Where’s the Micro Payments Revolution?

In 1998 gurus told us micro payments would become the standard method of online payments within two years. Well it’s five years from that date and there is still no evidence of a new standard. Whatever happened to this silver bullet that would promote market efficiencies while displacing inefficient intermediaries? The answer lies in the question that may have been asked, but was not closely explored – what is broken that micro payments can truly fix?

Identified Problem:

Bundled pricing strategies have been the preferred pricing strategy for Content Providers and intermediary for decades. It’s an effective method of increasing total profit dollars from the incremental profit on items people would otherwise not buy.

As an example, you may only read the business section and the funnies, but you have to buy the entire newspaper. There is an underlying assumption this really upsets you – that you would be willing to spend time online, buying individual components of the paper.

The new efficient model would include three parties: the consumer, the content provider and the transaction processor. The underlying assumption is the consumer and the content provider benefit, while the transaction processor earns enough to make it worthwhile. Some of these assumptions seem faulty, or at best weak.

Consumer:
People don’t care about spending less than $5.00. Want evidence? Visit your local grocery store and look at all the impulse purchase items around the checkout. Retailers have known for decades people will spend $5.00 without blinking. Interestingly enough, many of those items are magazines….which bundle their offering

Content Provider:
It won’t take long for the creator of a music CD, to determine some songs are worth much more than other songs. Their pricing strategy, like every pricing strategy, will be designed to extract maximum profit dollars, with as little effort as possible. If the creator is like everyone else they will simply generate the same profit off the sales of a few songs, as they would off the entire album. They would also need to raise pricing to cover their additional internal co-ordination costs of selling single tracks.

Transaction Processors:
If transaction values are less than one dollar how does the processor generate enough revenue to survive? If they took a whopping 10% they would earn 10 cents per transaction, which is fine when millions of transactions are occurring. But you need millions of transactions.

Of course, Ipods weren’t available in 2000……

About Brad Waller

Some say Brad created the first affiliate program. We’ll never know for sure, but we do know that Brad has been running businesses online since 1994 and affiliate programs since 1996. When he is not running the affiliate program for EPage Classifieds, helping publishers monetize their sites with AdJungle, or working on iPhone applications, Brad is also busy starting up the Performance Marketing Alliance, a trade association created to represent and build the entire performance based industry.

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