Micropayments a la Seidman (fwd)

Rohit Khare (khare@w3.org)
Tue, 6 May 1997 19:53:14 -0400 (EDT)

Forwarded message:
From: rivest@theory.lcs.mit.edu (Ron Rivest)
Date: Tue, 06 May 97 00:04:44 EDT
Message-Id: <199705060404.AA22099@swan.lcs.mit.edu>
To: micropay@ai.mit.edu
Subject: Micropayments a la Seidman
Sender: owner-micropay@ai.mit.edu
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Reply-To: micropay@ai.mit.edu

I disagree with Seidman's analysis of micropayments (given below).

I conjecture that an average browser-person is willing to spend about
$3/hour for web micropayments. At 5 clicks/minute, this comes out to
about a penny a click. I agree with Seidman that payments of 1/50 of
a cent per payment are probably not worth bothering with.

There are lots of ways of making micropayments work. The proposal in
my note "Electronic Lottery Tickets for Micropayments" (see
http://theory.lcs.mit.edu/~rivest/publications.html) is one approach.

With 100 million browser-people each spending two hours a day surfing
the web, we have total micropayment revenues of $600M per day, or
about $200 billion per year. This is not chicken feed. Even if I am
off by a factor of ten (not unlikely), we are talking a $20
billion/year industry.

The other problem with Seidman's analysis is that he assumes that the
driving force will be the bankers. I think that the driving force
will be the vendors who want to sell things for micropayments. This
is income that they might not otherwise obtain, and so they will be
willing to pay sizable margins (e.g. 25%) to make it work. This will
get the bankers interested. (The math works out to 25% of $20 billion
giving $5 billion in revenues.) Of course, competition will drive
down the margins, but the size of the micropayment industry itself
will make micropayments inevitable. Those who get out there first
stand to make considerable money.

Ron Rivest
Date: Sun, 4 May 1997 22:58:14 -0400
From: Robert Seidman <robert@CLARK.NET>
Subject: Seidman's Online Insider - May 2, 1997

Seidman's Online Insider - Vol. 4, Issue 15
Brought to you by NetGuide Magazine < http://www.netguidemag.com >

Copyright (C) 1997 Robert Seidman and CMP Media Inc. All rights reserved.
May be reproduced in any medium for noncommercial purposes as long as
attribution is given.

(bunch of other text deleted...)


A lot of you wrote to say micropayments are the answer -- that you'd be
willing to pay 1/50th of a cent to 1/10th of a cent per transaction to
access content or search engines.

I don't buy this answer for a couple of reasons. First -- and most of the
folks writing about micropayments agreed -- there's no technology in place
that would allow micropayments that are that micro!

Indeed, if such technology ever gets developed, it could get interesting.
Imagine a trillion transactions a month at 1/50th of a cent each. That's
a $200 MILLION dollars A MONTH. In that model, the companies providing
micropayment software and services (something that the likes of Microsoft
and Netscape really want to be part of) stand to make, relatively
speaking, only a little money. In the trillion transactions at 1/50th of
a cent, if the companies providing the processing of micro-transactions
are getting only 1/50th of the 1/50th of a cent, that's $4 million a month
in revenue. Not a really big business for the likes of Microsoft.

Now, if you divide the number of transactions by 10, the revenue falls to
$20 million a month, with only $400,000 of it going to the micropayment
processors. Not that big a business at 1/50th a cent on 100 BILLION
transactions a month. Certainly not big enough to get people really
motivated to develop micropayment technology that would make this
possible. At a full penny per transaction, it gets a LOT more interesting,
because you're talking a billion dollars a month, but here still it's no
great shakes for the folks providing micropayment services if they're
getting only, say, 2 percent of the transaction. Even if they get 5
percent, you're looking at only $50 million a month. Now I know $50
million sounds like a lot, but for companies such as Microsoft and IBM
that want to own the processing of these transactions (and we can't forget
the bank card folks and telephone companies), it's a pittance. And even
if someone thought it was worthwhile, there's another reason it wouldn't
work, at least in today's landscape.

For one thing, the example above was based on 100 BILLION transactions at
1/50th of a cent each. Let's say there were 50 million people surfing the
Web ALL THE TIME. How many transactions would EACH of those folks have to
make to come up with 100 billion transactions? Two thousand a MONTH!
That's not going to happen. While some people are probably willing to
spend a lot in micropayments, I'm guessing most aren't. The content is
free now. Once something is free, it's really hard to start charging for
it. If 50 million people were surfing pretty regularly, it might average
out to 10 transactions per person per month (I think that's probably still
very high, though, as an average). Even at a dime per transaction,
content would be only a $600-million-a-year industry. Not small, but not
big enough to sustain all the players out there today.

And whatever the micro-transaction fee would be, in the end it comes down
to people not wanting to keep track of that stuff. If it does really well
on the whole, how much can customers be expected to pay willingly each
month for this sort of content? I think the price people are willing to
pay for all the content they can eat is about $10 a head each month. So
why bother with keeping track of micropayments? I predict we'll see the
content aggregators, the current online services and the big Internet
service providers begin packaging all the content people can eat for $10 a
month. If 50 million people by into that, that's $6 billion a year on
content alone.

I think the companies looking to make money by providing transaction
services are smart. But they're looking to make money on regular
transaction purchases, just as credit card companies do today. For
transactions, that means travel purchases, stock purchases and so on --
not micropayments.

(rest of newsletter deleted...)

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