The Internet Is Not Optimized For Paid Content

Imagine if the internet functioned like an app store.

There would be “free” webpages/websites (like today) and “paid” webpages/websites. The free web pages would be accessible without any cost, just like they are, today (like a free app in a smartphone app store). However, paid web content could be paid for with no more than two clicks – the first click to agree to pay for the content, and the second click to confirm the action. Any paid webpage/website could be paid for  with no more than two clicks.

Such a mechanism would make paid content much more viable.

The conventional wisdom argues that content publishers are going out of business today because content is abundant, and it’s hard to charge for it. I am not convinced that is the whole truth. The other side of the story is that the internet was not designed for paid content. It is hard to get people to pay for content on the internet (each site must ask for payment information, etc.). An unwritten assumption always has been that information will be available for free, available to all. That is one of the reasons internet advertising is so prevalent - the internet is not optimized for paid content.

Today, most paid content sites need to ask users to enter their credit-card from scratch and create new sign in credentials. It’s so hard to get users to pay for content, no wonder such sites ask users for long-term subscriptions. A solution that allows two-click payment for web content would enable “a la carte” content consumption – a user would only pay for the webpages they actually read, and this in turn would make it more likely that users would pay for content.

How do you make two-click content payment pervasive? I believe that the internet needs a standards-based layer (on top of current internet mechanisms) that enables easy payment.

Some may argue that all the pieces already exist. There are payment intermediaries like PayPal, Google Checkout, Amazon, etc. Then why isn’t the paid content model more prevalent? The short answer is that fragmentation is a vicious cycle (see table below for the more complete answer). Fragmentation without an underlying standard means that content providers must implement support for multiple payment intermediaries. This reduces adoption of the paid model, which in turn reduces the market for paid content, which in turn causes intermediaries to charge heftier commissions (if they want to turn a profit). And of course, heftier commissions reduces adoption even more. Moreover, users don’t have accounts with these intermediaries, and do not want to manage another account online.

An internet standard for easy payments would fix all these issues by eliminating fragmentation. Content providers can accept payment from any and all intermediaries simply by implementing the standard. This would reduce the barrier to supporting paid content model, expand the market for paid content, and bring down commissions. But more importantly, it would enable common identity providers (like Google, Yahoo and Facebook) to act as payment intermediaries, allowing users to “login to the internet” once for all the functions they want to perform. This would reduce barriers to payment on the internet. Finally, a standard ensures that there will be many more competing intermediaries, and the competition will keep intermediary costs down.

Factor How an internet standard helps
Cost: Content providers don’t want to fork out the 2-4% commission that online payment intermediaries charge, in addition to credit card commissions. They’d rather have users directly enter credit card information on their site. An internet standard will promote competition among payment intermediaries, bringing down commissions.
Complexity: Most users don’t have accounts with payment intermediaries (and have no incentive to create one) An internet standard enables regular identity providers (which users use everyday – like GMail, Yahoo, Facebook) to become payment intermediaries, eliminating the need for users to sign up with another entity.
Fragmentation: There are too many payment intermediaries (PayPal, Google Checkout, etc.), requiring content providers to support each one to ensure a seamless experience for users. It is desirable to have multiple intermediaries competing for users. An internet standard ensures that content providers can easily support  all these intermediaries (as long as they implement the standard).

Why isn’t paid content more prevalent on the internet?

The New York Times is a widely read newspaper, and yet loses at least 50 million dollars a year (in spite of all the advertising revenue it generates from its website). It has about 150 million readers visiting the site annually – if each user spent just 33 cents annually, The New York Times would be breaking even.

With a standardized payment solution for the internet, it would..

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6 responses to “The Internet Is Not Optimized For Paid Content

  1. Pingback: An Internet Optimized for Paid Content | the human in the loop

  2. Inder,
    So in other words you want micropayments built into HTML, right?

    -Jamie

    • @Jamie: I was thinking more along the lines of a solution like Open-ID. A set of RESTful APIs that can be exposed by any payment intermediary, and then can be called from a webpage.

  3. Ok, I see what you’re saying. So just like the web has HTTP, email has SMTP (both of which work atop DNS which makes them distributed), payments needs its own distributed payment standard as well.

    Is that closer to it?

  4. I propose the Farmville method. 99% of the people will not pay. Have premium content for the 1% that will.

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