Why it’s bad to cite iTunes as proof that micropayments will work

By Michael Becker | Published: September 23, 2009

Forgive me for post­ing Patrick Thornton’s whole para­graph with­out much in the way of com­ment, but I don’t think it needs much.

Yes, Apple makes money off of micro trans­ac­tions on the iTunes store and does sell songs for $0.69–1.29. First, there is a huge dif­fer­ence between sell­ing a song for 99 cents and sell­ing an arti­cle for 3 cents. And that’s assum­ing that an indi­vid­ual arti­cle is worth 3 cents (many arti­cles I’d say have zero value, while oth­ers are worth a bit more than 3 cents). But beyond that there is some­thing jour­nal­ists have to real­ize; Apple wasn’t mak­ing money off of 99 cent trans­ac­tions. Credit card fees can eas­ily be 25 cents a trans­ac­tion. Add in giv­ing labels more than half, band­width, etc and that doesn’t leave profit. That’s why Apple begun bundling trans­ac­tions and billing peo­ple less often. If I bill you weekly, I’m much more likely to make a profit than if I bill you daily. Also, Apple’s iTunes store sells more lucra­tive con­tent than indi­vid­ual songs: movies, appli­ca­tions and even com­plete albums (in fact, Apple and music labels would much rather you buy full albums). Beyond that, Apple makes mon­ster mar­gins off of the iPod and iPhone. Apple doesn’t need to make money off of the iTunes Store, but if it does, well that’s just gravy. Without a phys­i­cal device like an iPod to carry prof­its, how exactly are micro­pay­ments going to work for news organizations?

I know that, as a news reader and pro­ducer, I’d feel a lit­tle indig­nant if I paid $.03 for an arti­cle from my local news­pa­per and $.99 for an arti­cle from a big-time paper like the Washington Post. And, pro­vided that vari­able pric­ing was allowed within a sin­gle orga­ni­za­tion — as it is within iTunes now — how exactly would the news­pa­pers decide how much an arti­cle is worth?

Read Thornton’s arti­cle for a few other good argu­ments against micropayments.

Share and Enjoy:
  • Print
  • Diigo
  • Digg
  • del.icio.us
  • Facebook
  • Google Bookmarks
  • Posterous
  • LinkedIn
  • Ping.fm
  • Tumblr
This entry was posted in New Media and tagged , , , , . Bookmark the permalink. Both comments and trackbacks are currently closed.
  • Michael,

    Instead of charging 3 cents for an article you may charge 30 cents for a day-pass. If you pay 30 cents to access the whole New York Times today, or the whole Sports section of NYT, the problems you talk about disappear. This is what I call a micro-subscription. It's something between a micropayment and a regular subscription, but still in the micropayments range of price.

    Consider that this division between micropayments and traditional subscriptions is somewhat arbitrary. When you come to think of it, there is in fact a continuum between them, where micropayments and traditional subscriptions are just the extreme cases.

    If you want solutions to the Thornton's other arguments against micropayments, I have written an article called "The New Case for Micropayments" at http://www.icents.net/en/website/TheNewCaseForM...

    And if you want to see micro-subscription working, we have developed a micro-subscription platform as result of a government-funded research: http://www.icents.net

    Marc Glasberg.
  • Thanks for your comment, Marc. I'll take a look at your article sometime today.

    Without knowing anything about your system and how it works, I am concerned that people won't put up with so many small charges to their credit cards, and as Thornton points out, the credit processing fees would kill your profits pretty quickly unless the system aggregated the bills and charged once a week or once a month.

    I wonder, if the payment is aggregated, when does it stop being any form of micropayment or microsubscription and just become a plain, old subscription? Your example of $0.30 per day for the Times would be $9 over a month. If you multiply it out like that, it just sounds like a normal subscription to me -- nothing micro about it.

    So I think any system will have to walk a line between not putting too many charges onto a person's card and not veering into being a regular subscription rate.
  • Michael,

    If people would pay 3 cents for each article, or $30 cents per day, both situations can still amount to $9 over a month.

    But the advantage of micropayments or micro-subscriptions is *not* that it won't amount to much over month, but that it gives you freedom to pay as you go. In other words, you are not obliged to spend $9 a month, every month. You are not obliged to spend anything at all. The main problem with subscription fees is that they provide a single choice: between paying nothing (thus getting nothing) and paying a large fee (thus getting everything). Faced with this decision, most users will chose to pay nothing and will go to other sites. It is rare that you will know in advance that you will use a site enough to justify a large fee and the time to register.

    My example of $0.30 per day implies that people would pay only when they want to read the NYT, not every day. So if today I read the NYT, tomorrow I read The Washington Post, the day after I read some other stuff... in the end I may have paid $9 over a month, but split among different newspapers. When the NYT says they have 10 million unique users, it doesn't mean they have 10 million exclusive users. These users read other newspapers as well, and it's hard for them to subscribe to all of them. Besides, for heavy users that read only the NYT every day, I do think they should make available a regular subscription option.

    And you are right: if charging through credit cards, the payment must be aggregated. But I don't think credit cards are the best payment method. Users should be able to pay with the payment systems they already use online. In other words, a micropayment platform should simply aggregate regular payment systems, like PayPal, Google Checkout, Zong, Amazon Payments etc, Facebook Payments etc, and "change them" so they work for micropayments. This is what iCents.net does anyway, since iCents.net is not a payment system itself.
  • (I still haven't gotten the chance to read your post yet. This evening, I think.)

    The micropayment or microsubscription plan, I have to say, sounds reasonable. It really does. I suppose I don't have faith that people will pay for something they can get elsewhere for free.

    Sure, you could say that you won't get the NYT's reporting anywhere but the NYT, or the Washington Post anywhere but at the Post; and some people might be willing to pay. But I don't think most people identify strongly enough with a news outlet to want to pay for that particular outlet's coverage. The facts from one source are as good as any other, and if that "other" is free, then so much the better -- even if, technically, the free product is inferior.

    I think one important part of getting customers to pay for content online is to encourage news outlets to differentiate their content. If reading the Times or the Post becomes, truly, an experience that can't be replicated anywhere else online, then I think you'd have more luck charging for that content. The way things are now, though, when we can find basically the same story in a thousand different places, I don't think the general public will find enough value in any news content to pay for it.
  • I completely agree. Nicholas Carr explains very well the problem here: http://www.britannica.com/blogs/2008/04/the-gre...

    I don't think newspapers will ever be able to charge for content given the way they are currently organized, but in my post I explain how they could change to create what I call a "Virtual Perimeter" around their businesses. I don't have the space here to explain the Virtual Perimeter idea, but I would love to hear your opinion about it after you have the chance to read it there.
blog comments powered by Disqus