Micropayments After All: S3, iTunes, Adsense and more
Andrew Savikas made an interesting comment on the Radar backchannel that seemed sharing more widely:
I remember a few years ago when there was a ton of buzz about micropayments being the future of ecommerce, followed by a backlash on how micropayments were a horrible idea, and would never overcome the transactional costs. In the meantime, iTunes and S3 (among others) have quietly been building great businesses on top of micropayments -- I think one important difference is that originally people thought of micropayments as paying small amounts to many different people, vs. paying incrementally to the same person/business.
Andrew's comment was sparked by Amazon's announcement of new S3 pricing:
With Amazon S3 recently celebrating its one year birthday, we took an in-depth look at how developers were using the service, and explored whether there were opportunities to further lower costs for our customers. The primary area our customers had asked us to investigate was whether we could charge less for bandwidth....
Sara Milstein noted that Google Adsense could also be conceived of as a micropayments system, this one in the more traditional sense of allocating small payments to many players. And of course, Amazon's Associates program is also a micropayments system, as are many cell phone billing systems. How many others of these are there out there? If you use micropayments in your site or application, let us know.
Amazon's full pricing announcement sent out in email appears below.
This is a note to inform you about some changes we're making to our pricing, effective June 1, 2007.With Amazon S3 recently celebrating its one year birthday, we took an in-depth look at how developers were using the service, and explored whether there were opportunities to further lower costs for our customers. The primary area our customers had asked us to investigate was whether we could charge less for bandwidth.
There are two primary costs associated with uploading and downloading files: the cost of the bandwidth itself, and the fixed cost of processing a request. Consistent with our cost-following pricing philosophy, we determined that the best solution for our customers, overall, is to equitably charge for the resources being used - and therefore disaggregate request costs from bandwidth costs.
Making this change will allow us to offer lower bandwidth rates for all of our customers. In addition, we're implementing volume pricing for bandwidth, so that as our customers' businesses grow and help us achieve further economies of scale, they benefit by receiving even lower bandwidth rates. Finally, this means that we will be introducing a small request-based charge for each time a request is made to the service. Below are the details of the new pricing plan (also available at http://aws.amazon.com/s3):
Current bandwidth price (through May 31, 2007)
$0.20 / GB - uploaded
$0.20 / GB - downloadedNew bandwidth price (effective June 1, 2007)
$0.10 per GB - all data uploaded$0.18 per GB - first 10 TB / month data downloaded
$0.16 per GB - next 40 TB / month data downloaded
$0.13 per GB - data downloaded / month over 50 TB
Data transferred between Amazon S3 and Amazon EC2 will remain free of chargeNew request-based price (effective June 1, 2007)
$0.01 per 1,000 PUT or LIST requests
$0.01 per 10,000 GET and all other requests*
* No charge for delete requestsStorage will continue to be charged at $0.15 / GB-month used.
The end result is an overall price reduction for the vast majority of our customers. If this new pricing had been applied to customers' March 2007 usage, 75% of Amazon S3 customers would have seen their bill decrease, while an additional 11% would have seen an increase of less than 10%. Only 14% of customers would have experienced an increase of greater than 10%.
We don't anticipate making further structural changes to Amazon S3 pricing in the future, but we will continue to look for ways to drive down costs and pass the savings on to you.
Sincerely,
The Amazon Web Services TeamP.S. Please note that the reduced bandwidth rates shown above will also take effect for Amazon EC2 and Amazon SQS. The bandwidth tier in which you will be charged each month will be calculated based on your use of each of these services separately, and could therefore vary across services.
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Amazon's Mechanical Turk seems to me a more "traditional" form of micropayments. It's a mechanism for people to pay lots of other people amounts as small as one cent for micro-tasks.
I think that partly what hindered the micropayment systems was that each solution was a vendor-specific silo that didn't interoperate with the others so you had competing 'boil the ocean' business plans.
The things that people are most likely to want to pay for online overlaps significantly with the set of things they would want to use cash for, and not just because of the size of the transaction.
IOW, any general-purpose payment system needs to be able to be used to buy porn (ideally as untraceably as buying a magazine at a convenience store) and do person-to-person transactions (ie. you don't need to set up a merchant account to run a lemonade stand).
BitPass was an interesting recent attempt, but the company stored all transaction records in the clear, rather than using translucent database techniques to obscure the details from themselves, so they remained vulnerable to subpoena.
It is interesting to note that that fundamental patents in this area have started expiring, so we may see some new systems (some of them open source) cropping up in the next few years that don't rely on a single trusted third party.
Note that S3 is not a micropayment system (it is a pay-as-you-go subscription service) and neither is iTunes (being a retailer-specific silo).
Google AdSense/AdWords is an aggregator of both demand and supply, but my account has yet to pay anything out as I have not yet crossed the minimum threshold for the first payment (in three years). I can't even directly transfer the AdWords revenue to my AdSense account. So it also does not qualify as a micropayment system.
i stringently object to service based systems getting called micropayments. micropayment systems are for small transactions. a $50/mo S3 habbit represents substantially more than an aggregation of micropayments, it represents a pre-negotiated demand-side-driven SLA.
if anything, the new tiered pricing scheme supports this notion that S3 is really providing a metered on demand SLA. rather than just being a fixed rate, amazon now has its users on a plan.
so yes, lots of small transactions are being made and paid for. others are free to their own opinions of course, but in my mind there is a clear difference between this and a system where users opt to pay or are required to pay for content.
I hear you rektide, but it does seem to me to be worthwhile to separate the "micropayments" meme into its constituent parts:
1. Tracking very small increments, and billing for them. Phone companies do this, and not many other players. Amazon is now doing this. This is a powerful capability, and one that could potentially be deployed in new areas.
2. Providing a clearinghouse for small incremental payments from or to many players.
Seems to me that capability #1 is a necessary precondition of capability #2, and one reason that none of the micropayment schemes ever worked is that they didn't have the scale on #1 to bring down their transaction tracking costs.
Put together the capabilities Amazon is displaying here with a distributed 1-click, and you might well have a generalized micropayments system...
Regarding the open-source "rules", have you considered releasing the models under a Creative Commons license?
Hi Tim,
I wanted to introduce Spare Change - the first micro-payments solution designed for Facebook!
Spare Change is designed to help users and developers buy and sell goods and services online securely and easily.
You've all built some amazing applications, from games, to gifting, to social sharing. Now there is a new way to monetize these great applications. Why not have a user pay $0.50 for an extra special gift and message, pay a $3 monthly subscription for playing premium games, donate $1 to a cause, or pay $0.25 to see how one has as been rated by friends?
Spare Change allows you, the developer, to charge small amounts of money which was previously both uneconomical and too hard for users to use. We've built a 1-click interface which keeps users on your applications and allows them to purchase content with ease and confidence.
My team and I have over 15 years of building enterprise grade financial services applications and we think you'll like the product we've built. It's simple, reliable, and scalable. We're committed to building the best payment solution for social networking.
Please take a look, experiment with your apps, let us know what you think - we're at your service.
Spare Change - the way to pay for the little stuff.
http://apps.facebook.com/sparechange/devPromo.jsp
Lex Bayer
lex@sparechangeinc.com
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Claus [05.02.07 07:58 AM]
Is S3 really micropayments? You set up an account and they charge by the month. It's true they will sell you even very limited amounts of their service - but still.