September 08, 2003

E-commerce > Clay Shirky on Micropayments and Blogging

Clay Shirky has a new essay, "Fame vs Fortune: Micropayments and Free Content".

Much as I'd love for micropayments to work out, I'm betting on Shirky being right that they won't. The standard argument in favor of micropayments - as annunciated by Jakob Nielsen - is that they must happen because publishers need them, and the payments will be so small that people won't care. Nielsen writes:

I predict that most sites that are not financed through traditional product sales will move to micropayments in less than two years. Users should be willing to pay, say, one cent per Web page in return for getting quality content and an optimal user experience with less intrusive ads. Once users pay for the pages, then they get to be the site's customers, and the site will design to satisfy the users' needs and not the advertisers' needs.

That's a bold prediction, though made less bold by the fact that it was made in 1998 and has failed to come true. Shirky gave the case against micropayments nearly three years ago, and nothing has happened to prove him wrong.

Shirky's main argument against micropayments is that they solve the needs of publishers, not consumers. For consumers, it's easier to read free content than to pay any price for pay content. That position is made easier by the fact that there are substitures available for most online content:

Substitutability is neutralized in perfect markets. For example, if someone has even a slight preference for Pepsi over Coke, and if both are always equally available in all situations, that person will never drink a Coke, despite being only mildly biased.

The soft-drink market is not perfect, but the Web comes awfully close: If InstaPundit and Samizdata are both equally easy to get to, the relative traffic to the sites will always match audience preference. But were InstaPundit to become less easy to get to, Samizdata would become a more palatable substitute. Any barrier erodes the user's preferences, and raises their willingness to substitute one thing for another.

His other argument is that any financial transaction - no matter how small - creates mental transaction costs. Constantly being hit up for a penny here and five cents there takes it toll. There's no micropayment so small that you can avoid asking the user to authorize it, so the user is constantly at the cash register, signing their name and typing their PIN. This reluctance to constantly make buying decisions may explain why consumers have historically chosen unmetered telephone service and Internet access.

Shirky also has a unique take on the idea that blogging is publishing:

The fact that digital content can be distributed for no additional cost does not explain the huge number of creative people who make their work available for free. After all, they are still investing their time without being paid back. Why?

The answer is simple: creators are not publishers, and putting the power to publish directly into their hands does not make them publishers. It makes them artists with printing presses. This matters because creative people crave attention in a way publishers do not. Prior to the internet, this didn't make much difference. The expense of publishing and distributing printed material is too great for it to be given away freely and in unlimited quantities -- even vanity press books come with a price tag. Now, however, a single individual can serve an audience in the hundreds of thousands, as a hobby, with nary a publisher in sight.

Posted by lesjones



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