/Culture/ The nanopayment plan
20/01/2010 | Filed under Discover > Culture
Can microtransactions help developers to profit from social networks? Tom May reports
How do you get people to pay for something they’re used to getting for free? It’s a question that bedevils the music and film industries, and it’s no less of a challenge for anyone trying to monetise an app for Facebook, MySpace or Bebo.
But a new approach is emerging – make it cheap. Really cheap. Charge just 10 or 20p for a bingo card, an accessory for a virtual pet or a weapon for a game character. Get enough people signed up and, once you’ve added up all those pennies, you’ve made a tidy bundle.
Like all ideas that sound too good to be true, you’ll be thinking, it probably is. But it’s not just a theory. In Asia, such ‘nanopayments’ have been making big money on social networks for years. In 2007, China’s Tencent raised $523million in revenue – that’s four times as much as Facebook, in a country where the average monthly wage is less than $20 – with operating profits of $224million. Yet only 13 per cent of revenue came from ads. Two-thirds came from internet services like games and digital goods: ‘gifts’ such as virtual flowers, background music for users’ profiles, virtual pets, fashion items to dress avatars in, and so on.
It’s tempting to mock the predominantly young people who spend their money on such things. But young people are much the same everywhere, and in the same way other Asian fads, from karaoke to Pokémon, have spread like wildfire, there’s much we in the West can learn from the East.
There are lessons to be learned closer to home, too. The success of Apple’s App Store has proved beyond reasonable doubt that people are willing to pay small amounts for virtual goods, whether useful or trivial. More than a billion applications created by 50,000 developers have now been downloaded from the Store, typically for between $0.99 and $4.99, from fart noisemakers to translators to virtual spirit levels. Yet if such success is to be repeated on social networks, there’s one thing everyone agrees on: the need for stable, reliable, easy to use payment platform.
For a start, there’s no point in charging to credit cards if the bulk of your audience is too young to have one. In China, kids can add money to their Tencent accounts via their mobile phone bill or by buying ‘QQ coins’ in real world shops. Similar systems exist for users of Japan’s Mixi and Korea’s Cyworld. (In case you haven’t heard of Cyworld, it was actually the world’s first social networking site. Founded in 1999, three years before Friendster, it’s been making massive profits for a decade, so it must be doing something right.)
Which platform?
At the end of 2007 it looked as if Facebook was joining in the party. Just before Christmas of that year it announced the beta test of Facebook Payments, which would enable firms to accept small payments from users directly inside their Facebook apps. Then… nothing. However, you can’t keep a good idea down. MySpace COO Amit Kapur revealed at last November’s Web 2.0 Summit that MySpace is working on its own payment platform. And while developers are waiting for the big boys to come up with the goods, a number of start-ups have sprung up to fill the gap, such as Spare Change, Zong, OneTouch and PayByCash. Spare Change’s system is currently being used by 400 games and apps, charging users an average of 25 cents a pop. You can add money to your account through PayPal, through your mobile phone bill or using cash at thousands of retailers throughout the US. Co-founder Mark Rose tells .net that the “shoestring operation” he set up a year and a half ago is already making healthy profits: “We’ve got more than a million users, mainly of quasi-casual gaming applications,” he says. One example is Mob Wars, a Facebook app in which players rise through the ranks of a gangster organisation by committing crimes and fighting other players. According to TechCrunch, it’s generating $1million per month.
Mob War costs nothing to play, and you’re given a certain amount of virtual currency to spend on recruiting and equipping your mob. To earn more, you have to perform certain tasks – or sidestep the process by paying with real money instead. “Apps like this lure people in and get them hooked,” explains Rose. “Once people are engaged and having fun, they’re happy to shell out a few cents to continue.” And it’s not just games. Other apps let adopt virtual gifts; send their friends ‘kisses’, virtual gifts or cash; sign up to dating services, make charitable donations and so on.
Working with advertising
Of course, there’s a great deal of cynicism about nanopayments, and there are no signs of the ad-supported model being seriously challenged on the wider web. Yet Greg Golebiewski of Znak suggests the two need not be in opposition. On Znak, his “marketplace for content providers”, users have the choice of buying virtual currency with real cash or ‘earning’ it by clicking on infomercials and completing advertising surveys. “Payments and advertising are working in tandem, not against each other,” he argues.
Golebiewski believes this is only the start of a sea change in ecommerce, and predicts a brave new future in which nanopayments begin monetising whole new areas of the web. He suggests people would be more than willing to pay, for example, “a dime to view the latest pictures of Brad and Angelina; a quarter to download a current financial report by a reputable, independent analyst”. A major awards ceremony could, he half-jokingly suggests, announce the winners online 10 minutes ahead of the live TV broadcast – “I bet there would be thousands of people willing to pay 50 cents for that”.
Similarly, an article in February’s Time suggested newspapers start charging for their online content through nanopayments. Walter Isaacson described the US press as facing meltdown, and argued ailing titles should start charging for online content through “an iTunes-easy method”. A paper might charge “a nickel for an article, a dime for that day’s full edition or $2 for a month’s worth of access”.
However, the basic thrust of Isaacson’s argument – ‘It works for iTunes, so it can work for news’ – has been widely challenged. When he was interviewed on The Daily Show, host Jon Stewart pointed out that while a song lasts a lifetime, news is fleeting, so people are less willing to pay for it. Also, unlike iTunes, news providers have to compete with a myriad of legitimate free sources – not just online, but on radio and TV as well.
In a response to the Time article, blogger Clay Shirky (tinyurl.com/bkjany) suggests nanopayments can only succeed when a provider has a monopoly on a particular type of content and a proprietary system of distribution. This both explains its success in Asia – “A Cyworld user who wants a certain kind of digital decoration for their online presence has to buy it through Cyworld” – and the difficulties of trying to replicate it elsewhere.
An example he gives of the principle in action is “how mobile phone carriers prevent the ringtone distribution network from becoming general-purpose, lest freely circulating MP3s drive the price to zero”. Achieving the same level of control over other digital goods, especially something as easily duplicated as a photo or news article, is not a task embarked on lightly – although some have suggested the Kindle could perform the ‘iPod role’.
Widening the field
Or is it just a matter of reaching the optimal price point? Tony Cohen, CEO of X Factor producer FremantleMedia, recently called for a radical rethink of on-demand TV. “We must look afresh at the potential of micropayments per-view,” he told the MediaGuardian’s Changing Media Summit. “Charging just a few pence, say £0.05, to watch catchup could really help stimulate demand.” Surely at those sort of prices, few would be tempted to waste time on illegal filesharing sites?
Whether or not nanopayments are a financial cure-all remains to be seen, but the fact that new payment methods are opening up to developers can only be a good thing. “These days, web merchants need to capture as many customers as possible,” points out Eli Gurock, marketing manager of OneTouch. “40 per cent of internet users in the USA and 90 per cent worldwide don’t have credit cards, and many who do are too afraid to use them online. The addressable market could be at least two or three times bigger and as a result, a lot of money is being left on the table.”
Getting started with nanopayments
Spare Change In-Game Payments enables you to accept payments as low as 10 cents within your Facebook app. Multiple payment options include credit cards, PayPal, mobile payments, offers and game cards. Local currency is displayed to international users. Here’s how to get started …
1 Sign up for a developer account and submit your app at apps.facebook.com/sparechange/sPage.action?page=showDevLogin.
2 In your developer account, you’ll see a link for ‘widget’. You’ll need to provide some basic information including name, the number of ‘points’ to credit users and a postback URL. Click Update and your app is ready to go.
3 The widget is designed with a small footprint and Facebook colour choices. To put it on your site, you simply need to add nine lines of code, which can be found in the ‘Integration Guide’ on the Spare Change site.
4 Simply run the code and the widget will start working with your app. Test it by carrying out a few transactions. Make sure that users can complete a payment, and that credits are deposited in their account.
5 As users buy items, you’ll receive realtime postbacks of these events to your postback URL. Simply accept this URL and credit the users their points. If Spare Change does not receive an OK, it will keep trying for 24 hours.
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Comments
Dave Doolin / 21/01/2010 / 07:34 / http://website-in-a-weekend.net
I cannot freakin wait until we get this implemented here.
I'm positive I could charge a dime to a quarter or possibly more for some of my content. If it's inexpensive enough, people will consume it as they consume coffee: pay for it multiple times.
At the moment, I'm experimenting with very low cost content. But it's tough: paypal takes 34 cents. Way, way too much.
Alfie Noakes / 26/01/2010 / 16:54
I guess it depends how you present payments and what the levels are. One of the things I like about the iTunes app store is that there's a lot of free stuff, and lots of 'lite' versions which give you a flavour of what you get before parting with your cash.
Mohan Arun L (@marun2 on twitter) / 02/02/2010 / 08:29 / http://mohanarun.com
Sounds like an iPhone app store business model - nanopayments by getting small amounts from a large number of customers/users - the benefits of scale. People are more likely to pay micro payments rather than a large, upfront cost for software. Because basically software development business is being undermined by open source software.
Richard B / 04/02/2010 / 15:14
reducing the price of a quality product will surely devalue the experience.
do i buy a t-shirt for £1 and buy one everyweek or do i buy a quality t-shirt that i can wear for years... (obviously not everyday)
do i buy pepsi at 50p or coke a cola at 50p (or any other cola brand @ 50p) ill pick the better tasting one please...
quality of content must be maintained, then it doesnt matter what you charge.. people will always pay for it and keep it. you devalue your work and final product by selling it off cheap and it will be forgotten and thrown away.
