Micropayments fall into that category of things that were going to revolutionize the Internet, but most would say, never really took off. It was forecasted we were going to surf the web and magically pay for news stories, wallpapers and music without ever pulling out a credit card.
The primary reason this never took off (aside from the flawed business model behind the original generation of paywalls), is the lack of a dominant payment platform. Quite simply, micropayments will only take off when there is a single (or ideally duo) of providers that every paysite incorporates. They need to be so prevalent that not incorporating them would be as unthinkable as not accepting Visa or MasterCard in a restaurant. Consumers won’t widely adopt a platform they only encounter on a handful of sites. Businesses won’t pay to integrate a platform that hasn’t been widely adopted.
Paypal Wants to Enter the Fray
Now comes news that Paypal is getting into the micropayments game (click here for article). Arguably, Paypal could surmount the issue with businesses (since many already integrate their product, despite the high transaction fees), but it still hasn’t been widely adopted. You may have a Paypal account, but odds are, if you read my Blog, you’re an early adopter. In terms of actual market penetration, Paypal is small. They are the world’s leading global online payment company and even with eBay‘s backing, their 2010 revenue is only 1/10th of Amazon’s (3.4 billion vs 34 billion). According to their website, they only have 94 million active accounts (more on that here). Facebook by contrast has 500 million.
Apple and Facebook Are Already Dominating the Market
Apple and Facebook already have a huge leg up in micropayments. Almost everyone with an iPod/iPhone/iPad has an iTunes account. People are accustomed to and feel secure purchasing $0.99 songs and cheap apps. We think nothing of making these tiny purchases, but (up to now), that has been limited to the Apple ecosystem. That could change very quickly. Apple is already making noise about people being able to make real world purchases with their iPhones (more on that in a previous post here), but if they were to (logically) expand this to websites with a “Pay with iTunes” button, it could be huge. The user base of people conditioned to make micropayments via iTunes already exists (as do companies already accustomed to collecting revenue via iTunes). That is over and above the already huge success Apple has had with iTunes micropayments and the coming revenue from in-app magazine and newspaper subscriptions.
Facebook is arguably in an even better place. Via the Facebook platform (think Facebook Connect), over 250 million people interact with (non Facebook) websites a month. More than 2.5 million sites have integrated Facebook, with 10,000 new sites added per day (all this info from Facebook’s site – click here for more). People are pretty comfortable logging into sites via Facebook. Additionally, Facebook, via Facebook Credits and games like Farmville have a huge user base accustomed to paying for small purchases via the platform. Facebook has already indicated that they are moving towards users being able to pay for real world goods – think of paying for a movie ticket with Facebook credits on a theatres’ Fan page. Like Apple, the next logical extension of that ecosystem is 3rd party sites.
A quick note on Amazon here. They already have a giant user base of people willing to pay for purchases online. They have credibility with business and popularized the concept of click to buy. With the halo effect of the Kindle success, they are in a place to potentially be a player in this field as well. I’d peg them as a dark horse compared to Facebook and Apple though.
Update on Amazon: A great post on Nadav Gur’s Blog titled Why Amazon Needs An Android App Store – A Different Take. He points out (quite rightly in my opinion), that the Amazon Android App store is about expanding the billing relationship with more users (and onto mobile devices). This logically extends into real world payments (and micropayments on 3rd party sites). Check out his post here.
Imagine you get to a website where they have an article you are marginally interested in reading. The site is paywalled, but only accepts Paypal. If you don’t have Paypal, you aren’t going to create an account (something that happens everyday). Now, imagine the same scenario, but they have a “Click to Pay With Facebook” button. Its only $0.99, you click a button and you are done. No registering for a new service, no fishing out a credit card – just point and click.
That is a winning proposal.
