Tuesday, July 31, 2007

micropayments are a lie

i've been meaning to write this post for a long time. waaay back, when i worked for SEIU, a co-worker and i were talking about this issue, even before i really got into digital media and payment issues.

anyway, it turns out that one of the puzzles we've been trying to solve with calabash is that of pricing. how to price an mp3. how do we bring the price down from the $0.99 arbitrary price that apple established to a real price point? how do we let the market act on the price of a music track, and really find the "true" market value of an mp3? well, obviously, the scientist in me just wants to run a lot of tests. set the price of tracks at a wide variety of prices, and let the market act. let artists set their own prices for tracks, and step back, watch, and learn.

however, one impediment to that pricing plan is this - the merchant fees associated with transactions done by credit card or paypal. credit card transactions have fairly large fees ($0.05 - $0.50 depending on transaction size), and paypal is even worse. paypal has some nice interest rates for consumers, and some nice features, but merchants pay for it all. paypal fees are close to double that on credit cards.

a proposed answer to this dilemma has been micropayments. these unicorn-like payments are described as allowing all sorts of price point transactions, allowing new pricing models, blah blah blah. anyway, all the schemes i have seen from vendors who we have thought about dealing with at calabash always involve some variation on the following: users buy some "Credit" or don't get charged on initial transactions. they then get charged at the end of the month, or use the credit piece by piece on small transactions on the site. which isn't really micropayment now is it? basically, it is the same thing - one charge for $5 instead of 50 charges for $0.10. meaning that customers still have to put in $5 or the merchant has to pay a huge % fee on a very small transaction.

anyway, i have a lot to read, as i'm really starting to take this idea from my head onto paper. i've put a couple links below, which i need to read as well, but here's hoping for some good conversation on this issue. i'll be back for more posts on this same subject.

to read:
wikipedia entry on micropayments
misunderstanding micropayments
the case against micropayments
paypal micropayment press release
another bloggers take on micropayments

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