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Napster may have found the wrong solution for their legal woes - but right solution still isn't at hand. Possibly the best solution for Napster and content-based Web sites is micropayments, something we've been hearing about for years.

The Big Problem with Micropayments

The problem with micropayments (payments under $1.00) are not insurmountable, but the biggest obstacle to date has been the cost of online transactions. The lowest cost general payment system in use is PayPal, which charges a fee of 30¢ per transaction plus an average of 2% of the total, or 32¢ of the first dollar. Under PayPal, a 32¢ transaction would net a site 1¢, while generating 31¢ form PayPal.

The Amazon Honor System does a bit better on the low end, charging just 15¢ per transaction plus 15% of the total. The smallest profitable transaction would be 19¢, again generating just a penny for the site with the link.

If we're going to use micropayments to support a site, we have to reduce the cost per transaction to a penny or less. (As Jakob Nielsen notes, "If a page is not worth a cent, then you should not download it in the first place.")

Other Problems with Micropayments

Perhaps the next biggest problem with micropayments is psychological. People have become used to downloading MP3 files and visiting Web sites for free. Publishers need to convince customers that their content is worth the price.

One way to do that would be the elimination of site ads. A typical site may have two or more ads on each page, each taking a few seconds to download. By eliminating those ads, we speed up the browsing experience and save the viewer time. Time is money. If you surf at work, the time it takes to load those ads costs your employer about 3¢ per ad (see Neilsen). Between banner, badge, and text ads, that might account to 5-10¢ per page viewed. A dime isn't a lot of money, but if it costs just a penny or two to view a page without those ads, we all save.

Another significant problem is currency. I operate on American dollars, which should not be confused with Canadian dollars, Australian dollars, British pounds, Dutch guilders, German marks, Euros, or any other currency. Since the Web is worldwide, any micropayment system must work internationally. Whether that means micropayments are based on U.S. dollars, Euros, or a newly created Internet currency (Microbits? WebCents? ePesos? InterPennies?), it has to be a system that residents of all nations can tap into.

Finally, we have to convince everyone to set up standards. The normal price for an MP3 might be US15¢, while a page view might cost a penny. And websites could provide free pages, such as their home page, in hopes of getting you to click deeper within the site to fee-based content.

The Micropayment Solution

There's already a standard markup system for micropayments, as well as a couple companies supporting that standard, but that doesn't seem to be going anywhere yet.

We need someone with the experience of Visa, MasterCard, American Express, PayPal, or international banking to create a viable micropayment solution - and it must be compatible with older computers, older browsers, older servers, and existing Web pages. It must also be relatively inexpensive so sites can turn a profit at a penny a page.

I imagine the system would work something like this:

  • Server software is set to assume site content costs a specific fee unless a page is otherwise flagged. Extra cost pages would also be flagged.
  • All transactions would be performed in a standard currency, which I'll call a microbit, such as 1/1000 of a Euro or 1/15¢ American (which is a convenient 1/10¢ Canadian, give or take a bit).
  • Payments would be handled via an electronic wallet. The user must have funds in that wallet to visit non-free pages. Payments would be made in whole microbits - no decimals.
  • Fees would be charged to sites that accept micropayments. It would be up to the companies offering electronic wallets just how they would handle things - a fixed fee per transaction, a fixed percentage, or (most likely) a flat fee plus a percentage.
  • Business accounts would either be managed on a decimal basis (1/10 or 1/100 microbit) to deal with overhead, or they would be charged their percentage once per day, week, or month in whole microbits.

That's the rough outline. Over the course of the week we'll look at the benefits of micropayments for the firm that makes it work, the consumer, and the online publisher, and then take a look at possible problems on Friday.

Dan Knight has been using Macs since 1986, sold Macs for several years, supported them for many more years, and has been publishing Low End Mac since April 1997. If you find Dan's articles helpful, please consider making a donation to his tip jar.

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