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April 25, 2007

Sorry, Wrong Number: McCloud Abandons Micropayments

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Posted by Clay Shirky

Four years ago, I wrote a piece called Fame vs Fortune: Micropayments and Free Content. The piece was sparked by the founding of a company called BitPass and its adoption by the comic artist Scott McCloud (author of the seminal Understanding Comics, among other things.) McCloud created a graphic work called “The Right Number”, which you had to buy using BitPass.

It didn’t work. BitPass went out of business in January of this year. I didn’t write about it at the time because its failure was a foregone conclusion. This isn’t just retrospective certainty, either; here’s what I said about BitPass in 2003:
BitPass will fail, as FirstVirtual, Cybercoin, Millicent, Digicash, Internet Dollar, Pay2See, and many others have in the decade since Digital Silk Road, the paper that helped launch interest in micropayments. These systems didn’t fail because of poor implementation; they failed because the trend towards freely offered content is an epochal change, to which micropayments are a pointless response.

I’d love to take credit for having made a brave prediction there, but in fact Nick Szabo wrote a dispositive critique of micropayments back in 1996. The BitPass model never made a lick of sense, so predicting its demise was mere throat-clearing on the way to the bigger argument. The conclusion I drew in 2003 (and which I still believe) was that the vanishingly low cost of making unlimited perfect copies would put creators in the position of having to decide between going for audience size (fame) or restricting and charging for access (fortune), and that the desire for fame, no longer tempered by reproduction costs, would generally win out.

Creators are not publishers, and putting the power to publish directly into their hands does not make them publishers. It makes them artists with printing presses. This matters because creative people crave attention in a way publishers do not. […] with the power to publish directly in their hands, many creative people face a dilemma they’ve never had before: fame vs fortune.

Scott McCloud, who was also an advisor to BitPass, took strong issue with this idea in Misunderstanding Micropayments, a reply to the Fame vs. Fortune argument:

In many cases, it’s no longer a choice between getting it for a price or getting it for free. It’s the choice between getting it for price or not getting it at all. Fortunately, the price doesn’t have to be high.

McCloud was arguing that the creator’s natural monopoly — only Scott McCloud can produce another Scott McCloud work — would provide the artist the leverage needed to insist on micropayments (true), and that this leverage would create throngs of two-bit users (false).

What’s really interesting is that, after the failure of BitPass, McCloud has now released The Right Number absolutely free of charge. Nothing. Nada. Kein Preis. After the micropayment barrier had proved too high for his potential audience (as predicted), McCloud had to choose between keeping his work obscure, in order to preserve the possibility of charging for it, or going for attention. His actual choice in 2007, upends his argument of four years ago: he went for the fame, at the expense of the fortune. (This recapitulates Tim O’Reilly’s formulation: “Obscurity is a far greater threat to authors and creative artists than piracy.” [ thanks, Cory, for the pointer ])

Everyone who imagines a working micropayment system either misunderstands user preferences, or imagines preventing users from expressing those preferences. The working micropayments systems that people hold up as existence proofs — ringtones, iTunes — are businesses that have escaped from market dynamics through a monopoly or cartel (music labels, carriers, etc.) Indeed, the very appeal of micropayments to content producers (the only people who like them — they offer no feature a user has ever requested) is to re-establish the leverage of the creator over the users. This isn’t going to happen, because the leverage wasn’t based on the valuing of content, but of packaging and distribution.

I’ll let my 2003 self finish the argument:
People want to believe in things like micropayments because without a magic bullet to believe in, they would be left with the uncomfortable conclusion that what seems to be happening — free content is growing in both amount and quality — is what’s actually happening.

The economics of content creation are in fact fairly simple. The two critical questions are “Does the support come from the reader, or from an advertiser, patron, or the creator?” and “Is the support mandatory or voluntary?”

The internet adds no new possibilities. Instead, it simply shifts both answers strongly to the right. It makes all user-supported schemes harder, and all subsidized schemes easier. It likewise makes collecting fees harder, and soliciting donations easier. And these effects are multiplicative. The internet makes collecting mandatory user fees much harder, and makes voluntarily subsidy much easier.

The only interesting footnote, in 2007, is that these forces have now reversed even McCloud’s behavior.

Comments (11) + TrackBacks (0) | Category: social software


1. Chris Lindgren on April 25, 2007 8:00 PM writes...

You must not understand Google's business. They facilitate the transaction of millions of micropayments. That is their business model.

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2. Marie Antoinette on April 26, 2007 12:39 AM writes...

The problem is not with micropayments per se, but with for what, how and when they are charged. When someone uses a vending machine to buy a cup of coffee, you could call that a micropayment - yet people still buy from vending machines all the time. On the other hand, if I had to insert a coin into my water heater for every liter of a shower, that would reduce my showering time significantly. Any economists in the audience?

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3. Bernd on April 26, 2007 2:18 AM writes...

Nowadays it's much more convenient to use things like Google AdSense to create some revenue on content. You get the fame and if you're really good you get the fortune as well. It is probably as obtrusive as a page telling the viewer to first pay and then read.

You can delete the rest of this comment:
"Kein Preis" sounds awkward. Use "Kostenlos" or "Umsonst".

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4. Cory Doctorow on April 26, 2007 7:42 AM writes...

A wee correction -- I got the "piracy/obscurity" business from Tim O'Reilly's kick ass essay, Piracy is Progressive Taxation.

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5. Raj Vats on April 26, 2007 11:56 AM writes...

We can help you & your blog readers by providing a 'solution for bounced email'.

Please feel free to put our link on your website and write a blog:
Link description: Solution for bounced email

THANKS for your help!

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6. nick on May 4, 2007 4:25 PM writes...

Thanks for another excellent article on micropayments. It has inspired some further comments of mine.

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7. Reinier Zwitserloot on May 4, 2007 8:56 PM writes...

I've read the linked article from Nick Szabo before and it has helped form an idea I've had for a while now. Currently working on implementing it, and here's the gist of it:

*AFTER* you've read some content, you've already made the mental choice that the thing is worth the effort, or not. If not, you either stopped reading/listening halfway through the article/blogpost/comic/music/whatever, or you click away pretty soon after its disappointing end.

If not, you may take action (post to an aggregator like digg or reddit, mail it around, or in extreme cases, buy something considerable, like a t-shirt or a book), but usually you just say: Nifty, and move on.

There seems to be no intrinsic motivator for people to pay for content after they've already enjoyed it, but actually there could: That's the basic essence of the 'tip' - it doesn't change anything in the here and now, it's a thing you do as a thank you. Maybe as a way to improve future relations (e.g. hope for more content by supporting the author).

So that's exactly what I'm building:

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8. Brian Will on May 6, 2007 6:05 PM writes...

What Reinier describes sounds very much like what I proposed here, a system I called 'Panopticon':

Here's the core part:

"Because payment is all voluntary, users typically do not pay at the moment they decide to make a donation. Most user ‘transactions’ can be done with light-weight security because no funds are being guaranteed at the time: the user is simply making a note of intention in their account; at some user-specified interval, typically every few weeks, the user is sent a suggestion to review the donations they have queued up and make an actual payment.

"By allowing the user to pay a periodic bill, Panopticon helps users account for their donations in their larger budget. Perhaps a user is feeling poorer this month, so they use a handy feature on the checkout page to scale down how much in total they want to give, e.g. a user might have originally made a note to give $10 dollars to Bob and $20 to Alice, but when it comes time to make an actual payment, the user might have decided they only want to spend $20, so a slider on the checkout page helps the user allot $20 in the same proportion they originally intended–1/3 to Bob and 2/3 to Alice. This is just one kind of change: all sums and donations are totally open to reconsideration, revision, or reneging until the user approves payment.

"By delaying payments to a periodic interval, micropayments now make a lot more sense because many small transactions can all be payed together as one lump sum. Of course, this might end up as many tiny checks for Panopticon to send out every month, but this is mitigated by pooling of all the donations from various donators to one creator. Another mitigator is the policy that withholds payments to creators until their due payment exceeds some minimum amount.

"Whereas Paypal and Amazon take a significant surcharge for each transaction, Panopticon takes a considerably smaller percentage meant to cover just some fixed costs. Most of the organization’s outlay is covered by volunteer labor and fund raisers wherein users are prodded to give a donation to the organization itself when reviewing their queued donations."

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9. David Lawrence on May 13, 2007 4:52 AM writes...

So what, my being a BitPass merchant, and making up to $10,000 a month, 25 cents to a dollar at a time, selling hours of my radio show to listeners who couldn't be there when I was actually on the air is...a failure? You were arrogant and exclusionary when you made your prediction (if you recall, we had a nice argument about it on my show), and you're being arrogant and exclusionary again. I've got a great idea, Clay. Why don't you find out if micropayments really failed, or if certain crtitical darling products sold via micropayments were what actually failed. Using's technology, which allows for a micropayment overlay to RSS feeds for podcasters, I continue to enjoy the fruits of my labors, sold at very minor amounts to lots and lots of people, just as Brach does with their 5 cent candy. Anyone could have predicted that poems sold for a penny apiece would fail (it's hard to *give* poetry away for nothing) - but you've committed a logic error in generalizing the specific. No offense to Scott McCloud, but some of us have, for several years, done extraordinarily well with micropayments.

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10. Clay Shirky on May 13, 2007 3:45 PM writes...

I'm happy to cop to arrogant and exclusionary, as long as you are willing to add 'correct' to the list. I predicted that BitPass would fail, and it did, and I predicted that McCloud misunderstood the tension between fame and fortune, and he did.

I'm not saying that there are no places where micropayments won't work in the short run (it took 4 years for BP to tank), I'm saying a) that there are too few of those places to create a generic ecosystem, and b) that the pressures against micropayments are going to get worse, not better.

As a way of putting my money where my mouth is, I've looked at ShowTaxi after your comment; let me predict that ShowTaxi will fail as well.

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11. Martijn Kriens on June 7, 2007 9:57 AM writes...

I would like to believe what you are saying about free content and all. But the nagging feeling I have is that a) when (almost) all content is getting free and we need to be subsidized because we still need to eat than b) who will subsidize us?

Perhaps I am stretchin the point a bit but when most content on the Internet is free than there is no business model to do advertising because it is hard to advertise for free goods unless you have money to give away.

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