Oh yeah, that was me. And a lot of others. Well, we were wrong. The mobile app store market (Apple, Android, etc) is brimming with a bonanza of micro-business opportunities for producers and consumers alike. I am consistently amazing by……

I’ve always generally agreed with the conventional wisdom about micropayments as a method of funding online content or services: Namely, they won’t work. Clay Shirky, Tim Lee, and many others have made the case that micropayments face numerous obstac…

In my experience, this is especially a problem in virtual world economies, where the products in question are often only marginally useful.

Of course, I haven’t thought through the “one-click” micro-payment models that I have heard some people suggest in the past. We have something close to that at work on Amazon today. If we had a comparable “BUY NOW” button at the top of our browser that we could easily click any time we wanted to immediately and effortlessly purchase anything on the open webpage, that might be interesting. However, it would obviously open the door to a whole host of security and privacy issues. God only knows what my kids might buy if such a button was embedded in my browser. (My daughter once accidentally hit “But it Now” when I was looking at a fancy car on eBay that I couldn’t afford. Luckily, it takes more than a few clicks to make the actual transaction happen!)

Shirky’s fundamental point, which I think is absolutely right, is that there’s a minimum transaction cost associated with any monetary transaction, no matter how small, and that as the price drops, the overhead becomes a larger and larger fraction of the transaction. With iTunes, for example, I’ve read that about 25 cents out of every dollar Apple gets goes to the credit card company, and thats not counting the mental and logistical overhead faced by the consumer (deciding whether to buy, making sure the site is legit, getting out the credit card, typing the number in, verifying the transaction at the end of the month). So buying a 99 cent iTunes purchase might cost the customer $1.25 ($1 plus 25 cents of time and irritation), while Apple and the labels might only see 75 cents of revenue. Obviously, as you get much lower than a dollar, things get even worse, to the point where almost all of the transaction is overhead and there’s no money left over for the seller. At that point, it makes more sense to find a business model, such as advertising, where transaction costs don’t eat up so much of the value.

The original vision for micropayments was that people would pay a nickel or a dime to read an article, listen to a song, etc. I think that’s clearly not going to happen. It’s an open question is where the line is—whether you can build a sustainable business charging 50 cents, a dollar, or two dollars per transaction. But I think it’s pretty clear that there is a floor below which micropayments are doomed to failure.