Re: ECON: The Case Against Micropayments

From: Chris Rasch (
Date: Wed Feb 21 2001 - 13:19:27 MST

Max More wrote:

> I just came across this essay by Clay Shirky. I have read many of Shirky's
> essays and have found most of them to be insightful. Since I know
> micropayments to strongly interest some folks here, I'm posting it for
> comment and critique.


I think Shirky's basically correct. Note though, that Shirky's article deals
with micropayment schemes where the price is set by the goods provider rather
than the goods consumer. Voluntary "tipjar"-like systems (like don't suffer as much from mental transaction
costs--you need only think about payment when an article strikes you as
particularly well-written, insightful, or humorous--no anxiety is involved.
(Guilt, maybe.) If the transaction costs are low enough ("1-click tipping",
hey, maybe I should patent that), I suspect most people would not have a
problem occasionally flipping a dime or quarter to their favorite author or
artist. The tip then becomes a form of applause.

How much money could people make in tips? As (DiCola, 2000) points out, most
people who make a substantial fraction of their income from tips receive an
overall low salary, and low social status (bellboys, waitresses). On the
national scale, real world tipping gross revenues are quite large--$20
billion/year, larger than the gross revenues of the entire recording
industry. So far, though, little money has changed hands via existing
systems. For example, fairtunes has collected in the neighborhood of $6,100
in tips to date. I think that will change as these projects become more
widely known, and as the transaction costs become lower. (cf. the Espra
project I also think artists must make an effort to
create a personable online personna to create some of the social pressure
that drives flesh world tipping. That means bboards, mailing lists, photos,
periodic chats, biographies, streaming video, etc. I think record companies
will be supplanted by companies that provide these services, as well as
accounting and order fulfillment services.

If you can track who's given the most tips to a particular artist, you can
also offer the fans more incentives to tip. For example, how much would
someone pay to be known as the Beatle's number #1 fan? (As objectively
measured by the amount of tips they've paid for Beatle's songs.) Artists
could offer to have dinner with their top 10 fans every month. Many people
like to collect band memorabilia (liner notes, photos, cd's). Bands could
offer exclusive collectible premiums, such special edition cd's, that are
only available to fans who tip at least $100. Bands could set up affiliate
programs so that fans who direct a lot of tips the bands way get a percentage
of the cut.

Here's how I see things shaping up:

Unknown artists will primarily subsidize their work, much as they do now.
Tipping will provide some revenue but not enough to live on.

As an artist becomes more popular, tipping revenues will increase, and some
of the secondary sources of income I mention above will become more
lucrative. If an artist becomes _really_ popular, I think that pre-payment
becomes possible--e.g. "I will release my next book/album if I receive
$50,000 in tips." (Stephen King's experiment with "The Plant" although
designed poorly, and failed on its own terms, still brought in a ton of
money. ) Shameless plug: see my essay, The Wall Street Performer Protocol,
for a way prepayment could be done for software products at

Other sources of income--cd sales, live performance, commercial
endorsements--will likely continue as they have to date. Some companies may
also subsidize artists to drive up demand for services they can charge
for--e.g. connectivity and bandwidth. (Think AOL/Time Warner.)

Whatever happens, I think the arts will not be a particularly lucrative field
for most performers. The problem is that supply exceeds demand--most
artists find their work intrinsicly rewarding, so they will continue to
create art even if they must subsidize it. I expect that most artist incomes
will continue to fall along a Zipf distribution--a few superstars will make
most of the money, while the rest must continue to work at their day jobs.
Whether the advent of the Internet will increase or decrease median artist
salaries remains to be seen.

Peter DiCola's October 15, 2000 article _The Online Tip Jar Experiment: Why
the Results Could be Underwhelming - Or Even Harmful_ at

That's the way the money goes
Mark Buchanan
New Scientist

Some fascinating links regarding Zipf's Law and other power laws:

Wentian Li's Zipf Law page

Benford's Law and Zipf's Law

Zipf, Power-laws, and Pareto - a ranking tutorial
Lada A. Adamic

Use e-gold?  Send me two cents:">
Read the _Wall Street Performer Protocol_:

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