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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 obstacles to widespread adoption.  The primary issue seems to be the “mental transaction cost” problem: People don’t want to be diverted–even for just a few seconds–from what they are doing to pay a fee, no matter how small.  [That is why advertising continues to be the primary monetization engine of the Internet and digital services.]

android-market-12-15-09That being said, I keep finding examples of how micropayments do work in some contexts and it has kept me wondering if there’s still a chance for micropayments to work in other contexts (like funding media content).  For example, I mentioned here before how shocked I was when I went back and looked at my eBay transactions for the past couple of years and realized how many “small-dollar” purchases I had made via PayPal (mostly dumb stickers and other little trinkets). And the micropayment model also seems to be doing reasonably well in the online music world. In January 2009, Apple reported that the iTunes Music Store had sold over 6 billion tracks.

And then there are mobile application stores.  Just recently I picked up a Droid and I’ve been taking advantage of the rapidly growing Android marketplace, which recently hit the 20,000 apps mark. Like Apple’s 100,000-strong App Store, there’s a nice mix of paid and free apps, and even though I’m downloading mostly freebies, I’ve started buying more paid apps. Many of them are “upsells” from free apps I downloaded. In most cases, they are just 99 cents. A few examples of paid apps I’ve downloaded or considered buying: Stocks Pro, Mortgage Calc Pro, Currency Guide, Photo Vault, Weather Bug Elite, and Find My Phone. And there are all sorts of games, clocks, calendars, ringtones, heath apps, sports stuff, utilities, and more that are 99 cents or $1.99.  Some are more expensive, of course.

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While the Wall Street Journal has noted one disturbing aspect of Sen. Chris Dodd (D-CN)’s sprawling mortgage industry bailout bill (HR 3221) –the required fingerprinting of mortgage loan “originators”–Sen. Dodd and his Republican colleague Richard Shelby (R-AL) last week introduced an even more disturbing amendment (Subtitle B of S.AMDT.4983) that would require the nation’s payment systems to track, aggregate, and report information on nearly every electronic transaction to the federal government,” as reported by FreedomWorks (and noted briefly by the WSJ).

Specifically, online payment systems such as eBay’s Paypal, Amazon, and Google Checkout (along with banks and credit card networks such as Visa, MasterCard and Discover) would be required to report,

(1) the name, address, and [Taxpayer Identification Number] of each participating payee to whom one or more payments in settlement of reportable transactions are made, and (2) the gross amount of the reportable transactions with respect to each such participating payee.

This requirement would produce, starting in 2011, a detailed record of information about every “participating payee”– i.e., anyone receiving at least 200 online payments in a year worth at least $10,000 in total.  This record would include entries for not only most online merchants but also the “long tail” of small sellers through sites like eBay who eke out more than $10,000 in revenue (not profit) as well as those who collect donations online, as many non-profits, blogs and other user-supported sites do.  Such granular data collection becomes particularly troubling when one considers that, individual payees would be identified by social security number, as would sole proprietors of small businesses who use their own social security number instead of obtaining a separate Employer Identification Number.  Continue reading →