Newshare -- Sharing the future of news

By DAN MITCHELL
The New York Times

SAN FRANCISCO, Aug. 26 -- The idea of micropayments -- charging Web users tiny amounts of money for single pieces of online content -- was essentially put to sleep toward the end of the dot-com boom. In December 2000, Clay Shirky, an adjunct professor in New York University's interactive telecommunications program, wrote a manifesto that people still cite whenever someone suggests resurrecting the idea. Micropayments will never work, he wrote, mainly because "users hate them."

But wait. Amid the disdain, and without many people noticing, micropayments have arrived -- just not in the way they were originally envisioned. The 99 cents you pay for a song on iTunes is a micropayment. So are the tiny amounts that some operators of small Web sites earn whenever someone clicks on the ads on their pages. Some stock-photography companies sell pictures for as little as $1 each.

"Micropayments are here," said Benjamin M. Compaine, a consultant and lecturer at Northeastern University who specializes in media economics, "they just have not evolved in the way that everybody expected."

From the earliest days of the Web until around the time of Mr. Shirky's manifesto, the expectation was that a handful of companies would provide platforms -- or perhaps a single ubiquitous platform -- that would enable Web users to pay a penny, a dime or a dollar for a bit of content such as a newspaper article, a comic strip or a research report. Simply clicking a link would complete the transaction.

Sellers of content -- at the time, newspaper companies -- were among the most interested in the idea as they looked for revenue that did not depend on advertising. And the Web, rather than being a threat to their business, would allow them to expand their audience vastly.

But the problems proved insurmountable. Many micropayments companies have shut down, been acquired or changed their business models over the years. Among them: DigiCash, CyberCash, First Virtual Holdings and Peppercoin. They used various systems, but in general users paid into accounts with their credit cards and then drew from those accounts. In the mid- to late '90s, electronic cash had become such a popular concept that some politicians worried that it might threaten the stability of the nation's currency.

But the economic and technical challenges were enormous. Consumers were reluctant to pay even a tenth of a cent for something they believed should be free. "There is a certain amount of anxiety involved in any decision to buy, no matter how small," Mr. Shirky wrote in 2000.

It turns out, however, that consumers are more than willing to pay for certain types of content in certain situations. Consumers "expect to pay for music and movies, but not so much for the printed word," said George Peabody, an analyst with Mercator Advisory Group, which serves the payments industry.

"Closed loop" systems like iTunes are the most successful, Mr. Peabody said. That's where consumers have a continuing relationship with the merchant and usually pay with their credit cards. "Open loop" systems, where the consumer pays many merchants through a single payments processor -- the way micropayments were originally envisioned -- are much less successful. "To date, the market has said there is insufficient demand for these services," concluded a research report Mercator published in April.

There is another problem with closed-loop systems: cost. The fees for every transaction are too high to make tiny payments worthwhile for many online content sellers -- sometimes those fees exceed the price of the content being sold. For most merchants, according to the report, purchases of less than $1.50 aren't worth it.

One solution is to aggregate purchases, or group purchases over a period of time, and then process the payments in a single transaction. That's how iTunes works. But credit card networks like Visa and MasterCard, which charge fees for transactions, "aren't really happy with that idea," said Mr. Peabody, because it means less money for them.

Visa and MasterCard prohibit most merchants from aggregating payments directly. The networks have recently promoted their efforts to serve the "small payments" market -- encouraging consumers to use cards for parking meters, for example. But so far, they have stopped short of widely supporting aggregated-payment systems. There are "operational challenges," said Pam Zuercher, Visa's vice president for product innovation. Visa is evaluating such systems, she added, because "there is an undeniable trend -- users want to use their cards for very small purchases."

Merchants can aggregate payments through another company, but that adds to costs and "implementation has been tough," Mr. Peabody said. For sellers of the lowest-priced content -- anything under 75 cents -- micropayments have been made irrelevant by the easy availability of online advertising, Mr. Peabody said. Programs like AdSense from Google, which allows even the smallest Web publishers to have relevant ads placed on their sites, make micropayments unnecessary. The program pays Web publishers what are often very small amounts each time a reader clicks on an ad.

Looked at another way, though, AdSense is based on micropayments. "All the criteria are there," said Mr. Compaine, the Northeastern University lecturer, "but the money isn't coming from the end user; it's coming from the advertisers."

Bill Densmore, a founder of the payments firm Clickshare, a former newspaper publisher and now a consultant and a director of a citizens' media project at the University of Massachusetts-Amherst, has been promoting micropayments from the beginning. He envisions Web publishers joining with one another and with producers of other content to create huge networks, sharing users and, in effect, revenue.

For example, he said, a large newspaper could sell subscriptions that would allow its readers to download music from iTunes or Rhapsody, read articles from regional papers, and watch movies and TV shows from YouTube or Comedy Central. Some material would be sold for a fee -- with the payments managed internally by the network. Mr. Densmore acknowledged that this is all pie-in-the-sky at this point. But, he said, for newspapers in particular, the status quo is not good enough. In that business, he said, there are "enough people feeling enough pain that they need to be open to asking what models might work."

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# posted by newshare @ 10:28 AM