By Zachary Ehrlich  Posted on Fri May 18, 2012

Attempts to Revitalize the Doomed Micropayment Industry

Attempts to Revitalize the Doomed Micropayment Industry

Various attempts to normalize micropayments have flopped over the years, but a new crop of providers think they can reverse the decade-old notion set down by Clay Shirky, that “Micropayment systems…have failed because they are a bad idea. Furthermore, since their weakness is systemic, they will continue to fail in the future.”

Micropayments have had tough times dating back to 2001 when media mogul Steve Brill notably launched Contentville. It was designed to accept micropayments in exchange for online news and information from multiple providers. It didn’t work. And 14 months after the site debuted, Brill pulled the plug. However, with today’s veritable explosion in social media, some companies believe that this time they have the answer.

Buying on Twitter

Chirpify, which has received some press recently due to their $1.3 million in funding, lets users buy products straight from a Twitter offer (payments run through PayPal). Through Chirpify, musicians, small businesses and brands can use Twitter to turn promotions into sales.

It works very simply. When someone you follow provides an offer (Check out our new song!), just reply “buy” and you shall receive. Money automatically transfers through PayPal and a digital download link (or shipping instructions) is provided. In this case, musicians monetize their followers, who in turn directly support their favorite artists.

The people behind Chirpify imagined a world where you can send and receive money with a tweet: buy a hot dog, pay your buddy back, etc. And since it works over Twitter, you can purchase wherever you have access, like your mobile phone. This is starting to sound a lot like another financial innovation that has failed, so far, to meet expectations — Google Wallet.

Beyond Twitter and the social network scheme

Chirpify isn’t the only company trying to turn social networks into storefronts. Sahil Lavingia, who helped design Pinterest at age 17, came up with Gumroad, which allows you to “sell anything you can share.” According to the website, Lavingia thinks people should be selling their small creations like blog posts, poems or music videos instead of just putting them up on Facebook for everyone to see for free.

You can upload your creation through Facebook or Twitter and submit any link in the entry form, like to a Spotify playlist, research paper, song or whatever. Set a price, and watch the money pour in.

So it would seem that these two companies are offering the same ability to make micropurchases, but with the advantage of having social networking sites. However, is that enough to change consumer behavior?

Psychological problems against micropayments

One of the biggest problems with micropayments according to Shirky was the psychological leap that users have to make when they pay for something that is essentially free.

Consider the newspaper.

Shirky explains, “Users have no trouble deciding whether a $1 newspaper is worthwhile…but how could you decide whether each part of the newspaper is worth a penny?” You cannot just break down a newspaper into articles and expect people to buy the articles individually.

Furthermore, making something “essentially free” is not the same as free. A purchase must still be made. Therefore, Shirky continues, “one cannot tell users that they need to place a monetary value on something while also suggesting that the fee charged is functionally zero. This creates confusion – if the message to the user is that paying a penny for something makes it effectively free, then why isn’t it actually free?”

In an email interview with MyBankTracker, Lavingia addressed the psychosocial barriers erected around micropayments, saying, “I think if we make it super easy to buy, people will buy. People have to become more knowledge[able] about the topic.”

Is that so?

Are micropurchases based on consumer knowledge, and, supposing that people are indeed more knowledgeable, will they buy your blog post or other little creation, even for just a quarter simply because it’s easy?

The function of the purchase

To differentiate himself from Chirpify, Lavingia asserted, “We want to make selling stuff like sharing stuff. They want to make selling stuff like talking. They are also a distribution play, and act as a service around PayPal.”

According to Lavingia, the main difference is how either company approaches the actual purchase. While Chirpify wants to bring transactions to Twitter through PayPal, Gumroad just wants to monetize your everyday interactions.

That’s a tough sell. Think of it like this: while your friends used to email you their cool drawings or deep poems, instead they may post a link on Facebook and charge you a nickel? That’s not cool.

So presume no one charges friends; Would you buy any site-unseen poems from a stranger, or even a friend of a friend? Would anyone buy a blog post from anyone?

It would seem that success for either company will depend less on buy-in from consumers than on the participation of major artists. No one is likely to buy an article from MyBankTracker, even though our work is obviously and unarguably wonderful. But lots of people will pay a quarter to buy a song from Lady Gaga.

Micropayments have seen a fair amount of friction in the past, and even with the advent of social networking, iTunes and simpler transaction platforms, Shirky remains unconvinced. Lavingia is unfazed by the demise of Steve Brill’s Contenville (among his other ideas), and so are the investors who put $1.1 million behind the Pinterest genius. But will people ever feel comfortable “micropaying” for web content?

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  • http://www.znakit.com/ Greg Golebiewski @znakit

    The micropayment industry (to use your words) is not doomed. It was said to be doomed. But even during the high-days of Shirky’s preaching about the “free” Internet, micropayments worked very well for….Apple’s iTunes, Zynga’s games, and Facebook’s Credits, bringing billions to those companies. The thing is that THOSE small payments were never recognized by Shirky as micropayments. If he did, he would have to admit his preaching was… well, just that: preaching.

    • Zachary_Ehrlich

      That’s a good point Greg, and I think that Shirky would continue slicing off the amount necessary for a purchase to be considered micro (to prove his point). However, the fact remains that people do not like making small purchases when they could be getting this stuff for free. iTunes is ingenious because it worked with the iPod. Can’t say the same for purchasing content like articles, or anything you might find through Gumroad.

      • http://www.znakit.com/ Greg Golebiewski @znakit

        My experience shows something different. People are willing and they do
        pay small amounts for access to premium content, if… it is premium
        content, indeed (I agree, it does not make much sense to charge for a
        product or piece of content that is already available elsewhere for
        free), and it is very easy and safe to pay instantly.

        More, the results of on-demand micro-transacting, in terms of conversion
        and user satisfaction, are much better than those of paywalls, so
        popular these days.

        Problem is micropayments have had such “bad press” for so long that most
        publishers and digital content creators dismiss the idea without even
        trying. Those who’ve tried them (and/or never heard of Shirky’s rap)
        enjoy returns 8-9 times higher than those who’ve chosen paywalls do.
        Micropayments combined with opt-in advertising, where an advertiser
        sponsors user’s access to paid content, also instantly, as-you-go,
        generate nearly 20 times more revenue than most paywalls do.

        As Lance Ulanoff, editor in chief at Mashable.com.once suggested, “As
        the economy sputters along, look for more and more of the sites
        helping you sell almost anything you can imagine and making you a
        “fortune”–one micro payment at a time.” He even called 2012 the Year of
        Micro-Payment Economy. Too bad people prefer to quote Shirky’s
        decades-old false predictions as facts.

        http://mashable.com/2011/12/27/5-tech-trends-to-watch-in-2012/