Getting Past The Hurdles Of Micropayments

: Image by nextconf via Flickr

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 been lots of 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 once. 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).