Last week, PayPal announced their new micro-payment system. It is a pretty good deal compared to traditional payment systems. For payments under $12, the price is 5 cents + 5% per transaction. On top of this, the payment process is inline, so you never leave the product page.
That is a far better deal (and implementation) than what most companies can get via their own payment systems. There is just one tiny problem. PayPal's new micro-payment system has nothing to do with micro-payments at all. It is a great system, but is a far cry from the actual micro-payment system that we all need.
Today, Google also announced their new micro-payment system called Google One Pass. The details are still pretty sketchy. They say it is built on Google Checkout, which is based on a transaction fee of 2.9% + $0.30. It is a very interesting system to watch, but like PayPal's system, it isn't really a micro-payment system at all.
A real micro-payment system is very likely to be the right solution to earning money online. People would obviously not like it at first, but we all know it is just a matter of time before that will change.
Media companies simply cannot succeed in a world where they are not making any money. The trend for the future is pretty clear.
In order to get people to pay, publishers will have to increase the value and relevance of their products, while asking people to pay for the content. Read the "The Future of News And The Replicators."
The money part has to be really easy to work with. And above all, the content has to be reasonable priced. So what is a reasonable priced article? It obviously depends on the value it brings, but for most articles it is probably 1 cent per article.
Yup... 1 cent!
For a site like this one, the perfect price would probably be 1 cent for all my design articles and the general topics (like my recent article about Nokia). 2 cents for the "What You Need to Know Today", and 3 cents for the more specific business centric articles like "Is The Daily Ready For the Digital World"
The problem with this, of course, is the transaction fees. PayPal's new micro-payment system cost 5 cent + 5% per transaction, making it impossible to use for real micro payments. An article sold at 1 cent, would result in a loss of 4.05 cents per transaction!
PayPal's system isn't really a micro-payment system at all. It is just a cheaper traditional system.
A real micro-payment system is painfully simple to make. The trick is to stop thinking that a sale equals a transaction. Instead, you need to group sales together, and only process them when you reach a certain volume.
To take the above example. If we grouped 1,000 articles, each costing 1 cent to read, the transaction fee would only be 55 cents, leaving you with a huge profit of 945 cents.
This is all there is to it. The actual payment fees have little relevance. In real micro-payment systems they only represent a small fraction of the cost. Even at PayPal's regular fees of 1.9% + 50 cents, your profit would still be 926 cents (for 1,000 articles).
None of this is rocket science. Creating a profitable micro-payment system is very easy to do. Just group the transactions together.
To put this into perspective, let's compare a real micro-payment system with the traffic to Baekdal.com in January 2011. At 1 cent for design articles, 2 cents for updates, and 3 cents for business articles, I could earn $13,000 per month. That is a lot of money for a site run by just one person.
The really impressive part is that the average reader would only pay 3-5 cents for the entire month (because most people only read 2-6 articles/month). That is a far better deal than what you get from Murdoch's The Daily.
Even if you where to read all my articles posted in January, the total cost for you would only be $0.83/month. That is spectacular. I would make a lot more money, and you could read all the content at a fraction of the cost.
Micro-Payments is also great because it rewards content based on the value. You are being paid based on how many people read a specific article (as opposed to the whole newspaper/magazine/blog). Articles that are influential will have a higher level of sharing, sharing equals more people, and more people equal more money.
A simple example. "Copyright Theft in Traditional Media" was not a very popular article. It only had 1,122 readers. As such, it would only earn $11 (at a cost of 1 cent). But "The Usability of Passwords" has been read by 853,612 people, earning $8,536. That is pretty good for an article that only took 1 hour to write.
Of course, I didn't earn that much because I do not have a micro-payment system.
Another great thing is that it doesn't matter how big you are. You set a price, and you get paid based on your actual level of traffic.
Creating a usable and workable micro-payment system is pretty easy. The technical obstacles are fairly low. The main reason why we haven't yet got a workable system is one of scale and usability.
The problem is that no single publisher can make a micro-payment system on their own. The trick to a profitable micro-payment system is to group transactions together, and use that to create enough volume so that you can bring down the transaction costs.
This only works for the few people who read a lot of articles on your site. It does not work for the vast majority who just read articles occasionally. You need scale.
The solution is to have a payment system that scales across many different publishers.
We actually already have a workable system like that. It is called Google Adsense. It works by allowing advertisers to pay for a certain number of views - on many different sites. And each site will then display ads from many different advertisers. The result is that while each individual transaction is too small, the combined volume makes money for everyone.
This is essentially what we need for micro-payments. We need a system that isn't linked to the transaction between a specific person and a specific article. A system where a lot of people can read many articles on many different sites. And, the site owners get paid by the volume, rather than individual transactions.
It is really very simple to do, but it requires the combined involvement of a large part of the publishing industry. We all have to agree to use the same system, because it is the only way we can group individual transactions across sites.
The other big problem is usability. People are not going to buy individual articles, because that is way too much work. It has to be automatic.
Think of it like this. When you go into the grocery store, you don't check out each individual product. You put all the products you need into your bag, and checkout all of them at once.
Micro-payments have to work the same way. We cannot have a "buy now for 1 cent" button on every page. It won't work.
Instead, as a reader, you authorize the micro-payment system to automatically charge you on all sites that use it. When you go to a site, it simply ads that cost to your account. No button, no site registration - just focus on reading - everything is done automatically.
Obviously there are few difficulties in making this. First of all, there has to be a limit of how much you can pay automatically (e.g. anything above 3 cents have to be authorized, the rest is automatic), and there has to be some security element too it, to prevent scammers to create fake pages.
Tomorrow, a lot of publishers are meeting in London to discuss subscriptions and how to make money online.
Publishers have talked about micro-payments for the past 15 years, but we are actually at a point now where we have the technology, and scale to make it happen. We couldn't have done this 2 years ago, but we can do it today.
What we need is for publishers to get together. Micro-payment systems don't work until we reach critical mass.
The newspaper industry managed to get together to create the Associated Press. We need to do the same, to create the Associated Micro-Payment System.
So stop fighting, and start earning money.
The future is not in packages of news. The future is in individual pieces of content, shared and consumed in an organic way. Subscriptions aren't really the best solution. Micro-payments are.
Subscriptions is just the best we can do, until we solve the real problem.
Founder, media analyst, author, and publisher. Follow on Twitter
"Thomas Baekdal is one of Scandinavia's most sought-after experts in the digitization of media companies. He has made himself known for his analysis of how digitization has changed the way we consume media."
Swedish business magazine, Resumé