[picoIPO] Re: Micropayments, redux

[R. A. Hettinga]

--- begin forwarded text


Status: RO
Subject: Re: [picoIPO] Re: Micropayments, redux
Cc: clay at shirky.com, johnl at iecc.com, picoipo at lists.picoipo.com
To: odlyzko at dtc.umn.edu (Andrew Odlyzko)
From: Charles Evans <cwe at chyden.net>
Sender: picoipo-admin at lists.picoipo.com
Date: Wed, 18 Dec 2002 12:56:27 -0500

This message is coming by way of the picoIPO list.  Apologies for any
confusion caused by intercommunication among para-debates.

On Wednesday, Dec 18, 2002, at 08:01 US/Eastern, Andrew Odlyzko wrote:

> Dear Colleagues,
>
> Just a few general comments on the flurry of messages from
> yesterday.  I certainly do see micropayments playing some
> role in the economy in the future.  I agree that we do have
> the technology to implement them easily.  However, I still
> think that they will play only a marginal role...

The second sentence of the abstract reads, "The main concern of this
paper is with pricing of goods that are likely to be consumed in large
quantities by individuals."  The current debate, with regard to
micropayments and microfinance, is like comparing apples and orangutans.

For mass-market goods, the argument in favor of subscription is
compelling, especially in the West/North.  I would not rent time on MS
Word or OS X, even if it were less expensive than buying licenses.
However, in the Third World, where money is very scarce, a la carte is
still very common.

In Ukraine, where typical incomes are USD 200-300 per MONTH, computers
are too expensive for most.  Internet cafés are quite common, and
charge about USD 1 per hour.  A flat USD 20 per month dial-up
subscription is prohibitively expensive, when you add in the per-minute
telephone charges and the cost of the computer, monitor, and modem.

<snip>

> The basic reason for this prediction is that even in the absence
> of the many behavioral economics factors, producers benefit
> from bundling (as in selling an entire newspaper instead of
> individual articles) by taking advantage of uneven preferences
> among consumers for the individual items...

For large Western/Northern software and entertainment producers, yes.
However, in the Third World -- the other 5.5 billion -- the economies
of scale are different.  For the price of a full license of MS Office,
a family can live for a month or two.

Building a viable business model out of this observation, and
implementing it are separate matters.  This is a theoretical discussion
of subscription versus a la carte.

There are markets where a la carte is preferable over subscription.

<snip>

> Not everything can be shoehorned into the flat-rate subscription
> model, so I do expect that micropayments will eventually play
> a role in the economy, but I don't expect that role to be large.

There is large and there is large.  But your point is correct.  We
economists do not like corner solutions, and one-size-fits-all
solutions generally neither fit nor solve.

CE

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-- 
-----------------
R. A. Hettinga <mailto: rah at ibuc.com>
The Internet Bearer Underwriting Corporation <http://www.ibuc.com/>
44 Farquhar Street, Boston, MA 02131 USA
"... however it may deserve respect for its usefulness and antiquity,
[predicting the end of the world] has not been found agreeable to
experience." -- Edward Gibbon, 'Decline and Fall of the Roman Empire'

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