Thursday, October 28, 2010

MicroPayments - The Artist's Future?

For quite a while now, technologists have been predicting that the online world would eventually revolve around what's known as "micropayments," which is the ability to charge very low fees (as low as a few cents) for online services.

While this may seem like a no brainer, micropayments are a lot harder than they seem not so much from a technology standpoint, but from a financial one. Every financial transaction costs money. There's a service fee involved that mostly comes from the financial institution doing business with the vendor. The problem has been that the transactional cost has been high enough from the likes of Visa, Mastercard, et al, that it's been nearly impossible to have prices of less than a dollar for any purchase online.

You might think that iTunes has been charging $0.99 for 7 years now with no problem, but Apple (and Amazon for that matter) is so large that it can absorb the financial trading costs without an intermediary. For everyone else, you need a bank or a credit card company to securely collect your funds.

All that may be gradually changing though, as PayPal (which is owned by Ebay) recently announced a new micropayment structure for purchases under $12, which charges 5% of the transaction costs plus 5 cents. This means that a purchase of a dollar has a transactional cost of just $.10 instead of the normal cost of about $.33. As a result, it may actually become profitable for more companies to do business in around that $1 area.

Although this is a step in the right direction, it's still doesn't go far enough. The real Holy Grail comes when transactions as low as 1 cent become doable. Why? Because then it will be possible to charge for things that we get for free now. Who wouldn't pay a couple of cents to hear the streaming song or get a download of an interesting artist? Want to see that hot video? It might cost you a nickel, but it's a small enough investment that you'd pay it without a second thought.

Consumers will be more likely to pay this seemingly insignificant amount, and that can amount to at least some income for an artist. And what if the purchase was automatically charged to your cell phone bill (also part of the Holy Grail solution)? You may hardly notice if it were a couple of bucks higher at the end of the month, but an artist would certainly feel better about himself with at least a little money coming in.

So watch this topic closely. This tiny bit of money is more significant than it seems.
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2 comments:

NathanWillsMusic said...

Thanks for that, i've been selling my music via paypal though my youtube. To be able to do a small collection of tracks for around the $2, makes this a warm welcome.

Nsthan

Jef said...

Great piece, as always.

I'm wondering, however, if the 1 cent transaction is anything anyone should care about.

Things need to be priced correctly for the market. 1 cent seems to say "not worth much" to the "gotta have nice things" crowd.

Cheers

Jef K

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