Practical Micropayments for Digital Art March 6th, 2015.

"Content" and Art

Great art has tremendous emotional power, but its value isn't always reflected in the salaries artists take home. The cliché starving artist is not only a common occurrence but is, in the eyes of many, the ideal state. An artist not willing to sacrifice all for their art isn't trying hard enough. And an artist willing to "create content" just to get paid has sold out. Artists should make art just for art's sake, right?

Of course not! We love art and we want more of it, so in our capitalistic society, we should pay for artistic goods order to encourage their ongoing production. Unfortunately for digital art producers, the price that folks are willing to pay has fallen by orders of magnitude within the past two decades, with little sign of recovering ^[1]. The price point per consumptive experience of most digital art is now measured not in dollars but in fractions of a cent.

Cheap is better than expensive, so in theory it should be pretty common for consumers to pay for music in small amounts. But in practice, no "micropayment" system has yet found wide adoption. Digital art creators are often stuck having to charge nothing for their work, hoping to monetize in some other way. Clay Shirky explains the past failure of micropayment systems by noting an inherent paradox: The artist claims their work is worth something and wants you to pay for it, but admits that the price is so low it's virtually free. Better to give it away generously than to put your fans through the angst of trying to resolve this double-standard.

Desiderata

Okay, so let's forget what's been done before. If we could design the perfect system for compensating digital artists at micro scale, what would it look like? Here are some desirable properties that, combined together, could make for something truly compelling.

Payment should be quick and easy – Anything that slows down the payment process will cost the user more mental effort than the sub-penny transaction is worth, and the frustrated user will just cancel the purchase altogether.
Implementation should be simple and trustworthy – Even if it's simple for customers to use, you need to convince artists (or the publishing platforms they use) to play within the same ecosystem. Any barrier to implementation or skepticism of the system's stability or functionality will slow adoption.
A wide variety of price points should be supported – Preferably, it should be possible to charge any amount from pennies down to 1/100^th of a cent ($0.00001), reflecting the wide range in value that art can provide.
Consumers should be allowed to opt-out – For consumers who aren't sure they should pay, making payment optional is the simplest way to resolve the paradox noted above. Note that this is opt-out, not opt-in; there's power in defaults, and by default users should pay.
Prices should be fair – In the normal world of payments, most can decide whether this house is worth $750,000 or that milk is worth $3.50. But is my photo worth $0.0003 or $0.003? Despite the 10x difference, neither price seems unreasonable, and so artist and fan are both left scratching their heads as to what's fair.

Does anything work?

There has been no shortage of attempts to bring micropayments to the world. Despite the long list of failures, there are many existing systems that sorta-kinda get at what we want. Here's a survey of the current state-of-the-art evaluated along these lines.

iTunes Store – The iTunes system makes charges to your credit card, but does so in a clever way. They'll wait for a while before billing you so that they can group together multiple transactions. Why go through the trouble? Because credit card processing fees are substantial enough (2%-3% plus dimes per transaction) that it's not very economical for a merchant to charge small amounts like $0.99 at a time. Unless users make a tremendous number of payments, these systems will never work for sub-1¢ microtransactions.
Microsoft Points, Flattr, gift cards – Though now defunct, Microsoft used to have a system where you could buy bulk amounts of their Points microcurrency and spend as little as pennies in a transaction. This is the same model Flattr uses for donations and functionally what stores do with gift cards. By taking lots of money all at once (lower credit card fees), then spending it over time in smaller pieces, microtransactions can be simulated. Unfortunately, the friction is high for a user—what are the odds you'll find a way to spend down your points exactly to zero?
Netflix, Spotify, Pandora, NYTimes, Scribd, Amazon Prime – Subscription services that charge a flat monthly fee for all-you-can-consume content actually do end up with effective transaction sizes in the fractions of pennies. That's more than any of these other options can claim. These plans are also fairly easy for consumers to set up and understand, which likely explains their popularity across media types.

Where these plans suffer is around the flat pricing. A savvy user can lower the price paid per item simply by consuming more. These services end up with users driving usage up (and corresponding profits down, often to zero). And when users suspect that they don't consume enough to justify the flat pricing, they'll opt not to pay at all. Instead, they can take advantage of freemium offers, shared paid accounts with friends, or the many other ways to get almost-free stuff for actually-free.
Bitcoin, Dogecoin, other cryptocurrencies – Technical details aside, cryptocurrencies operate pretty similarly to stored value systems like Microsoft Points. You move a bulk amount of money from dollars to a proprietary currency, paying an interchange fee along the way. Also like credit cards, there's a per-transaction fee that you still pay. Currently, the standard fee is about 3¢ per Bitcoin transaction ^[2], which makes it inappropriate for sub-penny payments, but there are ways that fee can fall. The primary problem with cryptocurrency is that the friction to first payment is higher than any other system listed here—only extremely technical people ought apply. On the plus side, since it doesn't feel like "real" money, users are often more generous than they would be with cash.
Humble Bundle, Radiohead, Bandcamp – "Pay what you want" gets right to the idea of opt-in transactions (though opt-out would be better). It's also nice that consumers can ensure the pricing feels fair, though pushing the payment decision to them does add some mental cost. These systems are built atop the credit card infrastructure, though, and as such are subject to all of those same flaws, namely high transaction fees.

So nothing out there grants all of our wishes. The magical combo of all of these together would be interesting, though. Imagine if your credit card had a "micro" mode backed by some cryptocurrency that draws against your account balance in arbitrarily small increments, without the ability to initiate a chargeback, subject to some small daily limit (say 10¢). That way, credit card companies could skip anti-fraud protection, lowering the transaction fees to essentially nothing. Pair all of that with an "opt-out" button, and you might have it nailed. But short of some future-focused credit card companies building this or a genie making it appear, we're unlikely to see such a system attempted.

But all is not lost. We have advertisements!

Ads? Really!?

I'll be the first to admit that I hate spammy ads. My newest nemesis is the auto-playing video ad tucked into a far away corner of a web page. And the adage "if you're not paying for the product you are the product" is hard to deny. But like capitalism, advertisements on the web are the worst system we've tried except for all the other ones. At least when it comes to monetizing things nobody actually wants to pay for directly. And ads really do address all of our desires for micropayments.

Consumption is so friction-free as to be involuntary – The ad's there and you look at it. Nothing else approaches this extreme level of ease from the consumer perspective.
Integration couldn't be simpler – At the simplest, it's just an image, but even sophisticated ad networks make integration easier than embedding a custom web font. The penetration ads have on the web is unmatched by any other payment system.
Ads are sold millions at a time – That way, advertisers effectively can pay extremely small amounts per-user by bundling lots of transactions together. This sits on top of credit cards trivially, since those payments aren't "micro" at all. Ads are typically expressed "per mille" (i.e. per thousand actions), so a penny per action represents a $10 CPM and a 10¢ CPM (small, but not crazy) gets us to the 1/100^th of a cent price point. ^[3]
Hate 'em? Block 'em – This is the perfect opt-out implementation. Most folks will let ads run, while those who are picky can install tools to hide them. Estimates vary, but somewhere between 5% and 30% of ad impressions are blocked on the web right now, so if you want to join them don't feel too bad. If you're someone showing ads, pretend that it's your transaction fee, and you're still better off than the alternatives. If you get creative, you can try to encourage your users not to block ads, like Reddit does.
Pricing is efficient – Ad buying is an extremely competitive market of relatively sophisticated buyers. Those buyers, rather than relying on touchy-feely estimates of the value of art can instead rely on cold, hard dollars and cents. If an advertisement is ROI positive, the price is good, and if it's not, the price is too high. As a consequence, the micropayment heading to the artist should actually be very near what their art is "worth" (at least to the world market of advertisers).

So I fibbed before. Not only can we get everything we want, but we've had it on the web for 20 years!

Let's make things better

The myriad downsides of ads are well-documented, but in short, they can be annoying, manipulative, or even destructive. Our best minds might be working on serving ads, but clearly there aren't enough creative minds working to make them tasteful, engaging, or integral to the artistic experience.

We shouldn't fight ads, nor should we ignore them and pretend they'll go away. Instead, we should adopt advertisement as our own, internet-born micropayments platform, ready-made to support the digital art pieces that have price points matching it perfectly. Let's nurture ads out of their current ugly, awkward adolescence into a more attractive, more effective maturity. For art's sake.

Let me know what you think on Twitter. I go by @__aston__ there.

I wrote before about digital music's possible incipient resurrection but I was wrong. It's still on the decline… ↩
With BTC's price fluctuations, this will be wrong more often than it's right. Today's minimum transaction fee in dollars is Google-able though. ↩
There's a ceiling of sorts on ads-as-micropayments at around 10¢ per view. At that price, the ad rate would represent a $100 CPM, which is on the high end of what most advertisers would be willing to pay. So there's a gap between, say, a nickel and a dollar a pop where we still have no solution better than flat monthly or yearly subscriptions. ↩