Responses to common criticisms of micropayments

I’ve been continuing to research micropayments since my last post. I’ve been seeing some tired arguments repeated over and over, but have seen relatively very few challenges to them. Here’s why the most common arguments against micropayments are probably wrong.

There is no evidence supporting the existence of “mental transaction costs” related to micropayments

Nick Szabo as early as 1996 argued that there were mental barriers to people using micropayments, and then reiterated that point a few times (1999, 2007, 2015). Clay Shirky made similar noises as earliest as I can tell in 2000, then again in 2003.

The argument is that micropayments are doomed to fail due to the “mental transaction costs” associated with making a micropayment purchase. Meaning that each person making a purchase does a calculation in their mind about whether or not a news article or something else is worth the cost and this calculation is mentally taxing. For example, you may have a technology that allows you to pay 27¢ to read an article, but it’s so exhausting to decide a few times a day if you want to pay 27¢ for an article that you stop using that technology, and everyone else is like you so the micropayment technology you’re using fails.

That’s an interesting thought experiment. The only problem is that there is zero empirical evidence to support that it exists or would exist (I welcome readers to point out in the comments anything I may have missed).

It’s tempting just to assert Hitchen’s Razor here and move on. But it’s worth mentioning the evidence I’m aware of is contrary to the hypothesis of “mental transaction costs” advocated by Szabo and Shirky. It’s true, that there’s a pile of failed micropayment platform attempts running back to the 90s, but I haven’t seen any evidence that it was “mental transaction costs” that caused their failures.

I could talk about the success Blendle has had using micropayments for news, or the more modest but significant successes using micropayments with the Winnipeg Free Press or L’Equipe.

There is, however, a much more straightforward set of thought experiments to refute Szabo and Shirky. I’m willing to bet every adult reading this article has made hundreds or thousands of micropayments in real life, in some cases possibly several times in a row, and has never suffered torrents of cognitive exhaustion because of it. In fact, I’m willing to bet in most cases you enjoyed the experience.

Argument one against micropayment mental transactions costs: arcade games. Did playing arcade games often leave you with overwhelming cognitive exhaustion? Or did you generally leave the arcade feeling like it was fun?

Argument two against micropayment mental transactions costs: gumball machines. You’ve probably bought a gumball from a gumball machine. Did this fill you with anxiety over the risk of purchasing a gumball you may not like or you believe was priced incorrectly?

Argument three against micropayment mental transactions costs: newspaper vending machines. Maybe not as many people reading Medium in 2019 purchased a newspaper this way as went to video arcades, but I’m sure many of you did. I did a few times and know people who did often, they never struck me as suffering from a kind of chronic cognitive exhaustion.

I’ll admit if you played Dragon’s Lair in an arcade, it was probably disappointing. If you got a banana gumball when you wanted grape, you might be a little sad. Maybe someone took everything but the front display page in a news paper vending machine, that would suck. No one I know stopped using these things because of the mental labor they spent worrying over these kinds of risks. I have to stretch my imagination to think of these examples.

If Szabo and Shirky are correct the only way to demonstrate it would be to establish a micropayment platform, then proceed to define and quantify what “mental transaction costs” are and measure them and their effects. You could make falsifiable predictions then. If, empirically, mental transaction costs are reasonably defined, found to exist and found to make micropayments systems a non-starter, I’ll accept the appropriate amount of public shaming.

Micropayments will encourage people to purchase content from sources they support or agree with, that will be a good thing

Both Alec Bostwick and Will Federman have mentioned (here and here) the results of a 2013 study from the University of Tennessee showing that in a hypothetical micropayment system people are more likely to pay to view news articles from sources they agree with. This isn’t surprising to me, and it’s strange to me that it’s couched as a micropayment counter-argument.

When people bought newspapers and magazines 30 years ago, they were mostly buying content they liked and wanted to support — yet somehow there was much much less political polarization in the 90s than there is now. In some cities that had two newspapers (like mine) it was often the case that one was more right-leaning (Rocky Mountain News) and one was more left-leaning (The Denver Post).

The problem isn’t that people are biased and people support sources that share their bias. Ideally you want many reliable news outlets with a broad spectrum of biases. The problem is the behavioral manipulation of bias for profit that exists because of ad-driven business models. Think about the incentive in the mind of the author when he or she is creating content.

Consider two authors, Terrance and Phillip. Terrance lives in a universe where he can monetize his content only through advertising, whereas Phillip lives in a universe where he can monetize his content using micropayments and/or advertising. Terrance might ask himself, “why would I waste time doing quality journalism when the only thing that pays me in an ad-driven economy is click-bait?” Where as Phillip might say “since people have an option to pay me for quality journalism maybe I can do some of that from time to instead of just creating outrage porn.”

Which universe would you rather consume news in? Which universe represents one with a better fourth branch of government?

Advertising, subscriptions and micropayments are not mutually exclusive

As Walter Isaacson put it in Time magazine back in 2009:

Newspapers and magazines traditionally have had three revenue sources: newsstand sales, subscriptions and advertising. The new business model relies only on the last of these. That makes for a wobbly stool even when the one leg is strong. When it weakens — as countless publishers have seen happen as a result of the recession — the stool can’t possibly stand.

Swap “newsstand sales” with “micropayments” in that paragraph, and you’re close to a more resilient 2019 journalism business model.

In Phillip’s universe, the platform he works for spends some amount of resources supporting him in making quality journalism, because some amount of their income comes from quality journalism. It may not be a lot, but it’s something. If you have enough of that you can do the kind of work that Carl Bernstein and Bob Woodward did on the Watergate scandal while working for The Washington Post or maybe you can do the kind of work The Boston Globe’s “Spotlight” group did to uncover the child abuse by priests in Boston.

In Terrance’s universe, the platform he writes for spends much of their time collecting data about their readers to figure out what kind of articles drive the most engagement, more engagement means readers click more ads and they make more money. Terrance is encouraged to write articles that drive traffic to the site so he’s much more concerned about the traffic-generating potential of content than the truth in it. Terrance’s platform pays Facebook to post ads on their network because Facebook makes detailed data models of their users that allows advertisers to target them with deadly accuracy. Later those data models are exploited by foreign intelligence agencies undermine the government where Terrance lives. Eventually Terrance dies from unforeseen consequences of a government shutdown. :`-{

People may search for free alternatives of content that requires a micropayment, but they will like the affordable options more

You’d think if there was a study showing people have a tendency to want to pay news sources they agree with when they have the ability to use micropayments, maybe they also wouldn’t want to cheat those sources? But maybe some people really can’t afford it, maybe some people think cheating is cool or stealing is fun.

I don’t expect that micropayments will stop piracy, and I also believe they will co-exist with free of charge content. I do believe if piracy is difficult, and pirated content is less likely to be safe, the people who have the money to pay for a polished and safe user experience will do that (a-la-carte where possible). Dan Z. made another especially great point along these lines in response to Shirky in 2003 regarding consumers relationship with content creators.

Shirky’s arguments rest on the assumption that all online content is a commodity, that consumers can get exactly what they’d get from one vendor by switching to another. This is demonstrably not so for fans of artists and musicians, and may not be the case for many other types of content creators. Even if your content is a commodity, branding or creating a solid relationship with your customers may make them unlikely to switch…. One of the secrets to becoming successful with micropayments will be create a personal relationship with your audience, to decommoditize your content.

There are viable micropayment platforms in use right now

Aside from the specific use cases mentioned above, there are currencies and distributed applications ready to do micropayments right now. In my current order of preference:

See also