Comments on: Mobile Micropayments: Forcing Me to Reconsider the Conventional Wisdom

By: Adam Marcus

Adam Marcus — Mon, 21 Dec 2009 23:04:32 +0000

In response to Berin's question about how much revenue micro-payments can generate, Reuters had a story yesterday (http://www.reuters.com/article/idUSTRE5BJ060200...) about one small independent iPhone app developer having revenue approaching $1 million/month.

In response to his second point about the type of content (pure information versus creative content), I think it's a very interesting question and one that is surely related to copyright. In the U.S., pure information is not protected by copyright, but I believe the European Union's Database Directive provides some protection. But if you think about it, copyright protection may not have that much of an influence. For although the facts in news stories are not protected by copyright, the "arrangement" of those facts and the exact text of the articles is protected. This prevents newspapers from copying entire articles without modification. But there are categories of "pure information": sports scores, weather, road conditions, flight arrival times. I suspect there are mobile phone apps for all of these areas. Berin is right that even if this information is available via your mobile web browser, you may be willing to pay for a custom app that makes the information more easily accessible. In that case, the payment isn't really for the content but for the interface.

This may be another way to define micropayments: Should the "unit of measure" be the application or the piece of information. Both models have been tried: Giving the information away to those who pay for the app, or giving the app away and charging for the information. Personally, I think people prefer a subscription model, where they know how much they will be billed each month and they know that they can use a service to a near-unlimited degree. I think this is the antithesis of micro-payments. But when you compare the subscription numbers to online music services of this type (e.g. Rhapsody) with the number of iTunes purchases, it would seem I'm wrong. Maybe it's just a matter of educating the market.

By: Adam Marcus

Adam Marcus — Mon, 21 Dec 2009 18:04:32 +0000

By: Berin Szoka

Berin Szoka — Fri, 18 Dec 2009 23:05:54 +0000

First, the total number of paid versus free applications is interesting, but it would be much more useful to compare the total download numbers for free apps versus all paid apps, and then to break down the paid apps download numbers by price bracket e.g. less than a dollar less, than five dollars, less than 10 etc.

Second, it would also be interesting to know what percentage of the paid apps are simply freemium upsells of a free version, as is often the case with android apps. even better would be to get a sense of how many of these freemium versions offer additional functionality, since many differ only in that they do not have ads.

Third, I think you hit the nail on the head when you say that asking the question of whether "micro-payments work" fails to recognize that the economics of pricing is highly dependent on context. So like her payments by a broad definition obviously do work in the case of downloading MP3s, given our current technology for doing so, but don't seem to work for getting people to pay for news stories or commentary on their desktops. That latter market might work differently for mobile devices where the additional convenience of working through an app is so great that the user is willing to pay for content they might be able to get for free on their browser.

But that leads me to the other problem with the way people generally ask whether micro-payments will work: The question is not whether, but how well? In other words, how much revenue will micro-payments generate as compared to other potential revenue streams (such as simple or highly targeted advertising) and also as compared to the cost structure of that particular kind of content.

At best, I feel reasonably comfortable saying that where the content is very close to being pure information, such as in news and to a lesser extent, commentary, micro payments will not work well because there is no scarcity and therefore no pricing power—or, to put it more accurately, there is very little pricing power, so little that the prices fall below the transactions costs involved, including both mental transactions costs and the actual costs of setting up and administering a micro-payments system. This is kind of the point Chris Anderson details in Free.