Getting Past The Hurdles Of Micropayments

from the neat dept

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Much of the press coverage around Flattr, the "social payments" startup, focuses on the fact that it was founded by Peter Sunde, who is perhaps better known for being the (former) spokesperson for The Pirate Bay. I have no doubt that this is a big reason why the company got a lot of its initial attention, but I think what's a lot more interesting is that this is one of the first "micropayment" platforms that actually tries to get around the historical problems of micropayments for content. There have beenof micropayment companies out there, and almost all of them failed -- and it wasn't difficult to see why. First, they underestimated the "mental transaction costs" that micropayments entail. Just making the decision if something is worth paying for is a huge "cost" for users. Second, they heavily underestimated the "penny gap," which is the effort that it takes to get someone to go from "free" to paying even a penny. Next, it's an attempt to fight the basic economics of what supply and demand is pushing for the content be priced at. And, finally, required micropayments make it very hard to promote that content via word of mouth or sharing.Many have tried to tackle the problem of micropayments by assuming that the only real problem is the lack of a clean and easy design. Undoubtedly, a clean and easy design makes it easier to use micropayments, but doesn't tackle all of the other issues. And it's that part that makes Flattr interesting to me, in that it actually tries to get past some of those issues. MediaEvolution recently did a short video interview with Peter about Flattr , where he explains the basic concept:As he notes, Flattr is actually somewhere between a payment platform and a donation system. But what's most interesting is the way it gets past the mental transaction costs/penny gap issue. It does that by getting people to only make the decision. You agree to "fund" your Flattr account each month with a set amount, and then when you click on "Flattr" buttons on various content, you're not increasing how much you pay -- you're just subdividing your amount by one more part.In other words, if you agree to put in $10/month, you'll always spend $10/month no matter how many things you "Flattr." It's just that the amount each thing you Flattr depends on how many you click. So if you click on 10 things, each will get a dollar. If you click on one hundred, each will get ten cents. So, there's no more mental transaction costs or penny gap, once someone has been convinced to sign up for Flattr (which is, yes, still an issue to consider).The other neat thing that Flattr has done is to effectively set its own site up as something like a "Digg with money." Just to see what happens as an experiment, we've set up Flattr here on Techdirt. You should see the Flattr button to the left of each blog post for now. It looks kind of like a Digg This button, that shows a counter of how many people have "Flattr'd" that story. I don't expect a huge number of folks to Flattr any particular story -- especially since the service is still in private beta, but there is some interesting potential here. One of the complaints people had about Digg was how it got gamed. If Flattr could get widespread usage, it could potentially become a more useful sort of "Digg" because people actually have money riding on who they vote for. I think this aspect of the site is still a bit underdeveloped, but it has some potential.Since Flattr is still in private beta, we do have a bunch of invites to hand out to folks, if you want them. If you're interested in getting an invite, please use our contact form with the subject "Flattr Invite." We don't have unlimited invites, of course, so first dibs will go to folks who are already Techdirt Insiders (so make sure to mention that in your email request). After that, it'll be first come, first served.There are some others in this space as well. In the US, there's a company that's been around a bit longer called Kachingle, which Mark Glaser from PBS just wrote about, including an interview with Kachingle's CEO . Conceptually, the two are very similar. Kachingle seems to focus more narrowly on journalism/blog sites, whereas Flattr is for all sorts of content. Kachingle also has a set price: everyone has to pay $5/month, unlike Flattr which lets you choose how much you want to spend per month (in euros, for now). Also, Kachingle doesn't seem to be doing anything Digg-like (yet).It's also interesting to note that both are big in Europe. With Flattr, this isn't as surprising, seeing as the company is in Sweden, but apparently Kachingle is big in Germany, despite being a US company. As always, I'm still not convinced that "donation" models are really that sustainable, and I've always been skeptical of "micropayments" in general. However, I find both of these attempts to be at least worth watching, as they seem to try to get around the usual hurdles associated with these models.

Filed Under: business models, micropayments, peter sunde

Companies: flattr, kachingle