Micropayments — the decades-old vision of a new way to support creators and businesses online — remain a dream in the U.S., despite 25 years of digital business innovation.
Why it matters: After all this time, the dominant revenue models of the internet — subscriptions and advertising — are exactly the same as they were in the pre-digital era.
The big picture: Tech thinkers have long predicted the development of thriving creative ecosystems supported by customers paying tiny amounts automatically as they read, viewed and listened to content online.
For a long time, the chief hurdles blocking such a micropayments system were technical.
- The cost of processing and tracking tiny payments (on the order of cents or fractions of cents rather than dollars) for tiny acts of consumption (like reading a short article or watching a short video) would cost more than the payment itself — particularly in the U.S., with its high-margin credit-card-based payment systems.
- But the cost of processing and data storage has now dropped to the point where transaction costs aren't a blocker, and non-credit card payments have begun taking root even in the U.S.
Another longstanding problem was psychological: Consumers hate the idea of a "running meter" and prefer to pay a lump sum for an all-you-can-eat plan.
- But today's interface designers and data-driven marketers could easily devise a system that didn't nag you but just let you fill a wallet on a schedule and then ignore it.
The deeper reason we don't have micropayments sits on the producers' side, not the consumers.
- Micropayments really are "micro,"it turns out, even when you start adding them up — so much so that they're barely worth the effort.
- The theory behind micropayments promises the creation of a robust middle class of creators online — but there isn't a single field test that shows such a scenario playing out.
Every micropayment-style platform running today shows that they're usually a bad deal for all but the most popular and successful creators.
- Spotify, whose business is basically built around divvying up subscription fees into micropayments to musical artists, is notorious for how very little it pays out.
- Listeners love it, while artists — except for a handful who sit at the head of the long tail — are even worse off than they were when they were hustling CDs and records and getting ripped off by record companies.
- Medium, which fills up a pot with monthly subscriptions and then divides some of the fees among writers based on traffic and reading time, has seen a similarly lopsided distribution of contributors' income.
Between the lines: The "creator economy" that's emerging to support videomakers, streamers, influencers on social networks, authors of newsletters, hosts of podcasts and other creative entrepreneurs online is largely built around subscriptions (or, in the case of services like Patreon, recurring subscription-like payments) rather than fees for access to specific content.
Subscriptions are more familiar than micropayments, and they have one big advantage: They create a direct relationship between content's creators and its consumers.
- Both publishers and individual creators have learned to cherish that relationship, since it gives them some protection from the whims of platform owners.
What's next: If a popular micropayments system that provides solid income for a broad range of contributors ever does arrive, look for it to emerge from the public sector or nonprofits rather than the startup world.
- Startups are always going to try to build "moats" — i.e., seek competitive advantages — so they can deliver big returns to investors. But a universal micropayments system would have to be open and neutral, letting every creator or publisher compete evenly for the public's nickels and dimes.
- The system, in other words, would need to be like the protocols that underly the web itself, rather than the giant companies that grew on that foundation.