An argument why micropayments for Internet content will never work

by on September 12, 2003 at 5:31 pm in Web/Tech | Permalink

Will advanced technology allow suppliers to charge people very small amounts for reading web sites, blogs, and other kinds of material? No, says Clay Shirky, mental transactions costs will remain. Here is his bottom line:

The people pushing micropayments believe that the dollar cost of goods is the thing most responsible for deflecting readers from buying content, and that a reduction in price to micropayment levels will allow creators to begin charging for their work without deflecting readers.

This strategy doesn’t work, because the act of buying anything, even if the price is very small, creates what Nick Szabo calls mental transaction costs, the energy required to decide whether something is worth buying or not, regardless of price.

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Weblogs, in particular, represent a huge victory for voluntarily subsidized content. The weblog world is driven by a million creative people, driven to get the word out, willing to donate their work, and unhampered by the costs of xeroxing, ink, or postage. Given the choice of fame vs fortune, many people will prefer a large audience and no user fees to a small audience and tiny user fees. This is not to say that creators cannot be paid for their work, merely that mandatory user fees are far less effective than voluntary donations, sponsorship, or advertising.

Because information is hard to value in advance, for-fee content will almost invariably be sold on a subscription basis, rather than per piece, to smooth out the variability in value. Individual bits of content that are even moderately close in quality to what is available free, but wrapped in the mental transaction costs of micropayments, are doomed to be both obscure and unprofitable.

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