MicroPaymentDiscussionWithStumblingTongue

Micropayments already work. Free beer never will.

Winterspeak (aka Zimran Ahmed) has a has a word to say about Clay Shirky’s recent piece on micropayments. Clay’s argument against micropayments boils down to two points:

Inconvenience No matter how low the monetary payment, the hassle of having to think about one or two cent payments imposes a kind of “mental transaction cost” that kills the scheme.

Free is Always Cheaper

The essential effect of the new technologies is to make production and distribution so cheap that amateurs can now produce content that competes with the work of professionals. Since amateurs are willing to work for free (that is, for fame not fortune), they will always be able to undercut professionals.

Micropayments already work

In other words, amateur enthusiasm plus the magic of technology will make everything free. But doesn’t this sound oh so pre-dot-bomb? Zimran wants explanations for a couple schemes based on micropayments: paid-for downloads of cellphone ringtones in Europe, and the Apple iTunes service. To which I will add a few more examples: the use of any mobile phone; and for that matter, the use of landline phones, anywhere, or any cheap metered service.

If the word “micropayments” doesn’t include the ten or twenty cents that’s charged for a quick one minute phone call, or an SMS, then we’re being hypnotized by the novelty of word. And there is no particular need for a new word that only means, by definition, “unusably inconvenient payment service.”

A sensible service will take your payment info once, and then bill you automatically in small (micro) payments. Far from being an impossible dream, this is everyday reality. So an inconvenience argument against micropayments in general, meaning any teeny weeny small payments, is contradicted by existing practice. Micropayments already work. Interface shapes convenience

This is because convenience is eminently achieveable. Imagine that many sites adopted Microsoft’s passport logon scheme. Imagine that you register payment information with your Microsoft passport. Now imagine that a site — say the New York Times, for example — required you on registration to consent to a tenth of a cent charge per pageview, a charge that would be automatic and invisible on your later visits to the site. You would only need to ok a dialog box on registration, and you wouldn’t think of it again later. Ta-da — instant micropayments. But this is not a wild scenario.

Convenience is also the key to ringtones and iTunes. iTunes is successful because $0.99, even including the mental transaction costs of inconvenience, is still a better deal than hunting through filesharing networks, which suffer from bad interfaces, and badly tagged, hard-to-search content. I’ve never downloaded a ringtone myself but I’ll microbet you a nickel that the carriers make it a lot easier to buy their ringtones than to go downloaded and install ones offered for free by amateur ringtone authors. And if it’s only a dime, then that convenience is worth it.

This shows that, even if you’re charging a micropayment, you can still win by making your offering more convenient than the competition or (if you control the technological substrate) by making the free competition insanely inconvenient.

In fact, far from there being an absolute psychological barrier to small payments, a kind of ground state of consumer pricing, it’s more likely the opposite is true. The same technologies which make it virtually effortless to edit a movie or publish a newsletter, can also make it virtually effortless to pay for those products. Both are made possible by the flexibility of good computer interfaces. With good design, mental transaction costs can, in principle, go to zero.

In other words, the basic limit is not the hassle of buying content. It’s still the hassle of making it. Will mass amateurism and technology always be able to undercut priced content on the web? This goes to the “free is always cheaper” point.

There are no amateur garbagemen

Take iTunes again. If some kind of open source system offered a service of the same high quality, then that would make that ninety-nine cents look a lot more expensive. A fair comparison would also require that the free service use only music that was offered for free (that is, legally). Suppose there are improvements in search and collaborative filtering, which will help sort through the “mass” in mass amatuerism. Then, would an open source iTunes of every garage band in the world replace Apple’s iTunes of the record labels? That’s the question.

Or take the New York Times again. Would people pay a tenth-of-a-cent per pageview for the Times if the Washington Post were still free? Yes, some people would. What if Conde Nast and big publishers collude and jump on the bandwagon together. Then would people pay a tenth-of-a-cent per pageview for the Times and the Washington Post, if only the bloggers were free? You bet they would. Why? Because newspapers have fact-checkers, layout artists, access to sources, and other real resources besides the talent of their writers. A newspaper offers more than the enthusiasm of a million amateur editorialists, and this is directly connected to why we pay for newspapers. Someone needs to do the dirty work. Someone needs to take out the trash.

A more cleear example would be the movie industry. Suppose that technology makes the technical costs of movie production go to zero. Digital video cameras cost as little as a pack of chewing gum, you can edit the film on your hand-me-down palmpilot, and everyone’s got fiber optic cables coming out of every closet so you can distribute your masterpiece for less than the cost of your current cable subscription. In that case, would people still pay to download Hollywood movies?

I’d bet they would. Because you can find a lot of people who will write a screenplay for free, or star in a movie for free, but can you really find enough guys who will carry the set lights free? Who will cater the food for free? Who will be directed for free, instead of directing for free? Some jobs are fun and others aren’t. As long as people want products that require someone not to have fun making it, people will have to pay for those products. These jobs set a floor of irreducible labor costs.

In fact this is why there is no open source iTunes. Some coders find writing good software fun, so they do it for free. But it seems no one finds writing good interfaces fun, so free software has a lower quality interface, as any honest Linux user can report.

Exposing the economics of glamor

Shirky alludes to this: “As creative work in groups creates a good deal of organizational hassle and often requires a particular mix of talents, it remains to be seen how strongly the movement towards free content will be for endeavors like music or film.”

Very true. And it will be interesting to see. For instance, one could imagine a future where expensive Hollywood blockbusters are still produced by studios (since someone needs to finance all those explosions), but where more psychological movies, the movies about people having affairs and getting depressed in their apartments, are produced exclusively by amateurs (sorry about that, French film industry). Maybe that’s a better future.

But to my mind, the most interesting thing is is what these developments will expose about the real economics of the arts. Ten years ago, for instance, it would have been easier to believe that professional editorialists earned their salaries only by virtue of their talent for editorializing. That’s a caricature, but that’s also roughly how people think. The sudden appearance, on blogs, of so much high quality amateur editorializing rather punctures that myth. It shows there are probably lots of people willing to do it for free, who do it just as well.

This in turn suggests that editorialists make the money they do, not because of the scarcity of their talents, but because of something else. Is it ambition that’s really the scarce commodity? Or — to put it in more sinister terms — is it really hussle and a talent for networking? Or good pedigree?

Or viewing it sociologically, might it be that an organization feels a subliminal need to pay well for the guy whose name appears on the cover? Or to pay the guy who represents what the enterprise is “about,” even if he’s not in fact the hardest to replace?

But it’s not just editorialists and writers. One is reminded of many movie stars, who are certainly talented, but is their talent really what got them there? (Will the internet kill the video star?) Why do managers tend to get paid more than those they manage? Many glamorous jobs in the arts seem to provoke the same questions as the the fantastic salaries of Aemrican CEO’s, salaries which seem logical only to those who aspire to become American CEO’s.

If new technology dissolves rather abitrary organizational relationships that were required by old technology, it will unveil a lot about who loves the work, who does the work, and who gets the benefits.