Marginal Revolution points out an intelligent discussion by Clay Shirky about
Micropayments and Free Content:
...micropayment believers imagine that such tiny amounts of money can be extracted from the user that they will not notice, while the overall volume will cause these payments to add up to something significant for the recipient. But of course the users do notice, because they are being asked to buy something. Mental transaction costs create a minimum level of inconvenience that cannot be removed simply by lowering the dollar cost of goods.
Worse, beneath a certain threshold, mental transaction costs actually rise, a phenomenon is especially significant for information goods. It's easy to think a newspaper is worth a dollar, but is each article worth half a penny? Is each word worth a thousandth of a penny? A newspaper, exposed to the logic of micropayments, becomes impossible to value.
If you want to feel mental transaction costs in action, sign up for the $3 version of BitPass, then survey the content on offer. Would you pay 25 cents to view a VR panorama of the Matterhorn? Are Powerpoint slides on "Ten reasons why now is a great time to start a company?" worth a dime? (and if so, would each individual reason be worth a penny?)
Mental transaction costs help explain the general failure of micropayment systems. ... The failure of micropayments in turn helps explain the ubiquity of free content on the Web.
No I don't buy his analysis. For one thing, I don't quite understand a man who can write, as Shirky does that " [t]he only business model that delivers money from sender to receiver with no mental transaction costs is theft..." He and I must be living in different mental universes. I have no personal experience with thievery. But I but can admit that the thought has been quashed by the social sanctions involved --- from thinking of oneself as a thief to possible jail. Generalizing from myself to all of you, I suspect that the consideration of theft is hardly one with no "mental transaction costs" --- except for sociopaths and they have no "mental transaction costs" on anything, just about by definition.
To my perspective, the failure of micropayments so far is simply because the costs --- both substantive and transactional --- are simply too high. And costs are not a given but a derivative. So the key task is to lower costs --- all of them.
When we have seen a system where (for example)
• you have a "penny" icon built into your browser's bookmarks menu and
• it is already "loaded" by Apple or Microsoft with a dime or two
• all you have to do is drag down the penny (or deci-penny) icon over a great article
• and its anonymous
• you never do
• well then we can call the micro-payment experiment a failure.
Until then it's a fascinating subject for discussion and one which is practically useful in illuminating the pitfalls, and clearly, transactions costs are a big one.
Like the eBook --- not looking good this week with B&N's withdrawal from the market --- just give it time.
UPDATE: Lots and lots of talk on this subject at Slashdot: Responses to Clay Shirky on Micropayments