Small Change: Micropayments Enable Teensy Content Purchases

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MARKET OPPORTUNITY
That indifference has opened up a brave new world where content providers and start-up transaction firms are racing to perfect new ways of processing small charges. How small? Symptomatic of the early-stage of this space, there's not even agreement on the dollar amount where micropayments would kick in. Some say anything under $10, others say $5, and still others pick different, lower numbers. But that has not deterred companies from racing to enter this niche. "There are at least 50 micropayments processing companies," says Cameron. There may be more than that, because these are generally tiny start-ups that are clawing for recognition. There are no obvious market dominators, but at least five competitors are winning some marketplace traction.

Qpass
Probably the market leader, Seattle-based Qpass has carved out pay-per deals with a glittering constellation of media companies: the New York Times, Los Angeles Times, and Wall Street Journal included. At these sites, users can spend 75 cents on a day's access to the Wall Street Journal and up to around $5 to buy a view of an archived article. Out of these monies, Qpass keeps anywhere from 5% to 40% in transaction fees, with the rest going to the media outlet. How does Qpass get money from individual users (and Qpass claims over 350,000 users)? Simple. Customers register with Qpass and provide a credit card. As users incur charges, Qpass aggregates them, and once monthly or so, submits them to Mastercard or Visa, thereby getting those fees down to a single transaction charge. It's probably a losing proposition for Qpass when customers make a single, tiny purchase in a month and don't return, but the company says that happens less often than you might think. The upshot: "Micropayments can be profitable using existing credit card structures if you approach this creatively," says Norman Guadango, Qpass' vice president of marketing. One Qpass advantage: "We aggregate across brands," says Guadango. In other words, once a user registers with Qpass to read the Wall Street Journal, without much ado, he can also buy a Los Angeles Times article or a report from Forbes.com. For the user, that's a convenient deal, for Qpass it allows charges to be lumped together so that—in theory—the Mastercard and Visa fees become affordable.

Microcreditcard.com
Structurally similar to Qpass, Virginia-based Microcreditcard. com also operates on the principle of aggregating small charges across brands and putting in a single monthly charge to Mastercard or Visa. "Using our system, a content provider can sell content for as little as $1 and still make money," says CEO Leslie Poole. At that amount, 84 cents would go to the content provider, 16 cents to Microcreditcard.com "fees may go below $1 and still content providers will be able to make profits," says Poole. A disadvantage to Microcreditcard.com is that it lacks the big brand names that have swarmed around Qpass. But, says Poole, "this market is only now coming together. Many charges lie ahead for the industry."

WebCredit
A wholly different approach, WebCredit offers stored value accounts where users start by depositing $10 minimum with WebCredit. That initial deposit is billed out to Mastercard or Visa and then, as purchases are made, the monies are deducted from the stored value account. When the value hits zero, the user is asked to top up the account with another $10. "This isn't voodoo economics," says WebCredit vice president Yvonne Ruggles. "You can make money providing this service." WebCredit claims it has around 2,100 registered users and perhaps 100 merchants—selling everything from games to articles.

Praxell
Another stored-value solution, New York-based Praxell—currently rolling out its services in France—takes about 15 cents per transaction," says Michael Zanoni, Praxell's sales vice president. "Mastercard and Visa are handicapped by the high overhead of their private networks. We can drive the cost of processing a transaction into the dust."

Wmode
Based in Calgary, Canada, Wmode is tackling micropayments in an entirely different venue. While most vendors are looking to the Internet, Wmode has an exclusive focus on wireless devices—that is, cell phones and wireless PDAs—and, to the consumer, billing for content would show up directly on bills presented by wireless carriers. Wmode wants to be transparent to individual users and it seeks to sell itself to carriers as a back-office processor of content charges. Says Wmode president Woronuk, "out of every dollar in revenue, we see Wmode retaining around 5 cents; 10 cents would be kept by the wireless carrier; and the remaining 85 cents goes to the content provider." One hitch: wireless handsets simply aren't that hospitable an environment for absorbing large amounts of content. But Woronuk—buoyed by the huge successes achieved by NTT DoCoMo in selling wireless content in Japan—remains optimistic: "Once a micropayments infrastructure is in place, content providers will offer more to buy and consumers will buy it."

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