A Closer Look At Micropayments by ibuayutamba


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									A Closer Look At Micropayments

During the early days of the Internet, most of the contents found online
are provided for free, either by different institutions or universities.
As the years go by, the Internet has experienced various innovations. One
major factor in the evolution of the Internet is the consumers’ ability
to purchase, sell and advertise products and services, a concept that is
more commonly referred to as “e-Commerce”.

As the popularity of the Internet continuously grows, it is only natural
for the content providers to start looking for different ways of making
money from the content that they publish online. Basically, there are
three ways for users to earn money from content; one is through
advertising. Here, the content is available for free; however it comes
with certain ads or links to their sponsor sites.

Another way for content providers to make money is by charging
subscriptions, wherein consumers are required to pay a certain amount in
exchange for access to the content for a certain period of time. The
downside to the subscription model is that it only offers one choice to
the consumer – either they do not pay the subscription and thus get no
content or pay a substantial fee to get all the content. Oftentimes, this
kind of choice led the consumers to move on to sites that offer content
for free. Meanwhile, the third form of revenue is through donations that
are solicited by the content providers themselves.

However, in 1998 a fourth form of revenue was proposed – the micropayment
system. The concept of micropayments would not die down completely, nor
would it fully come to life. What are micropayments, exactly?
Micropayment is generally defined as the means of transferring small
amounts of money (usually in pennies, nickel or dimes), usually in
purchasing digital contents like music, movies, games and others.

Since charging such small amounts through the customary payment system
like credit cards is impractical, the micropayment system is a viable
option for those websites that wish to go "micro". The main objective of
micropayments is to target a high volume of consumers by offering content
at a relatively low price. It is also usual for micropayment systems to
accumulate several payments and then charge it in one regular payment.

Most micropayments advocates firmly believe that the micropayment system
is the solution to the free rider problem for those sites that are solely
dependent on advertising. As for websites that are charging subscription
fees, micropayments will be a viable alternative in order to increase the
number of their consumers.

However, regardless of all the benefits that micropayment systems seem to
offer, its popularity among the consumers did not quite catch on for
quite a time. This is mainly due to the pressing disadvantages that
micropayment detractors are quick to point out. Most micropayment system
detractors insist that micropayments would cause inconvenience rather
than convenience to consumers. How so? The most popular argument used is
the "mental transaction cost".
What does mental transaction cost mean? Well, this is where a consumer
stops and thinks twice whether the content is actually worth the price,
regardless of how small the price is. This could cut down the number of
your customer, since more people are likely to opt for free content.

The people pushing micropayments believe that the dollar cost of goods is
the thing most responsible for deflecting readers from buying content,
and that a reduction in price to micropayment levels will allow creators
to begin charging for their work without deflecting readers.

Another possible drawback to using micropayment systems is that it
requires the consumer to use major credit cards. Remember that Internet
consumers are quite diverse in age; therefore, you cannot assume that all
of them would have credit cards. Since teenagers are under the legal age,
they do not have credit cards. Moreover, even among those consumers
living in highly developed countries, not everyone has a credit card, and
borrowing someone else’s credit card just to read a certain article in
the Internet would prove to be a big inconvenience. Simply put,
micropayment systems could very well alienate those consumers who do not
have credit cards.

So with all these disadvantages, why do we need micropayments? With the
growing demand for ethereal products (like information) in global
economies and their immediate delivery at a low cost, the customary
payment methods seemed to be impractical. Since most information found
online (Web pages, Web links, etc.) cost barely a penny, the cost of
charging in the usual payment method would turn out to be more expensive
than the actual product. Thus, micropayment is a viable alternative.

A lot of content providers agreed that micropayments offer them the
opportunity to regain the cost of online publishing, even possibly make
money, that is, if they are popular enough. At present, content providers
see their online popularity as a disadvantage since their popularity
requires them to pay for large amounts of bandwidth. Another benefit that
micropayment systems offer content providers is the opportunity to be
completely free from sponsorship and advertising, which offers them more
independence. Without advertising the provider could concentrate on
publishing materials that interests their consumers instead of what
interests their advertisers.

Micropayment systems are showing signs of recovery recently, what with
the launching of Apple’s iTunes $0.99 a-song, the model is finally
showing some signs of life. Furthermore, reports on the state of the paid
content market shows that, content purchases below $5 increased 707% in
2002. A veritable accomplishment, since it made a seven-fold leap from
virtually nothing.

Although, millions of people find the notion of purchasing $.99 songs at
iTunes attractive, Apple’s administrators themselves admitted that most
consumers still prefer purchasing larger album packages instead of the
per song purchases. After all, Internet users do not purchase content as
if they were a piece of candy. Some micropayment solutions even admit
that their customers are loading less money into their accounts than what
they initially expect which means that a considerable barrier still
remains. Now, whether the micropayment system will eventually find
success this time around or not will still depend on the consumers’
behavior, a hurdle that is yet to be crossed.

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