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Micro-Payments Will Be Profitable

What are micro-payments and how can they help my business?

In Internet terminology, micro-payments are extremely small electronic cash payments made via computer. You might use a micro-payment to buy a single newspaper article or to play a computer game over the Internet. Today, micro-payments remain a developing technology that is not wide-used nor accepted, but the potential in just a few years is staggering.

Generally, I write about things that you need to do today. This week, I'm doing the crystal ball thing. This column is about a vision of the near future. I'm going to tell you how you can make lots of money soon. Now is the time to start planning if have any dreams of being the next Netscape or if you just want to find a new way to make money.

The Situation Today

One of the biggest problems with the Web today is that most companies cannot figure out how to directly profit from providing information on a web site. Indirect profit is the easy one. It could be the ability to reach new customers, present an instant corporate brochure, enhance corporate credibility, and provide information to customers. This list can go on almost endlessly.

Selling goods from a web site also provides obvious ways to turn a profit. Your web page simply furnishes information about your goods, makes your sales pitch and offers a choice of traditional payment methods like check, credit card and COD. These payment methods work with goods because you're generally dealing with transaction amounts that make these methods economical.

However, the sale of goods is not what the Web does best. After all, until Scotty can beam it down, there remain just a couple of minor technical hurdles to pulling a new shirt out of your modem. Today, you still have to wait for the postman to deliver that new shirt.

What the Web does best is information. The Web is absolutely positively the best way to transmit unlimited amounts of information. The problem-very few companies have found a truly profitable way to sell information using the Web.

What's the Value of Information?

The main problem is that generally we perceive that pure information has less value than goods. So, while an encyclopedia (all nicely bound and printed on dead trees) may have a perceived value of many hundreds of dollars, that's not what's sold via the Web. The Web sells quick access to a particular article of interest.

What's the value of a single article? Will you pay $10.00 for it? I picked $10.00 because using a credit card is arguably economical and convenient enough if the transaction value is at least $10.00. Those who've attempted to sell information via the Web have learned the hard way that most people won't pay $10.00 for a single article. It doesn't matter whether it's from an encyclopedia, newspaper or other information source. In fact, most people find it hard to dig into their pocket for a dollar. And, at even a dollar, credit card transactions start looking cumbersome and uneconomical.

Now-would you pay a dime for that article? What if you could pay a dime for it and not have to type an account number into your computer?

What if all you want is the score of today's baseball game? Would you pay a penny for it? I bet that you would if you could get the score instantly, whenever you want it and the payment took no effort of your part.

Now we're talking about true micro-payments. Micro-payments, in their purest form, are about extremely small payments for something that's hard to value because the value is so small. For micro-payments to work, the act of paying must be completely painless. Frankly, for a penny, I'm not even willing to type "yes" to the question, "Do you wish to pay $.01 for this baseball score." I don't want to so much as move my pinky for a penny. Just give me the score!

Simple to Use Software is the Key

The way I envision a good implementation of micro-payment software is that you can custom set your spending pain limit. For example, you could tell your software that if the transaction value is below fifty cents, or whatever amount you like, don't give you any warnings. Just take the money from your "wallet" of money. If the transaction value is fifty cents or more, you would get a message telling you the amount of the proposed transaction and asking you to confirm that you want to conclude the transaction.

You will put money in your "electronic wallet" probably by credit card, but check and electronic funds transfer are options too. So, for example, if you wanted to budget $50.00 for micro-payments, you would make a $50.00 purchase of electronic money from your bank. You would then have that much to spend. You might tell your software to warn you when, let's say, only $5.00 is left so that you could refill your "electronic wallet."

As you spend money, it's automatically and virtually instantly transferred from your "electronic wallet" to the merchant's.

With micro-payments, a business will have a way to sell information to consumers in a way that's palatable to them. Think of the potential for profit with volume.

With Micro-Payments, It's Free No More

Today, most information from the Web is free. That's great if you're the information user, but leaves you scratching your head if you're a business. Why am I doing this? How can I make money from the service I'm offering?

To the extent companies are making money today from Web-provided information, it comes from advertising. Web-advertising will undoubtedly continue to be a revenue source and will even grow over time. Still, very few companies make much money from selling Web-advertising.

I believe that micro-payment-based web sites will have more potential for profit sooner than web sites that solely rely on advertising. You're probably wondering what does "soon" mean?

I think soon could mean as little as two years, but that will depend on good, easy-to-use and standardized software becoming available. The technology already exists. Presently, several competing companies are vying for their implementation of micro-payment software to become the "standard" for the Web. When Netscape and Microsoft (the developers of the only two Web browsers that matter) can agree on a standard for micro-payments and they build it into their web browsers, a standard will exist.

Once they build true micro-payment ability into the browsers, I think that micro-payments will quickly begin churning billions of dollars through the world's economy. I use the word "true" because it's widely reported that a quarter will be the minimum transaction amount at first. I believe that's way too high and will limit the potential for profit. When the minimum value hits a penny, or even less, that's when we will reach the true potential for this technology.

If you have dreams of being the next Netscape, now is the time to begin formulating and implementing your ideas. If you do it right, you could become a "standard" in a new industry. One of the many reasons that Netscape grew the way it did is that it was in its market early and they played hard.

This isn't get-rich-quick material. Distinguishing your web site won't be easy. What information will you sell? How can you get thousands or even millions of people to visit your web site regularly? How can you make your site different from the others that will compete?

What I'm suggesting is that now is the time to get poised to jump into this market when the time is right. When this hits, it will explode. If you're there early, you'll be able to reap the profits.

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