Firms Hope Tiny Web Payments Go Big-Time
An idea that seemingly evaporated along with dot-com mania is back: that the Internet would realize its full grass-roots potential if Web surfers could pay small amounts for tidbits of online content.
Several California companies are again betting they can mine gold from ferrying around such “micropayments.” Even credit card giant Visa USA Inc. is exploring the prospect.
Boosters believe people could sell countless new creations on the Internet -- from essays to advice -- if only mechanisms existed to facilitate small payments. For authors of popular content, all those pennies would add up.
The problem, as things currently stand, is that transaction costs make most credit card sales under $1 all but pointless.
By giving independent content providers an efficient way to collect money, micropayments could widen the Web’s pool of things to see, hear and do, keeping the Internet from being dominated by media giants and other brand-name companies.
“We like to characterize ourselves as e-commerce for the rest of us,” said Kurt Huang, co-founder of Palo Alto-based BitPass Inc., which carries small payments to 100 websites. “What we’re trying to do is enable diversity.”
Micropayment handlers know they’re treading over the skeletons of 1990s companies -- the likes of Flooz, Beenz, CyberCash and DigiCash -- that tried and failed to create virtual currencies. Back then, some hoped Internet currencies would evolve to eventually be spent as anonymously as pocket change.
Today’s micropayment advocates say previous attempts failed not just because they were cumbersome and lacked sufficient government and financial industry support. People preferred what was familiar, namely credit cards.
With free stuff now fading, much more online material is available only by subscription.
“Times have definitely changed,” said Ron Rivest, a prominent Massachusetts Institute of Technology encryption researcher who in 2001 co-founded micropayment provider Peppercoin Inc., based in Waltham, Mass. “I think the market is ready.”
There also are far more broadband Internet connections today, meaning more people might be interested in buying bandwidth-intensive digital content a la carte. Witness the quick popularity of new online music services like Apple Inc.’s iTunes, which charges 99 cents a song.
Users often buy more than one song and establish prepaid accounts with a credit card.
But if competition pushes prices lower, and more individual artists want to sell tracks on their own websites, micropayment providers say they would be ideal helpers because they can track royalties and handle customer service.
“We’re finding that music is just the tip of the iceberg,” said Steve Elefant, president of Foster City, Calif.-based Yaga Inc., which handles micropayments and larger transactions, including the $2.50 payments that The Times and Time Inc. charge for articles in their online archives.
Eyeing such possibilities, Visa USA -- also based in Foster City -- recently began exploring whether it should facilitate micropayments too.
“While this segment is still small, we want to keep our eye on it,” spokeswoman Randa Ghnaim said.
Micropayment carriers are using different technologies to collect, transfer and authenticate payments.
San Jose-based Payment- One Corp., for example, lets consumers make several small purchases online and pay for them along with their local phone bills. Some cellphones in Asia have software that turns the handsets into virtual wallets for vending machines and other small but cashless purchases.
BitPass and Peppercoin invite Web surfers to set up accounts with as little as $3, which is charged to a credit card or the popular Internet money-exchange service run by PayPal Inc., based in Mountain View, Calif. A user’s online micropayments are deducted from that larger amount, without the hassle of entering credit card information each time.
Here’s the advantage for content providers: If you wanted to sell a poem for 20 cents, you wouldn’t accept Visa or MasterCard, because the fees involved would drain most, if not all, of your 20 cents. Similarly, PayPal takes 2.9% of a sale plus 30 cents, so selling your 20-cent poem would be a dream deferred.
But with a micropayment carrier, you could expect to give up 15%. Your 20-cent poem would bring in 17 cents. And micropayment providers can make life easier by paying you $17 for every 100 poems, instead of 17 cents after each sale.
The trick for micropayment firms is to convince consumers that there’s so much good online content available for nickels and dimes that it’s worthwhile to bother stocking a prepaid account with a few bucks.
But some critics believe that will never happen en masse because of fundamental economic psychology: Few people are willing to spend time deciding whether to buy things individually, like newspaper articles, for pennies. That is why subscription models that bundle a huge amount of content are attractive.
Such doubts have kept PayPal from breaking into micropayments.
PayPal would figure to be a micropayment gorilla if it altered its fee structure for cheap items. With 35 million users, PayPal is the dominant peer-to-peer means of spending money online, especially at the auction site run by its parent company, San Jose-based EBay Inc.
“Nobody’s going to make a lot of money off these things,” said Todd Pearson, PayPal’s managing director for merchant services.
A different kind of skepticism rules at Chicago-based RedPaper.com, which should be a micropayment carrier’s dream. Sort of like an EBay for the written word, RedPaper launched in July and has 26,000 members who buy and sell prose, poetry and essays that each cost less than $1.
Members have to put at least $3 in a RedPaper account that gets docked or credited when they buy or sell material on the site. RedPaper takes 5.25% from sellers.
RedPaper set up its micropayment engine by itself. Founder Mike Gaynor said it took only about a week’s labor by one programmer.
“Micropayment technology in and of itself is about as interesting as new and improved dish soap,” Gaynor said. “Anyone who has content worth purchasing is not going to give a chunk of their revenue to somebody like BitPass if they could build the technology themselves.”
