Isaacson’s pitch for micropayments

Today Walter Isaacson, the venerable former editor of Time and current boss of the Aspen Institute, unleashes a multipronged offensive on behalf of the idea of micropayments for news. In a lecture delivered yesterday and also in a Time magazine essay, he argues that the advertising-only model for Web revenue warps traditional journalistic values, and advocates new efforts by publications to charge tiny sums for access to individual pieces of content.

I have to admit that my jaw dropped at the point where Isaacson admitted that he no longer pays for the New York Times. Something tells me Isaacson is in a slightly higher income bracket than me, yet I still buy the paper. Thanks, Walter, for making me feel like a chump! Keep talking and you may yet drive the Times’ circulation down a few more points.

Seriously, though, Isaacson’s argument is worth following. In his speech he presents a ready familiarity with the history of the early Internet and its evolution from the “walled gardens” of the for-profit online services to the open Web. (He was running Time’s ill-fated digital efforts back then, so he knows the stories first hand.) Though he admits that recent history is littered with failed micropayment schemes, and mentions the “many tracts and blog entries [that] have been written about why the concept can’t work because of mental transaction costs and the like,” he believes that “things have changed.” Like David Carr before him, he points to the success of iTunes and the Kindle as “pay-per-drink” precedents.

The key for attracting online revenue, I think, is coming up with an iTunes-easy, quick micropayment method. We need something like digital coins or an E-Z Pass digital wallet – a one-click system that will permit impulse purchases of a newspaper, magazine, article, blog, application, or video for a penny, nickel, dime, or whatever the creator chooses to charge.

Micropayments may seem newfangled to some newspaper managers, but in advocating them, Isaacson is tapping into one of the longest-running debates on the Web. The canonical “tract” about why micropayments can’t work is Clay Shirky’s from 2003. Shirky, in turn, points back to a 1996 essay by Nick Szabo on the “mental transaction costs” of micropayment systems (the paper, alas, is no longer online). Here’s Shirky’s thesis:

The vanishingly low cost of making unlimited perfect copies put[s] creators in the position of having to decide between going for audience size (fame) or restricting and charging for access (fortune), and the desire for fame, no longer tempered by reproduction costs, [will] generally win out.

Shirky’s essay offered a critique of a new micropayments scheme then being championed by Scott McCloud (author of Understanding Comics), who was experimenting with charging a small amount for a new comic strip. As the author of Understanding Comics, McCloud already had a substantial following among the geek set who were interested in his project. McCloud also responded at the time to Shirky.

In April, 2007, the company that McCloud was using to sell access to his comic went under. McCloud began giving away his comic. Round to Shirky.

But April 2007 was another market peak like early 2000, and the micropayments debate revives every time there’s a downturn. My own experience at Salon, where we began selling subscriptions in early 2001 and briefly “closed the gates” on all of our news content after 9/11 sent advertisers into hiding, suggests that it cannot and will not save the newspaper business: We were a popular, high-traffic news website with enormous good will from our users and Web colleagues. Yet when we started asking for money, our traffic plummeted — users fled, and other sites stopped linking.

We soon changed course. True, we were asking for subscription fees, not per-article payments, but our experiments with the latter were failures as well. When you demand money for access, you’re not only invoking the “mental overhead” of a decision on the reader’s part; you’re effectively seceding from the Web, cutting off the online circulatory system of inbound links, and risking a slow, painful slide into irrelevance.

Here’s a telling example: as I prepared this post I found a reference to an IEEE article from 2004, Micropayments: An idea whose time has passed twice?, by M. Lesk, which is highly pertinent to the subject. But I originally decided not to link to it because I couldn’t easily read it. Even if you built an easy-to-use micropayment system allowing access to that article, I’d be thinking, “Should I point my readers to something that’s going to cost them money? Shirky’s post is pretty good reading, and it doesn’t cost a cent.”

OTHER LINKS: Bill Wyman takes Isaacson’s argument apart: “Newspapers had an advertising-only model. They made untold millions. (Billions.) And they did produce a lot of sections about gardening and home improvement.”

Mark Potts: “The idea that forcing readers to pay for general online newspaper content will somehow magically solve the industry’s problems–never mind the horrific effect subscription plans would have on traffic-based ad revenue–is just folly.”

The LA Times’ David Sarno wrote about micropayments last month, interviewing Shirky and Columbia professor William Baker. Doug Fisher wrote a response, quoting Wired editor (and Free author) Chris Anderson: “The huge psychological gap between “almost zero” and “zero” is why micropayments failed.”

In 1998 and again in 2001, Web usability expert Jakob Nielsen predicted micropayments would become a prevalent economic model.

The CapGemini consultancy assembled this report on micropayments in 2004.