The most important development in the way we interact on the web will come when a system of micropayments is in place. The big difficulties are coordination problems and security. The strongest incentive to build and control a massive social network is that it will enable Facebook to host a micropayments economy within its closed environment, solving both the coordination problem and a big part of the security problem.
Here’s the future of Facebook. You will subscribe to your friends. A subscription costs you a flow of micropayments. Your friends will include the likes of Tyler Cowen, The Wall Street Journal, gmail, Jay-Z, Harry Potter and the Deathly Hallows, etc.
Remember that the next time you hear somebody say that there is no way to monetize Facebook or Twitter.
Cheap Talk 
9 comments
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September 25, 2009 at 12:06 am
Anonymous
google echoloops
September 25, 2009 at 12:07 am
Thorfinn
Micropayments have been hyped for years. There is zero evidence that they work. The difference between paying nothing, and paying something, appears to be huge.
And facebook seems like it might actually make money now. Social networking really is powerful. The only question is whether the implicit, intangible links that exist in real life can translate to the web.
September 25, 2009 at 12:27 am
Robert
Competition is so strong, and the willingness to supply good content so high (probably the market clearing price sans transaction costs is negative as pointed out on this blog before), that there’s no reason to expect blog content to be monetised. As Thorfinn suggests, as soon as there is a cost, most readers of MR will move to other very similar blogs.
September 25, 2009 at 10:39 pm
jeff
You are right about almost all, maybe all, blogs that exist today. But you should not hold supply fixed. Many great writers/broadcasters currently require a publisher like a newspaper or broadcast network to bundle them into large enough packages where micropayments are not necessary. Micropayments will be the solvent that completes the unbundling.
September 25, 2009 at 9:07 am
Matt
Like it or not, online content is highly substitutable because there are so many damn sources of it. They would all have to begin charging at once for it to work. I think most people would go for something of significantly less quality if it’s free rather than pay.
September 25, 2009 at 10:12 am
Noah Yetter
Micropayments fundamentally don’t work. Even if clicking costs only $.01, the transaction costs in the form of asking yourself “is this link worth a penny?” are enormous and dwarf the money cost. It may seem as if you could ignore costs this low, but that will not be the case. If nothing else your browser will have to indicate which links are free and which are not, which will act as a constant reminder and keep your brain in the mode of weighing costs. And even if you could successfully ignore the decision, the first time you get a $100 web browsing bill at the end of the month you’ll change your behavior.
And as others have pointed out, there’s SO MUCH free content on the web, unless you have something truly unique, you simply can’t charge. There’s probably no better approximation of the “perfect competition” model in the world.
September 25, 2009 at 10:35 pm
jeff
i agree with you that this is a friction and it’s why the subscription model is key. the decisions would simply be whom to add as friends. subscribing to a friend means having access to all of her content for a flow price of some number of nanocents per day.
September 25, 2009 at 11:37 am
hern
am i crazy or am i completely missing the boat here?
isnt micropayments simply another payments substitute for cash?
i am under the impression here that everyone is making sweeping statements because their thinking is confined to a traditional internet browsing-computer relationship only. but for whatever reason itunes seems to demonstrate success. video game content is expandable for only a few dollars– rather than wait a whole year for a sequel to come out, one can buy in-game levels, or items, or characters for a few dollars at a time. for years facebook contained a service that allowed you to purchase online gifts for your friends (basically glorified gif images) for a dollar or two. the cost of this service is probably next to nil, yet it still exists today.
and micropayments are taking off in the developing world, via cell phones. rather than deal with credit cards, ious, and lending a few dollars of currency to friends, one can securely transfer money to an account online.
im with jeff on this one…facebook is still in the stage of building critical mass. people log on to facebook on a daily basis, if not more frequently. people are incredibly lazy and if they could make all of their amazon purchases, itunes purchases, woot purchases all on one webpage, they’ll do it.
September 27, 2009 at 9:05 pm
anonymous
You are absolutely right that micropayments can work in a closed social-network environment. Second Life (which is still around and doing fine despite the 2007 hype and subsequent backlash) has not exactly changed the world, but it does have a functioning (and sizable) virtual economy that allows micropayments. Avatars can make payments to one another of as little as one-quarter of a US cent, and the in-world virtual currency is readily exchangeable for US dollars at a rate which has remained unchanged plus or minus a few percent for the last several years.
However, these micropayments are generally made for purchasing inexpensive virtual goods: impulse purchases of dollar-store trinkets, basically. Sometimes small payments are also made in order to tip musicians or event hosts and hostesses, like tossing a dime to a busker on a street corner. These are voluntary impulse payments; by contrast, there is not much evidence that people are willing to pay to get past a barrier. For instance, live music venues within Second Life, as a rule, never have a cover charge.
There really isn’t any evidence that people will be willing to spring for content hidden behind a paywall, or to be nickel-and-dimed on a ongoing basis in order to consume content with a meter running. If micropayments work on Facebook or elsewhere, it will probably be the equivalent of gifting loose change to panhandlers and buskers, or buying a friend a candy bar after lunch. Not exactly the sort of predictable, substantial revenue stream that would support today’s media empires.