"No longer should you ask the question, will people pay for content online? They will pay—that is a known fact," says Yvonne Ruggles, vice president of operations at Needham, MA-based WebCredit, an online collection company.
"There's no question at all about that," agrees Tricia Rothschild, product manager for Morningstar. com, a financial information provider that offers Internet visitors a mix of free and premium content. "We see no hesitation on the part of consumers. Offer them valuable content and they will pay."
Face this reality: many factors are conspiring to create growing enthusiasm for calling a close to the "all free, all the time" Internet era. Online ad revenues are in steep decline, more coveted content is going digital, and more users are spending more time online. All that translates into a universe where pay-per-view makes sense.
Good as that sounds, there is a hitch: It has been very difficult to implement schemes for collecting small payments from online consumers of content. Current solutions just don't work. "Content providers certainly have content they want to sell, but the difficulty has been that there is no simple mechanism for processing these transactions," says Dennis Woronuk, president of Calgary-based Wmode, a start-up that aims to become a clearinghouse for mobile commerce.
"The costs of transactions are way too high," says Neil Cameron, a consultant with Accenture. "We need new solutions to make all of this work. That's going to be critical."
JUST SAY NO TO PLASTIC
The big hitch: Mastercard and Visa won't work as the primary tools for profitably collecting payments from Internet users. Their transaction fees are too high—pretty much on any purchase below $10, using standard Mastercard and Visa merchant arrangements gets downright nasty. On a $10 tab, for instance, the vendor probably pays a flat 50-cent transaction fee plus 2.5% to 3.5%—meaning at least 75 cents on a $10 purchase. Right there go much of the profits, and matters may get still uglier in the online content world. Why? Best guesses are that, as the pay per view market grows, price points will tumble. Right now, "prices for content are all over the place, but they will fall," predicts Leslie Poole, CEO of MicroCreditCard. com. "As the market matures, we see articles selling for $1 to $2 apiece," says Poole, whose company provides collection tools to various newspapers.
At $1, standard credit cards would gobble up most of the revenue. "It's cost prohibitive to process these small transactions using a credit card," says Scott Geddes, vice president of mobile commerce for San Jose, CA ebusiness solutions provider Brokat. "That's why we need some kind of micropayments scheme: to process these low-value transactions."
Reinventing this wheel won't necessarily be easy, but, the experts say, it will likely be well worth the effort to create new tools. "If you have lots and lots of little transactions, they can amount to real money," says Geddes. According to analysts at research firm Ovuum, some $200 billion will be collected worldwide in micropayments by 2005, and a goodly slice of that pie will go to content providers.
What's more, many media executives see potential Internet content sales as bringing in wholly new money: "The Internet is about new ways to market content, to new customers," says Wimms Buhse, co-founder of Bertelsmann's Digital World Services in New York. "This enhances a publisher's reach." More bluntly put, even if the dollars are small, they are gravy, because, properly constructed, an Internet content play will produce fresh dollars without any cannibalization of existing sales. So, if this has so much potential, why won't Mastercard and Visa dive in? "Below $10, credit card companies simply are not interested in processing the transaction," says Andrew Cole, an analyst with Boston, MA-based research firm Adventis. The fact is, both Mastercard and Visa decline to offer on-the-record comments about micropayments. Bottom line: if they are interested in pursuing these tiny charges, they are playing their cards very close to their vests.