A Closer Look At Micropayments

Micropayments are a way to make small payments for digital goods and services. For example, you might pay $1 to download an ebook or watch a movie on Netflix. Conceptually, micropayments help consumers avoid the purchase of a more expensive item by opting instead for paying for discrete pieces of it.

This post will cover what micropayments are, how they work, and why they have been so unsuccessful thus far. We'll also explore different avenues towards successful micropayment platforms in the future like bit-torrent or bitcoin technology that could increase adoption rates.

What is a Micropayment?

 Micropayments are small payments for discrete chunks of content or service. Most commonly, they refer to the ability to purchase a song or video for 50 cents, instead of having to purchase an entire album for $9.99. This ability allows consumers to pay for only what they want instead the entire product, saving money and supporting their consumer behavior by supporting their desire to be selective about what they buy.

For example, Katy Perry's new album is commercially released at $9.99 on iTunes. The consumer has two options: buy the complete album or not buy it at all if he doesn't like any of the songs on it.

Micropayments allow the consumer to pay $.50 for a song at a time, rather than the whole album. The payment for each song is referred to as a fragment .

Fragments are uniformly small, independent payments that can later be recombined into larger unit payments (such as songs or albums). Fragments should also have  common  dimensions; fragmentation by price (a dollar here vs. ten cents there) and/or quality is not necessary if fragments are designed correctly.

One example of how micropayments have been applied is in video games. Sometimes a player may only want to buy some parts of the game, while not others (for example they might want to buy the access to a level but not all of the weapons associated with it). In these situations micropayments can be very useful.

Micropayments have been criticized as being too expensive for consumers, and therefore infeasible, especially for small payments. A consumer might pay $1.50 for 20 songs but balk at paying 15 cents per song. The cost of implementation is more than a dollar for each song purchased; even if prices can be cut in half to $5 per song, that still makes the idea seem infeasible if there are 100 songs on an album.

The lack of alternatives to purchasing the content creates a situation where consumers feel they don't have any choice. And if a consumer has no other choice, then why would he buy?

That is the main argument against micropayments: consumers need other options for consuming music (streaming vs buying), otherwise there is no reason for them to choose micro-purchases.

 A further criticism of micropayments is that they are an inefficient mode of payment due to transaction costs . The arrangement between musicians and fans is highly inefficient, and not because it's all done in small bits; it's inefficient because it's done once at a time instead being replaced by more efficient methods which aggregate transactions into bulk units.

Conclusion

Micropayments, as they pertain to music, are inefficient because they require the artists and consumers to make a deal twice (once for the artist's fan base and again for each consumer). At this point micro-payments still exist but have been scaled back in order to make them happen. Moving forward, we will explore other avenues towards creating micropayment platforms where you would pay small amounts of money every time you wanted to purchase something.

Posted by julm at 10:00 AM

micropayments do work on certain computers but they are not practical otherwise - most notably they won't work in iphones - even if its possible to do so.