Science and technology

Babbage

Another approach to micropayments

Go on, Flattr yourself

Jan 21st 2011, 18:09 by L.M. | MUMBAI

WILL consumers ever embrace the idea of paying for online content using micropayments? The idea of charging tiny amounts for such content in the hope that it will all add up has been around for as long as the world wide web itself, but despite numerous attempts at workable systems, micropayments have never taken hold. (Paying $0.79 for a track on iTunes doesn't count—it isn't "micro".) Many schemes suffer from the problem of "mental transaction costs"—the additional time and effort required by users to decide, for example, whether a blog post is actually worth three cents before clicking on a link. The real transactional costs imposed by credit card companies and services like PayPal don't help either.

In an essay, "The case against micropayments", Clay Shirky of NYU summed up the main problem in three words: "users hate them". The trouble with micropayments, he argued, is that "users want predictable and simple pricing" and, as a result, "anyone who can offer flat-rate pricing becomes the market leader". That was back in 2000. Mr Shirky reiterated his point in another essay, "Fame vs fortune", sparked by the launch of a micropayment system called BitPass. More recently he wrote a gloating blog post when BitPass died.

The founders of Flattr—a play on "flatter" and "flat rate"—seem to have taken Mr Shirky's criticisms seriously, and have done their best to address them in their own micropayment system, which adds a few novel twists. Flattr functions like a cross between the Facebook "like" button and a flat-rate PayPal, with a bit of StumbleUpon thrown in for good measure. Users pay a fixed monthly fee of at least €2 ($2.70) and no more than €100. In return they can click the Flattr button on any site that uses the service and install the button on their own websites. At the end of each month, the amount of money deposited by the user is divided by the number of clicks (minus a 10% fee for Flattr) and distributed among the site owners. 

Unlike its contemporaries Kachingle and Sprinklepenny, Flattr doesn’t make a distinction between consumers and publishers. Nor does it display information about who is paying whom. Launched as a limited beta version in February 2010 and made available to the wider public in August, Flattr has already acquired 70,000 users, some 70% of whom are purely donators.

Babbage met Peter Sunde, who founded Flattr in collaboration with Linus Olsson, at a recent conference in Mumbai. Mr Sunde is convinced that people want to pay for content but do not have an easy enough mechanism with which to do so. "It takes time to create digital information or intellectual property and people need a salary," he says. This robust defence of the importance of paying people for their creative work is a surprising statement, given that Mr Sunde is also the former spokesman for (and one of the co-founders of) The Pirate Bay, a search engine that has been the subject of a high-profile lawsuit for assisting in copyright infringement, by helping users of the BitTorrent file-sharing system to locate pirated material.

Yet Mr Sunde, a 32-year-old Scandinavian who claims to have no fixed address, sees the two ideas as similar, rather than contradictory. "Pirate Bay is an easy way to share information. Flattr is a way to share information about money," he says. "You can’t fileshare money, but if you could, it would be Flattr." And although the term "social micropayments" is bandied about on Flattr's website, its founder prefers to call them donations or "money sharing".

Flattr tackles the problem of Mr Shirky’s transactional mental costs in two ways. By letting users spread their monthly donation as thinly as they desire, Flattr discards the notion of per-item value. Clicking to make a donation on one item does not prevent you from clicking on others; it just shares the money out more widely. And by making payments optional, and allowing people to decide whether to click after reading a blog post or watching a video, users are not forced to guess whether their purchase will be worth the cost. Meanwhile, banking fees are minimised by accepting, for example, €24 at once instead of €2 per month. 

For Flattr to have an impact on the way online content is consumed and produced, however, it would need to become massive. The service aims to have at least a million participants by the end of 2011, but even that would represent only a tiny fraction of the internet's 1.5 billion or so users. For comparison, PayPal has over 230m registered users, 87m of whom are active. More importantly, according to Mr Sunde, Flattr needs to provide more options for online payments. This month, for example, it added the option to make direct payments to its service, letting users donate a specified sum directly to a website. One of the big beneficiaries was WikiLeaks, which has been using Flattr since August, and has lately been prevented from using other means of accepting payment (such as PayPal and credit cards) following its leak of classified diplomatic cables.

Mr Shirky wrote in "The case against micropayments" that for online payments to work, they must incorporate offline solutions: aggregation, subscription and subsidy. Flattr may have found a formula that ticks all the boxes. Yet that is a necessary but not sufficient condition for its success.

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1-11 of 11
Jan 21st 2011 10:16 GMT

I wanted to use flattr on my website, because it seemed like a good idea, and people regularily say they'd like to contribute to it, but that paypal is annoying to deal with.
But flattr requires me to spend a minimum of €24 per annum to be able to embed a button on my website, so it's quite possible I end up making a loss off of it.

Needless to say, I'm sticking with paypal

neil.good wrote:
Jan 21st 2011 11:24 GMT

I like the sound of it and just wonder if Facebook could take it out of the market - they have a lot of Like buttons already and you could choose to pay with your like button or not.

Debra Storr wrote:
Jan 22nd 2011 2:29 GMT

Facebook is a closed system, don't forget. But it would be nice if FB added Flattr as an option for e.g. Causes. But the real tension her is that Flattr comes to the issue from the social/voluntary model and Facebook is run on a profit seeking model.

I guess that the $24 minimum could just be used to click your own site and therefore your real minimum downside would be $2.40 (if there is anything to prevent, this you just need to pair with someone else and donate to each other)

MacAllister wrote:
Jan 22nd 2011 2:47 GMT

This looks more like a micro-donation - not exactly micropayment. Undoubtedly Flattr is a very good and useful idea, but it covers only a very narrow niche. Once you reach the point where you want to sell and set or at least "approximate" a price this method is no longer enough. Yet, I think this together with the social networks opens the gate for something that is both technically possible and mentally acceptable. I can't possibly handle such service from my country, but I am sure it can be done easily in US or Canada. I want to see a very simple system that allows the people pay small amounts (up to a $30-$40 dollars for instance) without the hassle to go to another site, enter credit card details or anything like that. Something only a bit more complicated than the famous "Like" button - for instance it may require a 3-4 digit PIN code and a confirmation in a small pop-up window. To alleviate the problems and calm the fears this should be backed by a system where the user can go register a credit card, set limits, monthly, annual, use something like pocket money bag where spending quids are transferred only manually - I think there is no technical problem to enable the user choose from a variety of limitation options. This way serious problems can be avoided even in the worst case scenario and the system can easily extend from the WEB to the real world with terminals in the shops, payment from the smart phones (the easiest way will be going to the WEB site, clicking there and the local clerk will see the transaction in seconds). This can be combined with the new augmented reality tricks - nothing complicated is needed, a simple bar code or another kind of recognizable code that sends you to the right page will be enough. If limit is reached - for instance the pocket money allocated and you need to spend more urgently - you just need to go to the WEB site and put more in the pocket, it looks for the regular person like going home or the the ATM to get more cash.

There is no doubt - we need something like flattr, but it is not enough - there is need of something to fill the next level - where the payments are more traditional (set by the seller) but small and micro. Transfer taxes can be minimized easily by performing bank transfers only with bigger amounts in both directions (from the buyers and to the sellers), it is obvious, there is no need to explain that. I hope flattr will inspire someone to do the next step. It is not very difficult to bridge multiple such services (it is bound to happen) ... well, no matter how simple it is, something like that can change the world in mere couple of years.

Jan 23rd 2011 2:58 GMT

Just a thought: would we trust Madoff again?

Perhaps letting Mr Pirate Bay have your bank info is a pretty dumb idea. Or, as the author suggests, he's turned away from the dark side. But my thought is that someone with no fixed address is a pretty dumb bet with my bank numbers.

My best wishes,

MacAllister wrote:
Jan 23rd 2011 2:43 GMT

@neil.good this seems doable, the easy way will be "pay only once". I put some thought and the hard way which implies some changes that may cause problems seems not impossible as well. At least some of the embedded versions of the button, status (whatever it was called) can accommodate it with some configuration required on Facebook only, I think... And the concerns of brendan steuble will be alleviated ;). I hope they pay attention.

Anjin-San wrote:
Jan 24th 2011 12:29 GMT

Every time I see this kind of article advertising "new" micropayment method on PC-based Internet, I sigh and buy an episode of my favourite manga for 30-50 yen on my 3G mobile with no more than 4 clicks, and no more hassle than a tweet or "like" button (neither of which I actually use)

Jan 24th 2011 4:02 GMT

"Flattr comes to the issue from the social/voluntary model and Facebook is run on a profit seeking model."

Don't be crazy. Flattr seeks huge profits, probably looking for a buyout.

Donald Res wrote:
Jan 24th 2011 1:46 GMT

"WILL consumers ever embrace the idea of paying for online content using micropayments?"

Only when the paying experience becomes frictionless.

Flattr is a promising solution in this respect but time will tell if people are ready to provide sufficient commissions so it pays the living of content creators.

@MacAllister: It seems like we are building "the next level" you are referring to with Cleeng - a new player in this market. It is kind off a solution you describe. We are currently in Private Beta and have now over 200 publishers who have tested the solution, and so far the feedback is very encouraging. Anywhere soon we will launch to the public.

Our solution started months ago with the following criteria taken into account. Wouldn't it be cool if...
* Consumers could buy content on the fly for pennies with one click?
* Consumers didn’t need a subscription or special reader to view paid content?
* Consumers could have access to all the content they’d paid for in one place?
* Consumers could share content they like with their friends?
* Publishers could create a new revenue stream in addition to ad revenues and monthly subscriptions?
* Publishers could decide to mix paid and free content on the same page or within the same article?
* Publishers could implement a free solution into their existing CMS?

And so far the feedback from major international publishers as well as niche bloggers is that Cleeng seems to be the solution they have been waiting for.

Have a look yourself and judge. We explain our idea in a 2" video on our homepage (and you can subscribe to private beta). Enjoy! http://cleeng.com

MacAllister wrote:
Jan 24th 2011 3:38 GMT

@Donald Res it certainly seems a step in the right direction, I am certainly going to take a look and see what I can use it for. I do not reject the fact that there is a long road ahead, but I am certain there are points of convergence of the different methods. It is more about the people and their willingness to accept (and understand) new ways, now that the technology is up to the tasks. I hope with all the new popularity of the Internet everything will fall into place. By convergence I point to the different types of merchandise. It is of course subjective to some extent, but there is content, products, services, services based on products (there was a word for that, but I can't remember it - English is not my first language) and many others. I am really excited to see these events finally unfolding!

J' wrote:
Feb 3rd 2011 7:43 GMT

I agree that many netizens are willing to pay for content and do not because there is no simple system and it's so easy to find equivalent free content (e.g. why pay for The Washington Post site when CNN.com is free?). But, I don't think Flattr is a simple system, or a real solution.

Recently, I visited Wikipedia (as I often do) and noted a message requesting donations with a friendly reminder that the site is ad-free and cost free. I donated because I use it and want it to stay ad- and cost-free. If other sites that I use frequently for free did such a thing, I'd likely be willing to make more one-off infrequent payments. I'm happy to pay..when it is my choice and at my convenience.

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