Growth5 Blog

Thursday, May 28, 2009

Micropayments: Publishers' Online Savior? Facebook's Revenue Catalyst?

Will you pay the Wall Street Journal a penny or two, or even less per article you read? They are hoping you will adopt their micropayment system. I already worry that the WSJ articles I forward to people won't be able to be read if the recipient doesn't have a subscription, never mind if they have to pay for it. Putting walls up around content can be a dangerous proposition, especially if the end user can get similar content somewhere else for free.

Additionally, "passed links" (in an email from you to me) have a much higher click thru rate than traditional search, paid search, banners, etc... as they are "vetted" links. I trust that you would send me something clickable (most of the time). I'm not sure it's a good idea for the WSJ to set up a system that will stop us from sending their links around.

Based on declining ad revenue, Contenture has developed a proprietary system to collect micropayments from users of content based on their monthly usage. They are trying to consolidate online publishers (magazines and newsapers) in one central location so the user can have one user name / password and only pay for what they read in very small increments. A freemium-based monthly subscription has a better chance of working if the pricing is done right. We'll see if this catches on in the publishing industry.

What are micropayments?

Micropayments are "a means for transferring very small amounts of money, in situations where collecting such small amounts of money with the usual payment systems is impractical, or very expensive, in terms of the amount of money being collected."

Since credit card companies charge 25 cents or so per transaction (tiered by volume), selling transaction that are pennies or less is not doable. That is why iTunes sweeps your account periodically instead of on a transaction-by-transaction basis.

MMORPGs (online gaming) have used micropayments very successfully. Allowing users to buy large chunks of "credits" in advance ($25 worth for example) and then using the credits to purchase items that cost credits equivalent to pennies / fractions of pennies.

Awhile back, we talked about the world's first billion dollar social network - China's Tencent - attributing a big chunk of their revenue from virtual sales of micropayment-size items. It looks like Facebook noticed.

Facebook just received a $200 million investment (that they say they didn't need, hmm) from Russia-based Digital Sky Technology (DST). In the press conference announcing the deal, "Facebook CEO Mr Zuckerberg pointed to the fact that a number of companies in DST’s portfolio have found ways to make money from micropayments."

It sounds like a revenue plan. I wonder if we'll see similar micropayment options popping up on MySpace, Twitter, et al. here soon.

Interesting side note: DST's investment in Facebook was $200 million for 1.96% - a $10.2 billion valuation. A bargain compared to Microsoft's October 2007 investment of $240 million for 1.6% - a $15 billion valuation. The $15 billion valuation Facebook got from Microsoft's investment came "at the absolute peak of the market," Zuckerberg said.

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