Big Questions about Small Payments

"The Web's New Currency" (TR December 2003/January 2004) presents nicely the case for micropayments. However, contrary to the article's implication, skepticism about micropayments is based not on general qualms about the spread of a new technology but rather on economics, psychology, and marketing.

Even if the perfect micropayment scheme were invented-cost nothing to operate, was perfectly secure, and required no special effort by consumers-I predict that it would not become widely used. Standard economic models show that sellers can derive more revenue from selling bundles, as in the Microsoft Office suite, than from selling individual pieces. Behavioral-economics factors show that customers' usage drops dramatically when there is even a tiny payment, and that consumers are willing to pay more for simple pricing plans, especially flat rates. Micropayments are a neat technology, but they are likely to play only a minor role in the economy.