iCents

Micropayments, Micro-subscriptions
and Automatic subscriptions

What special conditions are necessary in order to successfully sell content over the Internet?

Traditional Subscriptions

Traditional subscription models allow users to pay for a long period of time, say a whole year, and get access to the entire content of a website. For example, Flickr charges you $24.95 for 1 year of "pro account". These traditional subscriptions models have the advantage that websites get a big upfront payment. This is very nice, of course, but traditional subscriptions also suffer from a serious drawback. As Jakob Nielsen put it in 1998:

"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." source

Micropayments

Micropayments can be defined as payments ranging from 1 cent to 5 dollars, that are used to pay for small pieces of content, such as a video, a photo, an article, or some individual internet service.

However, if you sell hundreds of pieces of content in your website, it means that users would have to make many small payment decisions to buy them. The very act of deciding about paying involves some mental effort, no matter how small the payment is, and that this effort is essentially a cognitive cost users pay in addition to money. This idea was first developed by computer scientist Nick Szabo, who coined the term "Mental Transaction Costs", or MTC.

Thus, selling content on the Internet has been hard because both paid models - micropayments and traditional subscriptions - have problems. The solution? Micro-subscriptions and Automatic subscriptions.

Micro-subscriptions

Consider that this division between micropayments and traditional subscriptions is somewhat arbitrary. When you come to think of it, there is in fact a continuum between them, where micropayments and traditional subscriptions are just the extreme cases. Wouldn't it be great if we could find something in the middle that encapsulated the advantages of both micropayments and traditional subscriptions without their disadvantages? Yes, it would, and here it is: micro-subscriptions.

Consider, for instance, the regular newspaper distribution model. Selling each newspaper article for 10 cents would be a micropayment model. However, selling the entire newspaper is a micro-subscription model, since the newspaper cost is still in the micropayments range (below 5 dollars), and readers buy them a la carte. A traditional subscription model, on the contrary, is when readers subscribe to an entire newspaper for a whole year. See the table below:

Micropayment Micro-subscription Traditional Subscription
1 newspaper article 1 newspaper 365 newspapers

 

Notice how the newspaper micro-subscription option here enjoys the advantages of both other options, and none of their disadvantages. On the contrary to traditional newspaper subscription, readers buy their newspaper micro-subscription when they feel like it, without having to fill out any forms, and they don't need to know in advance if they want to read this particular newspaper enough to justify a large fee and the time to register. And on the contrary to evaluating one single newspaper article, readers have no problem evaluating one single newspaper. They are used to it, and just expect it to be more or less what they usually get, so the Mental Transaction Cost is low.

Of course, this definition of a newspaper micro-subscription is still arbitrary. We could define a micro-subscription to be the first 3 pages of the sports section, or a month's worth of newspapers, but these aggregations probably don't make much sense, commercially speaking. We can therefore avoid the pointless discussion about how big or how small an aggregation constitutes a micro-subscription by defining it in the following way:

"A micro-subscription is an aggregation big enough to make sense to users, while still in the micropayments range of price"

 

The micro-subscription advantages can be replicated for the Internet. For example, users can be given a 10 hour access to the entire New York Times Online for 20 cents. Users would do this with a single click in a micro-subscription button like this one: without having to create any logins or passwords, without having to provide any credit cards, and without having to type anything to sign in. Since 10 hours is much more than users need to read the newspapers for now, they wouldn't have to think if this amount of time is enough. But since this is not a long period of time, users wouldn't have to remember or care about this purchase any more than here and now. Still, the system should unobtrusively display the time the user has left and visually display that the user has access granted. In other words, users would be able to pay as they browse, without disrupting their user experience.

Automatic subscriptions

Automatic subscriptions are a special kind of long-term subscription. It has the following advantages:

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