Micropayments haven’t materialized. My guess is that’s because of a combination of two reasons. First, there are the technological/network externality barriers. Nobody as of yet has put forth a system for micropayments that is easy and compelling enough to spur widespread adoption.
The second reason is that micropayments may not actually be the most efficient way to achieve their purpose. A monetary payment is a one-to-one transfer of value from payor to payee. Right now many of the online transactions that micropayments would facilitate are actually financed with a more efficient means of payment. Advertisements are the best example. You want to watch a video on YouTube, you have to watch a little bit of an ad first.
This is a transfer of value: you lose some time, the advertiser gains your attention. But this transfer is not one-for-one because your opportunity cost of time is not identically equal to the value to the advertiser of your attention. And given the widespread use of advertisements in markets where monetary payments are possible, we can infer that this transfer is actually positive-sum. That is, the cost of your time is lower than the value of capturing your attention.
Microbarter is more efficient than micropayment. So we should expect to see even more of it. And we should expect that even more efficient forms of microbarter will appear. And indeed we soon will. Google has apparently figured out that information can be an even more efficient currency than attention:
Eighteen months ago — under non disclosure — Google showed publishers a new transaction system for inexpensive products such as newspaper articles. It worked like this: to gain access to a web site, the user is asked to participate to a short consumer research session. A single question, a set of images leading to a quick choice.
Once you think in terms of microbarter and positive-sum transactions there are probably many more ideas you could come up with. But a few questions too. Why is there not already a market which enables you to sell your valuable asset (attention, information etc) for money? After all, if it could be monetized and the market is competitive then the usual arguments will imply that at the margin the exchange will be zero-sum and the rationale for barter disappears.
(Ghutrah grip: Mallesh Pai)
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September 24, 2012 at 12:55 am
Alex F
“Why is there not already a market which enables you to sell your valuable asset (attention, information etc) for money?”
These markets exist, sort of. If you google “make money answering surveys” you can find a million sites like this one: http://www.swagbucks.com/
But the reason this hasn’t taken off seems pretty obvious. There’s an extreme adverse selection problem when you try to set up a market to pay people for their time: you get people with the lowest value of time. That’s fine for hiring unskilled labor, but it’s probably not who advertisers want. I’m guessing the only people who fill out these surveys are housewives, teenagers, and unemployed people.
By using barter instead of cash, you can attract a more selected sample who value the thing you’re trading. The Wall Street Journal can keep its ad rates high because kids on summer break want to trade their attention for cash, not for WSJ articles. If the advertisers tried to cut out the middleman and paid people directly to look at ads, it would get a slightly different sample of people.
I wonder if this is why Amazon defaulted its new Kindles to be ad-supported — not because too few people would pay extra to avoid ads, but because the people who would are the ones advertisers wanted.
(There’s also a policy angle here. This is why it can be more effective for a welfare agency to provide in-kind services instead of cash transfers even when the agency has no comparative advantage in provision. With in-kind services — low quality housing, say — people who don’t need the service don’t bother signing up.)
September 24, 2012 at 1:41 am
kerokan
Alex F makes a lot of very good points, but I am not sure that adverse selection is such a big problem, b/c in the digital world companies have a lot of data on us that can help them figure out who we really are (a housewife, a student, or a businessman). This data ranges from our past searches (Google) and purchases (Amazon) to our email addresses (.edu)
September 24, 2012 at 7:31 am
twicker
Interesting article, and all very interesting comments.
Jeff: I really liked the part about micropayments and microbarter; I’ll just point out that Hulu has been doing this for awhile (every now and then, to watch a show, you can either choose to watch ads *or* participate in a “short consumer survey” to have an “ad-free experience”).
As to trying to do this on a bigger scale, I think there’s someone out there – beyond just the survey world – who’s trying to do this. I don’t remember who, and I’m not even sure exactly what to Google for it, but someone came up with the idea that, if advertisers really wanted our attention, we should be able to sell it to them.
As for surveys and the problem of people with the least value for their time, there are some companies that have found the solution to that one: pay people differentially. So – yes, the person-with-low-time-value gets paid a pittance (and there are lots of them), but more valuable people get paid more money. One company I know of even has doctors, lawyers, etc., on their panels; users just have to pay much more to have access to them (far beyond what most people would think of as “micro,” and not bartering but actual transfer of cash).
Again – very interesting stuff. Thanks! 🙂
September 24, 2012 at 8:11 am
jamesoswald
This is a case of quickly diminishing returns. Watching one advertisement or doing one survey isn’t a big deal for most people, but after 100 or so, it gets really old. Even the very poor can’t keep up a good rate of captcha solving for ever long:
http://www.nytimes.com/2010/04/26/technology/26captcha.html?_r=2src=me&ref=technology&
September 24, 2012 at 2:19 pm
DaFisch (@DaFisch)
Have you guys ever heard of flatter? flattr.com is quiet widespread over here in europe
September 24, 2012 at 3:41 pm
emir
Jeff –
Why do you say that microbarter is more efficient than micropayments? In general, barter is typically strictly less efficient than payments (because of indivisible goods and because of the coincidence-of-wants problem) and barter is never strictly more efficient than payments. What is it about the micro- scale that changes this?
September 24, 2012 at 4:42 pm
jeff
Production is more efficient than a pure transfer. No value is created when I give you money.
The reasons you cite are problems with barter as a method of exchange, I.e after production has taken place. But attention and information are produced at the moment they are exchanged. So this gain can offset the other problems. Indeed they must otherwise you would be paying a subscription to me and your favorite cable tv shows.
I am not saying the micro part if it is necessary in this conclusion but in practice it seems to be a part of it.
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