the reflexions insider

Like the flying car, teleportation, and artificial intelligence, the concept of micropayments has been espoused for years by some futurists — and many crackpots — as not just a good idea but something that will do nothing less than transform society. Others have been less than thrilled with the idea. But what has happened over the last 10 years or so since real investments were made (and almost without exception, lost) on the concept is startling. Micropayments are fast becoming a part of the fabric of the commercial internet, although in very practical context and mostly due to two companies - Apple and Amazon - who are competing for the future of digital music sales.

The comic artist Scott McCloud made a name for himself during the early 2000’s with unique and visually compelling arguments in his own web comic form for why micropayments were the future of at least one type of digital content: web comics, drawing the ire of everyone from Clay Shirky to Tycho of Penny Arcade (many original links of what became one of the web’s legendary flame wars are dead but see Wired’s coverage of McCloud from 2001 here). Micropayments - a simple and innovative idea in principle if not in practice - has been one of the web’s hot button issues for years.

McCloud’s vision of a world where a web audience would support web content providers with small, efficient transactions never materialized. McCloud himself even abandoned the idea in 2007 as noted by famed micropayment critic Shirky. But what has started to emerge is a new ecosystem where micropayments are replacing the traditional revenue model in one critical, high growth arena: digital music.

Sub-$1 downloads of high quality DRM-free music files are fast becoming the standard of digital music delivery. Newly funded startups like TuneCore, which helps artists get exposure with digital music stores, have been wildly successful. TuneCore even has its own Billboard chart.

While it might be considered a stretch to categorize the payment systems of the iTunes and Amazon music stores as “micropayments” in the traditional sense, the effect is the same: consumers are downloading small, discrete chunks of content that often cost less than a dollar. And who could have possibly predicted ten years ago that Apple Computer would be the biggest music retailer in America?

In looking at how old media is attempting to remake itself in a digital world, familiar patters are appearing. Network-backed ventures like Hulu.com and TV.com are employing similar ad-based revenue models for on-demand programming as their television counterparts. Web news sites of both new and old media are employing a similar ad-based approach; NYTimes.com, having abaondoned its paid premium service last year, is now side-by-side with Slate.com and Salon.com in tying its revenue strategy directly to ad revenue (Salon still has a premium membership option but it accounts for a fraction of revenue). But music is the exception. The traditional “album” format is disappearing and per-song downloads are becoming the rule, partly fueled by file sharing networks and the ease of small payments on large platforms like iTunes and Amazon.

I don’t think micropayments will transform society or even most forms of digital content delivery like Scott McCloud once thought. But they’ve become far more pervasive than its critics ever expected. And I’m convinced micropayments will emerge elsewhere as consumer expectations are recalibrated for sub-$1 price for digital content.

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