Sunday, July 26, 2009

Why Micropayments Failed

Last week, I referenced Chris Anderson's new book, Free: The Future of a Radical Price. I've been reading it since then with great enthusiasm and, interestingly, Anderson specifically notes why the paying for webcomics in some kind of micropayment system (as promoted by Scott McCloud in Reinventing Comics) was doomed to fail...
The proper name for that flag is what George Washington University economist Nick Szabo has dubbed "mental transaction costs." These are, simply, the toll of thinking. We're all a bit lazy and we'd rather not think about things if we don't have to. So we tend to choose things that require the least thinking...

Szabo extended this to purchasing decisions. He looked at the idea of "micropayments," financial systems that would allow you to pay fractions of a cent per Web page you read, or millieuros for each comic strip you download. All these schemes are destined to fail, Szabo concluded, because although they minimize the economic costs of choices, they still have all the cognitive costs.

In effect, he's saying that by charging ANY amount, you're forcing the reader to make a choice. By not charging anything, there's no real choice to make, and you eliminate the mental barrier of the user deliberating whether or not the comic is worth whatever money you're asking for it. If it's free, it must be worth AT LEAST that much, so there's really no decision to make.

The book has been, so far, quite fascinating and -- given that HE'S GIVING IT AWAY -- I highly encourage everyone to read it.