Wednesday, January 14, 2009

The Phoenix of Micropayments

Desperate times breed desperate "solutions," and here's one we haven't seen for a while -- micropayments. The Phoenix arose from the ashes yesterday in David Sarno's L.A. Times Tech blog.

Sarno picks up a different facet of the meme started by David Carr of the New York Times, who suggested we need something like iTunes payments for the news. (Scott Rosenberg responded to that by noting there already is such a thing, Google Ads, it's just that they don't bring in the massive amounts of cash media houses are used to.)

Let's let Clay Shirkey, a longtime micropayments opponent, as quoted by Sarno, tackle this one:
Shirky said ... last week he received an unusual number of calls from reporters asking him about the theory, suggesting to Shirky that desperate newspaper types are “rummaging around” for revenue ideas. “I haven’t talked to anybody about this stuff since the last recession,” he said. “I don’t get any interest except when it’s a Hail Mary play.”
Sarno has the other side, too, Columbia U. professor William Baker:

[Baker] is more optimistic about micropayments and chose a metaphor to mirror Shirky’s Hail Mary. “There’s a potential rainbow here,” he said. “Normally no one would take this risk because it’s a scary jump. On the other hand, the economy is so terrible now that it may force some entities to try.”
I used to think micropayments might be an answer, too, just as I thought e-ink was going to be a solution to how to deliver the "newspaper." Then, I sat back and let that long-ago economics edycashun I paid good money for rattle around in my brain. Admission: I also read and reread Chris Anderson's "Free! Why $0.00 is the Future of Business."

And while I don't think everything will be free, journalists of all stripes should read and re-read the article and its points, such as this:

This difference between cheap and free is what venture capitalist Josh Kopelman calls the "penny gap." People think demand is elastic and that volume falls in a straight line as price rises, but the truth is that zero is one market and any other price is another. In many cases, that's the difference between a great market and none at all.

The huge psychological gap between "almost zero" and "zero" is why micropayments failed. It's why Google doesn't show up on your credit card. It's why modern Web companies don't charge their users anything. And it's why Yahoo gives away disk drive space. The question of infinite storage was not if but when. The winners made their stuff free first.

Traditionalists wring their hands about the "vaporization of value" and "demonetization" of entire industries. The success of craigslist's free listings, for instance, has hurt the newspaper classified ad business. But that lost newspaper revenue is certainly not ending up in the craigslist coffers. In 2006, the site earned an estimated $40 million from the few things it charges for. That's about 12 percent of the $326 million by which classified ad revenue declined that year.

But free is not quite as simple — or as stupid — as it sounds. Just because products are free doesn't mean that someone, somewhere, isn't making huge gobs of money. Google is the prime example of this. The monetary benefits of craigslist are enormous as well, but they're distributed among its tens of thousands of users rather than funneled straight to Craig Newmark Inc. To follow the money, you have to shift from a basic view of a market as a matching of two parties — buyers and sellers — to a broader sense of an ecosystem with many parties, only some of which exchange cash.

The "penny gap" isn't really a gap, nor is it a yawning chasm or a canyon or even the distance from Earth to the moon. It might as well be the distance from the Milky Way to the farthest known galaxy.

I'd love to see micropayments work -- and maybe they would for some very select (as in Times Select -- it did have subscribers, after all, before going free) subset.

But all this shows me is that the business "model" for news and information is going to be a vastly complicated affair, far removed from the "order takers" that too many newspapers had become. It's been said here and elsewhere that the model will mean aggregating many small and often-changing streams -- heck, they may just be rivulets -- of income. I don't think the mainstream media is ready to deal with that yet. (For instance, the decision by CBS to shut down Wallstrip and some of the commentary over that. (registration required) Yet, in the future, 14,000 users a month might be a damn good "rivulet." Bottom line is that CBS probably paid way too much for the site (rumored $5 million). But it was using old-media metrics. And if you can't shift creative gears and monetize a site that pokes fun at Wall Street in the midst of the greatest economic crisis in decades, much of it caused by the Street, what does that say? For one thing, and maybe I missed them, I don't remember seeing any "Wallstrip" promos next to the econ segment on the evening news.)

I recently asked an executive editor on a panel why he supposed we needed or could find a business model at all. Of course, he looked at me as if I had arrived from Mars - or more likely that far-distant galaxy. But ponder it, folks. We may well not find a business model, at least not one at all resembling what we know now, and were we not to find one would the information ecosystem adjust. Yes -- the business ecosystem might turn wan, but the overall information ecosystem seems rather robust, even when it's not leeching off MSM.

But desperate times breed desperate people and proposals.

We've gone through the denial and anger stages of grief. (Clearly, some of the recent missives from the industry have been filled with anger as layoffs have mounted.) I think we're in the bargaining stage. We've had depression, but are we headed for an even deeper depression if we realize there may not be a sustainable model as we know it? Will there ever be "acceptance," and what, really, will that term eventually mean?

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