By David Brin
Where is the next multi-billion dollar business? What opportunities or market-gaps only await sharp people to launch us into a new era? The market had many such openings back in the late twentieth century, making us slap our heads, saying: “Why didn’t I think of that?” The trick, it seems, is to find and develop something that didn’t seem obvious until, quite suddenly, it is.
Innovation certainly is needed. As former web entrepreneur Andrew Keene asserts in The Internet is not the Answer, our vaunted digital connections aren’t serving average folk. His complaint can be summarized:
1. Security flaws are unraveling our ability to trust internet processes.
2. Many elites who formerly were daunted by the Net’s empowerment of individualism – especially leaders of non-democratic nations — now view it as a tool of control.
3. The online world is rife with new forms of addiction, for which humans have few immunities.
4. The advertising model for how to pay for just about every service online is flawed, cumbersome, invasive and unsustainable over the long run.
Today I’ll focus on problem #4, which turns out to have a strong bearing on the other three. As digital commentator Maciej Cegłowski put it: “There’s an ad bubble. It’s gonna blow.” With margins shrinking and most net revenues going to Google, Yahoo or Facebook, website hosts and online publications are driven to either barge into their visitors’ attention space with adverts, or else sell information about their customers. Consumers are fighting back with ad-blockers, creating a tit-for-tat struggle, with content publishers denying access if they detect that an ad-blocker in use.
The Web’s “Original Sin”
“Advertising became the default business model on the web, the entire economic foundation of our industry, because it was the easiest model for a web startup to implement, and the easiest to market to investors,” asserts Ethan Zuckerman in the Atlantic. “I have come to believe that advertising is the original sin of the web. The fallen state of our Internet is a direct, if unintentional, consequence of choosing advertising as the default model to support online content and services.”
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To be clear, it is not the cost of advertising, per se, that’s limiting. As of 2013, global ad spending topped $500 billion, with 20% of that, about $100 billion, Internet advertising. Projected growth rates were roughly 5%year. That amounts to roughly $90 per living human, or just under $20 per person for Internet advertising. Even transferring it all to the billion richest persons – those who use the Web most – raises a simple question: would you pay $100/year to surf completely ad-free? Oh, but there is no coordinated way for such a payment to go where it will both maintain and expand the vast variety of web-services you want.
Publishers and content creators don’t like it either. Evgeny Morozov asks:
“how reasonable is it to expect that advertising will remain the magic cash cow that helps bring free internet to Sri Lanka or India and allows millions of people to use email and search at no cost? … Advertising was always held in contempt by Silicon Valley; it’s too crude, too inefficient, too evocative of the connections between technology and vulgar capitalism. Early on, Sergey Brin and Larry Page of Google famously wrote an academic paper denouncing the effect it could have on their search engine.”
And yet, we see no sign that even Facebook or Google have a plan to replace advertising’s income stream, any time soon.
The ad-based web economy is based upon monetizing a genuinely scarce commodity, user attention — the one, intrinsically limited thing in this information age, that cannot be increased at low marginal cost. As advertisers demand chunks of this scarcity, it is sure to stir ever-increasing bad will.
Nor do advertisers get (in most cases) much value for their bucks. They have to try, by barging into the user’s view, demanding he or she pay for the thing they are really after with bits of shredded attention — with either time or screen space. Even when the advert is “well-targeted” the user will resent that some corporation knows way too much about her.
An alternative would seem obvious, let consumers pay for content. This would manifest as micro-payments – or MP — making small purchases and transactions. At first sight, this seems a variant on the PayPal model, which already lets buyers and sellers transfer funds to each other or to sites like Amazon or Kickstarter. Alternatives like Apple Pay have some unique traits, but all offer secure transactions, validating payer and payee via encrypted keys and passwords.
Then why have all attempts at commercializing micro-payments failed? I assert that MP constitutes an inherently different market realm, with unique problems and incentives that demand innovative solutions, empowering payment-for-content by individuals surfing the web.
Pay? For content? While web-surfing?
And that’s supposed to be… empowering?
Willing to buy
Our first fallacious assumption is that Internet users demand content that is free... that no one will pay a penny for what they can get elsewhere online at zero cost. Any content owner intent on monetizing must either put up a pay wall (which seldom works, outside of music or TV), or demand substantial transfer via PayPal or credit card or else fall back on on advertising — a well that is already tapped by established players.
Examine this truism — that you would never pay a nickel for a New York Times article that you enjoyed. What? Ten minutes of your time isn’t worth five cents? What aggravates users about current pay-for-use methods is not cost, but hassle of transaction. Going through rituals to become a paywall subscriber, then having to sign in each time you return? That’s the deal-breaker.
This isn’t about customer cheapskate-stinginess — it is businesses failing to provide shopping convenience for low-cost transactions.
Rescuing modern journalism… and other uses
Lack of an efficient and effective micro-payments system is exacerbating the decline of modern journalism. Starved of traditional print-ad revenues, city papers and major journals are closing expensive newsrooms, or folding completely. TV networks scrimp on investigative reporting. A few prestigious centers like the New York Times (NYT) eke some narrow-supplementary income through paywalls. But such methods are useless to lower-level players.
It gets worse. Desperate to monetize, news-sites now gather, track and sell user information. “As analytics software develops, news organizations are collecting vast amounts of data, not just about what people read but how they read it – how fast, where they linger on the page, etcetera.” As commentator Raju Narisetti explains – “…in 2013 the Washington Post revealed that the NSA had piggybacked on one of Google’s cookies to track users and “pinpoint targets for hacking.”
Services like Ghostery are now revealing to users the extent to which their own, favorite news sites spy on them.
That is no way to maintain their customers’ trust.
What journalism — and many other kinds of content-creators — need is a simple, direct way for readers or viewers to pay or reward originators directly for any particular five or ten minute experience that they appreciate, without hampering the surfing flow. A method that leaves every decision up to the user, including the right to say “that wasn’t worth it, after all.”
Other sectors of Internet life would benefit from this kind of service such as impulse-driven charity, or political contributions, or low-cost entertainment. Moreover micro transactions can flow both ways, with individuals and small groups receiving payments (e.g. for use of personal information) that might help create a more just and even playing field.
An old idea
Why not just use credit cards? From in-person purchases to auto-payments to Internet purchases, there are close to a trillion dollars mediated that way, each year. The average transaction is around $80, with fees between 1.5% and 3.5%, depending on type of transaction. (Internet companies usually pay more.) From the banks’ point of view, overhead cost is the same for small and large transactions, requiring roughly a dollar per charge. Hence, credit cards are unprofitable for the seller at purchases below $5.00.
That leaves room open for other ideas, and many have pondered potential Micro Payment systems. Comic book scholar Scott McCloud championed MP in one of his books, and got behind a payment system called BitPass. Mastercard invested in Mondex. Other efforts included FirstVirtual, Cybercoin, Netbill, Cybercash, DEC’s Millicent system, Digicash, Internet Dollar, Pay2See and most recently Blendle. All of these past efforts, and many others, foundered for various reasons including (as we’ll see) a failure to grasp a core truth about MP — a “secret sauce” — that (I assert) might make it all possible.
According to some, like digital pundit Clay Shirky, this chain of failures was predictable. “These systems didn’t fail because of poor implementation; they failed because the trend towards freely offered content is an epochal change, to which micropayments are a pointless response.”
Tom Standage, deputy editor of The Economist agrees. “The fact is, consumers dislike micropayments. They dislike the cognitive load of having to decide whether to click and pay, and they dislike being nickel-and-dimed.”
One approach has been to view MP as a means for entirely voluntary donations. Thomas Crowl — an innovative thinker about micro-payments — has spoken of the “monied like-button,” or empowering the user to slip a “tip” of small-change along with the traditional thumbs up. A concept that has been explored by Kachingle and a few other experimental sites, though only as a way to conduit donations in very specific ways.
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At the opposite end are closed silos like iTunes and Spotify, that recoup their costs in the price of entry. Silos empower the user to access a world of music – purchasing in small increments — via proprietary systems. This approach works – for now – because the user has all the music they need in the silo. iTunes follows a virtual-purchase model that holds on to users through software exclusivity. Spotify uses a monthly membership and universal use-access. Both approaches rely upon heavy and repeated use of a product that comes in simple, well-curated chunks. So long as the music library is fairly comprehensive, a habitual user scarcely notices the silo walls. That model won’t work when trawling the world for a diversity of news or feature journalism.
One form of micropayment already in use is “referral credit” offered by Amazon and many other online merchants, paying small commissions each time one customer recommends a product to another who buys. These payments are made easy by their in-house nature.
The world outside of silos requires something more generally adaptable. How many people who make only occasional use of YouTube videos would rather pay a few nickels, in order to avoid ads? Or pay artists a quarter, directly, to download music outside silo rules? Or drop a coin or two for an obscure song without having to shoulder a Spotify-style membership? Isn’t this the most natural option… pay-as-you-go?
Empowering genuine two-way commerce
John Naughton, discussing the Web’s 25th birthday in the Observer, noted:
“In addition to being just a read-only system, the other initial drawback was that it did not have a mechanism for rewarding people who published on it. That was because no efficient online payment system existed for securely processing very small transactions at large volumes. (Credit-card systems are too expensive and clumsy for small transactions.) But the absence of a micro-payment system led to the evolution of the web in a dysfunctional way: companies offered “free” services that had a hidden and undeclared cost, namely the exploitation of the personal data of users. This led to the grossly tilted playing field that we have today, in which online companies get users to do most of the work while only the companies reap the financial rewards.”
And people are upset about their personal information being used. David Byrne, lead singer of Talking Heads expressed his frustration, “What if the disillusionment eventually reaches a point at which many feel that the free services and convenience no longer compensate for the exploitation, control and surveillance?” A sentiment also expressed by Internet-journalist Tim O’Reilly: “I don’t mind that you are using my search and browsing habits to give me better search results…. But companies use our data against us, or sell it on to people who do not have our best interests in mind.”
While it is one (absurd) thing to declare “I own all info about me!” and to demand others not-look –- it is reasonable to say that people have “interests” and “value” in their information and deserve compensation for its use, an idea explored by Jaron Lanier in Who Owns the Future? WIRED pioneer and author Kevin Kelly describes how:
“…in a transparent coveillance where everyone sees each other — a sense of entitlement can emerge: Every person has a human right to access, and benefit from, the data about themselves. The commercial giants running the networks have to spread the economic benefits of tracing people’s behavior to the people themselves, simply to keep going.”
An article by Gregory Maus — How Transparent Big Data Markets Could Better Protect Your Data…and Your Rights — suggests setting up transparent, privately-owned, but publicly-regulated markets for such information.
“Imagine something like an Amazon, Alibaba, or New York Mercantile Exchange, focused on the purchase and licensing of Big Data. Suppliers could increase their markets, buyers could increase their options, and all transactions would be public record.”
So, is there an efficient way for individuals to participate in commercial benefits when corporations harvest data about customers and citizens? A method to distribute nano-shares smoothly? Shouldn’t any true market engage in two-way commerce? This can only happen with system of micropayments.
Experiments So Far
The concept is gaining traction. Biographer and journalist Walter Isaacson wrote in Time in 2009 that, “Under a micropayment system, a newspaper might decide to charge a nickel for an article or a dime for that day’s full edition or $2 for a month’s worth of Web access. Some surfers would balk, but I suspect most would merrily click through if it were cheap and easy enough.” Steven Brill of Journalism Online, whose Press+ service charges for digital content, calls MP a needed experiment. “Beyond being a gamble worth taking because of the potentially significant payoff, there is no realistic alternative to charging for quality content that anyone has presented.”
Supporting the 1990s notion – that users will pay with eyeball time (via advertising), but never with cash – Steve Outing, in Editor & Publisher Online, dismisses the MP model.
“A problem with micropayments is that it walls off content and makes it difficult to share with others and spread it around the Web. If I promote an article in a Twitter post, many people will not read it if they encounter a pay demand even for 5 cents; it’s a barrier… especially if the prospective user first has to sign up for some content payment network account.”
Outing prefers the approach offered by Kachingle or Flattr, which allows individuals to financially support the online content providers that they like best. So, if a newspaper wants to get paid for its content when a Web site visitor clicks through to one of its articles, it should ask that the visitor support the site voluntarily, like an impulse donation to Public Broadcasting. In contrast, Ripple is a payment system built upon a distributed, open source internet protocol, consensus ledger and native currency called ripples (XRP). It was designed to eliminate Bitcoin’s reliance on centralized exchanges. More recently, Facebook’s new donate button lets users do more than just ‘like’ a cause, though only within Facebook’s proprietary and password-protected domain, and it takes some member effort to set up.
Blendle — based in the Netherlands – has a website and app that let readers make micropayments for individual articles from major publishers, rather than having to commit to monthly or annual subscriptions. Users register for Blendle and put in credit-card details, then create a newsfeed of stories about specific topics. Blendle founder Alexander Klöpping has persuaded all the major national newspapers in the Netherlands to come on board. “I don’t know anyone my age that has paid a single euro in his life for journalism,” said Klöpping, who is 28, “but we are seeing people are paying.” The service has already caught the eye of major investors: The German publishing giant Axel Springer (which also recently invested in Business Insider) and The New York Times invested $3.8 million in Blendle in October 2014.
Note that this model is an aggregator and still something of a silo. No. Let’s ponder building on past errors and come up with something sensible.
Let it Flow
Starting with the mental image of a “nickel button” that transfers five cents in exchange for experience and information, the same logic will apply as we enter the era of an “Internet of Things,” in which the units transferred per transaction may parse down much smaller. The PaySwarm open standard offered a way for web browsers and devices to perform micropayments peer-to-peer, divvying royalties in increments of as small as 1/10,000th of a cent.
Consider how micropayments might facilitate passing messages along ad hoc networking protocols, like FireChat. Envision how micro-messaging systems, linking a myriad hand-sets, may soon pass text and photos across a continent, independent of cell systems, with each message paying its own penny-total passage with milli-cent leaps from unit to unit. Self-sustained by market forces, such a system would require no central infrastructure. Once money and value are allowed to move in increments as small and agile as water molecules, won’t they flow as naturally as water does along – and nurturing – paths of least resistance? There could be a zillion ways to use quick, one-click micro-pay, most of which we cannot now imagine.
What we do know is that all attempts, heretofore have failed. I assert that key elements have been missing. We will discuss some of them, including a micropayments “secret sauce,” in Part II.
2016 May 9