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Monday, November 10, 2008

The Coming Of Age Of The Micro Transaction

Micro is all the rage with the emergence of micro blogs (Twitter) and the associated micro attention span we all have to focus on any one piece of information. There are loads of online options vying for our attention and cash. We do want to visit them all but we don't want to spend a lot of time or money on any one property.

Web based micro transactions are nothing new. Apple showed us the way with the $.99 music download. The MySpace music crew has certainly extended this for its rabid music followers and indie bands. The MMOG communities are also tantalizing players with virtual items that round up to a few bucks.

Surprisingly very few verticals have latched on to the power of this form of online transaction. In an age where the volume of web usage appears to be growing exponentially you would think that online businesses would wake-up to the power of the small but likely high volume attraction to a micro transaction.

In my mind a micro transaction is somewhere in the range of $.50 to $1.00 for a purchase. It is an amount that falls below the consumer awareness radar but has enough horsepower to overcome the fee payment processor and gateway services charge their merchants. These combined fees can be upwards to $.40 per transaction.

If you just do a little math and calculate the amount of visitors you get to your property you will be surprised at how much revenue you can generate from a micro transaction. The numbers certainly look a lot better then the advertising model you are trying to squeeze cash out of.

The businesses most likely to get a lift from this approach are ones that already have a transaction model of some kind.

A media company like the FT that is currently working on a subscription model could switch to a just in time information approach. Why not have the viewers pay $.50 for a key piece of information instead of having to make a monthly commitment of $10 or $20 for information they may have no interest in.

Online games are my sweet spot. Why not pay $1.00 to enter a tournament, or buy a bingo card or sit at a card table? Why force someone to pony up a $20 subscription fee or a $50 deposit when they player only has a few monuments to play a game?

How about the software download business. If I am a virus detection company I would consider a micro transaction to allow someone to do a one time virus scan on their computer.

The other clever part of this approach is that you can potentially combine the micro model with and advertising or macro commerce transaction model. There are all kinds of possibilities it is just a matter of time!!


Kevin Flood said...

This cooresponds really well with an interview of Gene Hoffman CEO of Vindicia on Gamasutra. Gene talks about the challenges of payment processing for MMOG outfits and also uses the term mircotransactions when referring to the purchase of virtual goods. He also talks about the synergistic relationship of free play, subscription play and microtransaction. Here is the link.


Traveller said...

The linkage of micro transactions with all other micro things is very creative.

More recently,Spare Change is combining a bunch of models for facebook applications to cultivate on this revenue stream. Spare Change

Kevin Flood said...

I will check out spare change there is also a company called TwoFish that is an infrastructure play on micro transactions.