When 10x Is Not Enough
The ability to pay small sums digitally is said to be the holy grail of web monetization. It will reduce web advertising, avoid subscription hell, lower paywalls and provides income for even the smallest content creator. In short, micropayments will disrupt the payment market.
The rewards for those that will solve this problem are so large that one is likely to find at least a dozen projects working on micropayments at any time during the last 25 years. That none of these attempts succeeded so far is one of the great unsolved mysteries of the web.
If a startup is successful, it is often believed that the product must be 10x better. This might be attributed to Peter Thiel who wrote in to Zero to One:
A great technology company should have proprietary technology an order of magnitude better than its nearest substitute.
However it turns out that building a 10x better product is not sufficient for micropayments due to the following three reasons.
1. The customer decides
The customer does not care about the actual improvement — as long as it is significantly better. So one should not take the 10x literally.
For micropayments this means one has to go from the current minimal amount of $1 down to 1 cent. This new limit is easily understandable by the customer as it simply stands for: the system is as good as cash.
Achieving this 100x improvement compared to the status quo requires some extraordinary engineering. But it also leads to a safety margin that is needed for the relatively slow market adoption one can expect for a novel payment system.
2. It misses the go-to-market strategy
Just developing a better product is not sufficient to be successful. One has to get it into the market — efficiently.
This task is especially difficult for two-sided marketplaces like payments, where users and merchants have to meet. Solving this chicken-and-egg problem is always challenging especially with a low-revenue product like micropayments. It might therefore be necessary to piggyback on another trend, because without incentives for both sides, one will never reach critical mass.
Failed go-to-market strategies seem to be the major reason why even the latest attempts on micropayments still refuse to take off.
3. There must be a business case
Besides a good technology and an efficient goto-market strategy one needs to solve the following business dilemma:
A small fee from a small sum results only in a tiny revenue.
A tiny revenue is usually not enough to attract investors, to do a lot of marketing and to build a large company. But by increasing the fee one moves to a sub-market which will lead to less revenue.
I believe there are three major reasons why micropayments have not succeeded yet:
- a 10x better product is not enough for the customer,
- the lack of an efficient go-to-market strategy, and
- the missing business case.
Additionally one may find minor reasons like regulation, psychological barriers, or missing interoperability in the literature.
I still believe that micropayments will become widespread one day, because all of the currently known issues are solvable. How fast this happens depends on how fast we are able to learn from previous attempts. Exchanging our lessons learned is one way to speedup this process.