The Case For Micropayments

by Jakob Nielsen on January 25, 1998

Ultimately, those who pay for something control it. Currently, most websites that don't sell things are funded by advertising. Thus, they will be controlled by advertisers and will become less and less useful to the users. A veritable arms race has already started with more and more annoying advertisements that intrude on the user's attention in an attempt to survive ever- declining click-through rates.

Annoying ads are ultimately self-defeating since people will avoid sites that do not give them a positive user experience. The Web is a user-driven phenomenon, where people go online for a purpose. Quite often, that purpose will be to buy something, so there is a great future for commercial sites that sell or support products and services. Traditional products can be charged to credit cards, but many Internet services will require incremental payments rather than large one-time payments.

I predict that most sites that are not financed through traditional product sales will move to micropayments in less than two years. Users should be willing to pay, say, one cent per Web page in return for getting quality content and an optimal user experience with less intrusive ads. Once users pay for the pages, then they get to be the site's customers, and the site will design to satisfy the users' needs and not the advertisers' needs.

Some analysts say that users don't want to be "nickeled and dimed" while they are online. In fact, the problem is being dimed; not being nickeled. Unfortunately, some sites that currently charge for content do so at a level of a dollar or more per page. Such pricing is obviously unpleasant and will only be acceptable for highly value-added content that users can predict in advance that they will benefit significantly from buying. Regular articles (like this column) cannot be that expensive.

Long-distance telephone calls and electricity are both metered services. Many people do feel a tension while they are on the phone, at least while making an international or other expensive call. At the same time, very few people worry about powering a lightbulb, even though doing so costs a few cents per hour. Electricity charges mainly serve to make people turn off the lights when they go to bed. The difference is clearly in the level of pricing:

  • less than a cent per minute and people use as much as they need (electricity)
  • 10 cents per minute, and people ration their usage a little (long distance phone calls)
  • 40 cents per minute, and people ration their usage a lot (international calls)

On the Web, users should not worry about a cent per page. If a page is not worth a cent, then you should not download it in the first place. Even as the Web grows in importance in the future, most people will probably access less than 100 non-free pages per day (in June 1998, heavy users visited an average of 46 pages per day). Most users will have $10-$30 in monthly service charges for Web content.

During working hours, it is easy to calculate the value of a user's time. If we assume that various overhead costs  are about the same as a person's salary, then somebody making $35,000 per year costs their company a cent per second. In other words, every time you access a Web page, it costs your company ten cents just for having you sit and wait while it downloads (assuming that the page design obeys the 10-second response time limit). Add time to actually read the page, and we are looking at a cost of 25 cents to a dollar every time an employee accesses a Web page (with proportionally larger costs for highly-paid staff). In this context, paying a cent (or a few cents) for the content is nothing if it ensures higher-quality pages.

Simply waiting for a typical banner ad to download costs about 3 cents in lost employee time, so that could be a possible value of ad-free pages. Of course, much Web access occurs during off-duty hours where people's time is harder to value. But if people value their free time at a third of their working time, then even leisure browsers should be willing to pay a cent to avoid an ad.

Subscription Fees Fence You In

Acknowledging that Web advertising is not a sufficient business model, several famous websites have announced that they will start charging subscription fees later in 1998. Unfortunately, subscriptions are not a good idea on the Web.

The main problem with subscription fees is that they provide a single choice: between paying nothing (thus getting nothing) and paying a large fee (thus getting everything). Faced with this decision, most users will chose to pay nothing and will go to other sites. It is rare that you will know in advance that you will use a site enough to justify a large fee and the time to register. Thus, most people will only subscribe to very few sites: the Web will be split up into disconnected "docu-islands" and users will be prevented from roaming over the full docuverse.

Micropayments lower the threshold and do not require a big decision before users get their initial benefits: thus users will be encouraged to view more pages and spend more. Of course, there will almost certainly be discount schemes for frequent users of a site such that nobody would end up paying more than they would under a subscription plan. It would also be reasonable to make repeat viewing of the same page by the same user virtually free since doing so would discourage pirate copying.

Subscriptions work in the physical world because people can sample single issues of publications through newsstand purchases before they have to decide on a subscription. Also, limitations on the physical distribution of printed materials make the magazine or newspaper a reasonable unit of packaging: it would be too difficult to assemble a daily reading list of twenty articles from ten different magazines and ten newspapers. On the Web, it is no problem at all to browse the best pages from many different sites, following recommendations, search engine hits, and cross-references.

Subscriptions break the basic principles of the Web: the linking of information and user-controlled navigation. Charging subscriptions is like building a city wall: you keep people out. Authors who want to link to other sites for background information will rarely chose to link to subscription sites because they will know that the majority of their users will not be able to follow the links. Similarly, search engines will not be able to index subscription sites, so users will not find pages that relate to their interests on such sites.

Even if authors and search engines do link to a subscription site, users will never go there because the cost of signing up for a subscription and the time needed to do so cannot be justified for the sake of a single desired page. Thus, the site never gets visited by the user; it also never gets the chance to prove its value to that user and convert him or her into a loyal, repeat visitor.

In contrast, charging a micro-fee will not prevent links. Presumably, there will be a way for reputable search engines to spider a micro-charging site for free since most sites want to be found. A human author would not be deterred from linking to a fee-based page: if you don't think that a page would be worth a few cents to your readers, then you should not recommend it in the first place.

When deciding on what pages to recommend, an author would certainly consider the pricing: cheaper sites would have an advantage, though somebody who had really great content could get away with charging more. A site need not charge the same for all its pages. An opinion piece or a news story might carry lower fees than a thorough review of an entire product category.

It is likely that there will be mechanisms for pre-paid links. If, for example, a movie site wanted to refer users to a particularly favorable review on a certain newspaper's site, then it could use a special, digitally signed, link that would authorize the newspaper to charge the micro-fee to the movie site and not to the user. Users would thus be encouraged to follow the link and read the favorable review.

In general, it will be necessary to develop a spectrum of user interfaces for micro-payments such that users can follow cheap links with no overhead and without having to register, and yet still be protected from being hit with a large charge without knowing it.

Follow-Ups

This column has been rather controversial and has received many comments from readers, some of which have been posted.

See also my later column on models for user payments for Web content, including the need for micropayments to be transparent in the user interface.


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