Strategies for a discontinuous future.

Tuesday, February 01, 2005

RSS --> Micropayments

Russell thinks that unbundling technologies, like RSS, will drive micropayments:

"...But what are ads other than someone else paying for the content you get to read for free? Is that square inch of space on your aggregator worth something to you? Maybe we're entering the age of micropayments finally. They didn't make sense before, but now that we've all started to deal with online content not as "sites" to visit, but as "posts" to read, there's going to be pressure on the system like there is in the music world, to monetize the singles rather than the bundle.

Would you pay a third of a cent to read this article? I mean $0.003 doesn't seem like a whole lot of money, no? My posts get about 10,000 individual readers a day, which would bring me $30 a day. About the same as the $30 a day that Google AdSense is delivering me, except that my readers would be happier without ads... Now how this system would work and how to prevent it from being gamed, I don't know. But the thing I'm pointing out is the macro-view of online textual content following the similar route as music. I think it's an interesting observation (and probably one that's been made 1000 times before, but I just grokked it, so it's cool to me...)"

Now, it's an interesting argument, but I think it's wrong for a very simple reason. Russell's post might be worth $0.003 to me, but if you start adding up all the posts I read daily assuming the same price, you quickly start talking real money. That's what you have to compare to AdSense: the total cost of all the ads you would read in it's absence.

Using Russell's model above, if you read 100 posts a day (which is fairly conservative, I think, given the niche we're talking about), you pay $.30/day just to read ad-free RSS. That's $9 a month - getting pricey, especially for substitute-rich goods like blog posts.

This raises the second problem with micropayments on the Net - substitutes. Prices, you can bet, will be bid down to zero, precisely because there are no barriers to entry. Russell might think he can charge $0.003, but a close substitute for Russell - close enough that I derive near-Russell utility from - will charge less. And so on, and so on. Pretty simply, the intensity of competition on the Net vaporizes any potential gains (margins) to microgood consumption.

Now, being a little more thoughtful, the model that gets past all these problems has always been the subscription model - it rebundles what was unbundled before, enabling consumers in the aggregate to capture more value. Think about it this way: an aggregator might charge you the same $9, but if it offered Russell + 1000 other bloggers (let's assume no power-law distribution/statistical effects for the time being), I would (on average) realize a significantly greater gain than by picking and choosing exactly the 100 posts a day what I wanted for myself.

Now an interesting model which does emerge from this discussion is what we might call exclusionary aggregators - essentially syndicates which have unique content that's also bundled. This unique, bundled content is an entry and imitation barrier. These are the guys that will be able to not only create value, but capture rents.

I wrote a paper a long time ago about all this stuff, and never posted it...and then my jumpdrive got stolen!!!

-- umair // 4:10 PM //

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