FT : Micropayments Surge

Monday, May 4, 2009

A diverse set of companies is doing big business selling cheap online goods and services across the web.  Apple has sold more than 6bn songs for $1 apiece on iTunes.  Skype took in $550m last year selling cheap internet calling minutes.  Tencent, the China internet portal, generated $719m last year selling low-cost virtual goods.  Consumers’ growing willingness to pay small dollar amounts is matched by a payments infrastructure that is finally robust enough to accommodate demand.  This new generation of businesses and shifting consumer behaviour signal the arrival of microtransactions as a lucrative area of experiment for internet groups.  “Ten years ago there was a lack of content and a lack of willingness to charge for small amounts,” Bruce Cundiff, director of payments research at Javelin Strategy and Research, said.  “Today consumers are accustomed to downloading and paying for it.”  One of the few internet companies to go public this year is a microtransactions leader.  Changyou.com, a spin-off of Sohu, which offers free online games in China but makes its money selling virtual goods, raised $128m in its initial public offering last month.  Virtual worlds such as Stardoll, Habbo and Club Penguin each take in between $30m and $150m annually with microtransactions, selling members lowcost accessories and enhanced features.

Critics used to say that microtransactions would not take off, arguing that consumers would not pay for online content.  Yet as the market for online advertising recedes, groups are turning to microtransactions to support their sites.  Analysts say consumers are growing more accustomed to spending small amounts of money casually for digital content.  Phone companies were the first to enable this, adding small charges for ringtones to a customer’s monthly bill.  Apple introduced the iTunes store and Skype began charging pennies for online calling.  This softened consumer resistance, opening the door for a generation of online games and applications to levy similar charges…..Eric Schmidt, Google chief executive, last month called on newspapers to adopt a micropayments model for their websites.  Charging pennies for each article read online, said Mr Schmidt, might help publishers survive the collapse of advertising revenue.  His call reiterated the argument from a recent Time magazine article by Walter Isaacson.  “We need something like digital coins or an E-ZPass digital wallet,” Mr Isaacson wrote.  There should be “a one-click system with a really simple interface that will permit impulse purchases of a newspaper”.  Several US publishers that do not do so have suggested they might start charging for content.  Journalism Online, a new company founded by former media executives, will launch an e-commerce platform that news sites can use to charge for individual articles.  But even as micropayments gain traction on social networking sites and online games, history suggests the model might not work so smoothly with newspapers.  People have come to expect online news to be free, and news is quickly disseminated on the web.

Reference : http://www.ft.com/cms/s/0/b4335d52-36b1-11de-af40-00144feabdc0.html

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