Great analysis of the challenges of micropayments as an online news business

Robert G. Picard: The transaction cost problem of newspaper micropayments

Summary: No deed goes unpunished.

Some points:

1. Each article (or content item) has a different economic value, but the cost of a sale remains significant per article.
2. So, in a collective, more profitable content will need to subsidize less profitable content.
3. Pre-paid accounts for customers would be the most efficient way to make microsales, and one-off price articles would need to be in the $2 – $10 range to be “worth the effort.”
4. Newspapers will need to figure out in advance how to price an article (which means more staff) according to its expected value, price it by the cost of producing it, or figure out the average cost of producing all the articles and price according to that. Yep, each method has its problems.
5. And what exactly is in this for the consumer? If they don’t pay for news in print, or online, then what will they be offered to make them consider doing so now? On a per-transaction basis?

I believe the media world is shifting away from creating destination stories that attempt to capture audiences. This is connected to the cultural shifts underway due to our new, Internet-bred ability to acquire in-depth information on just about anything anytime we want it.

We are moving toward becoming a even more largely freelance, information service industry, with various presentations of stories as one product on a spectrum. The core value to be pursued, more than ever before, is original information; additional value is derived from it when it is used to create other information products that provide value to someone else. Endless game of dominoes.

In the past, whenever I thought of diving into any kind of media business, I looked only to offer an audience-capturing experience (a typical story). Now I am required to ask: What other information producers will my information serve and how? Can I sell that? I am a node in a network in addition to being an endpoint.

For example, would I open a shoe store today? Create this giant location, fill it with a variety of shoes, some more valuable then others, and hope enough people show up to exceed my costs?

Probably not. First I would think about what business I’m really in. Protecting people’s feet? Providing a fashionable selection? Giving them the chance to physically handle products?

Because if you think about it, a shoe store is in a lot of businesses:

1. It’s in the storage business (jamming all those shoes into a space);
2. it’s in the opinion business (employees providing feedback on shoes);
3. it’s in the information filtering business (selling some shoes, but not others);
4. it’s in the marketing business (all those shoes advertise their makers);
5. it’s in the distribution business (a store is a node on a manufacturer’s distribution network);
6. it’s in the health business (the wrong shoes can kill your feet);
7. it’s in the fashion business (want to look good for that big meeting?);
8. it’s in just about every business you can imagine, if you get out your magnifying lens.

What the Internet does is potentially separate the value of the “physical-ness” of any business from the intangible, information-only value of that business.

Previously, information was a product enhancer; it is now the product itself, but business models haven’t caught up. Or have they? iTunes? Trade publications?

Another example: movie theaters. What are you paying for when you buy a ticket? For me, it’s a bundle of experiences: a big, dark room, good sound, massive screen, a chance to go out, a story to get lost in. I cannot perfectly replicate these values in my apartment. What a moviemaker has to decide is if she/he is in the business of providing entertainment products that can play a part in certain cultural experiences, or in the business of trying to ensnare an audience. Or both.

Because people just don’t pay for stories, they pay for the experience the story is an important part of. Your story could be valuable in the creation of many experiences, if you make an effort to identify and market to them. But how valuable? I don’t think it will be valuable enough to consistently support monolithic organizations. The value of a story is just not that consistently stable or predictable.