a few dollars. That’s fine for relatively expensive items such as books, but makes everyday content such as news, analysis, and humour very hard to charge for.

Bill Gates said today at the World Economic Forum at Davos that Microsoft is launching a points-based micropayments system. As Robert McLaws and Dean Collins have pointed out, similar systems have already been implemented by Microsoft for Xbox Live to enable simple online transactions. Not for the first time, a concept tested in the gaming community is now reaching the broader community. Mary Jo Foley harks back to Passport, Microsoft’s aborted attempted in 2001 to create a “digital wallet” amid a suite of online services. Today, as then, Microsoft’s power cuts two ways: many get exposed to Microsoft’s offerings and view them as credible, yet there is strong reticence at Microsoft’s power. The more limited scope of the current offering, where consumers buy a portfolio of points for $10 or $20, then spend them online, will make this a far more palatable offering.

As Donna Bogatin and a number of others have noted, a good micropayment system could disrupt Google’s Adwords program. Publisher may be able to make better money by charging tiny amounts to visitors to read their wares, than they can by putting up advertisements. There are two big uncertainties here. One is whether people will be prepared to pay even small amounts for content, now that an everything-is-free mentality has built up. Even if that turns out to be possible, Microsoft’s challenge is to become the de facto standard for online micropayments. In this domain more than most, network effects reign – online one micropayments systems is going to win. I believe that in the long run a micropayments system will be central to the internet. But I’m not convinced that either of the two conditions will be met for a good while. It is an idea whose time is coming, but may not yet be quite here. Publishing will definitely be transformed when micropayments are part of the general infrastructure, by creating a better business model to encourage high-quality, targetted content. Let’s see how this one pans out.