Manual Payment within the internet - How Micropayment will change the internet

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In a contrary and more realistic vein, Carl Shapiro and Hal Varian argue that the Internet closely resembles other industries like airlines with high fixed and low marginal costs. Therefore aggressive marketing and clever price discrimination schemes are the key to profiting on the Web.

Social Media Marketing in the Blockchain Era

Companies will have to devise ways of creating differential value in like products despite the negligible marginal cost of distributing information. Airlines do this by charging more for the same seat when it is bought just before a flight. Likewise, IBM employed a rather Machiavellian price discrimination strategy when it deliberately slowed the speed of its F series business printer to make the lower priced E series.

Shapiro and Varian also note the importance of network effects, but see the establishment of a dominant network as the license necessary to begin employing the kinds of price discrimination schemes that will enable profit over the Internet. Firms should concentrate on versioning to capitalize on the networked information economy. Like IBM and Microsoft, information providers should offer an array of personalized products at different prices to appeal to different consumers.

They should also try to lock consumers in by offering incentives for repeat players and extracting high margins from them down the road, as frequent flyer programs are designed to do. Finally, companies should build networks by bundling products like software suites, which encourage consumers to stick with a particular brand. Tying each of these threads together is the question of what quantities digital information should be packaged in. Economists refer to the practice of grouping items together for a single sale as bundling. Traditionally it has been held that consumers are likely only to purchase items when the quantity reaches a critical mass to justify the effort of the purchase.

So CDs usually have ten songs, magazines have many articles, and batteries come in packs of four. This arrangement has also benefited producers because the marginal cost of production generally decreases as quantity increases, and distribution costs can be greatly reduced by economies of scale.

The Internet changes the logic of bundling for digital products, however, since the marginal cost of production is reduced to almost zero and distribution costs are negligible. Therefore once a company takes the time and money to produce a digital product it can afford to offer it to the public at very low prices when sales volume is high. Micropayments make this second sales model possible. But conventional bundling theory militates against it. Some scholars have suggested that bundling theory should be altered for dealing with the cyber world.

One group of authors suggests that large profits can be made by grouping together huge quantities of disparate information and selling access at a relatively low cost. Other research suggests that profits can also be made by allowing easily copied information to be circulated among small groups for free.

Small groups that know they will share a product will be more willing to pay a higher price than the total revenue generated if a few chose to buy an item at a given price while others passed on the opportunity. If so, then Kelly and Goldhaber are correct and micropayments would only restrict the valuable returns of network effects. Several threads stand out from these three analyses that bear directly on the impact micropayments will have on the Web. One is that network effects are crucial to successful Web ventures. Therefore micropayments are unlikely to take hold unless some big players like Microsoft become involved and attract a large number of users to form a nexus of support.

Another is the issue of scarcity. A great tension exists on the Web between notoriety, necessary to achieve network effects, and limited access that allows businesses to charge for services. Once a company has attracted customers it needs to prevent them from disseminating digital copies if the market is to be sustained. Trusted systems, or codes that prevent digital information from being copied, are essential for any kind of micropayment system to become viable.

Finally, the issue of bundling has enormous implications for micropayments. If retailers choose to package data in suites or offer only membership service, then macropayments will suffice to pay the bill. But if consumers are willing to pay for individual digital works like articles or songs, then micropayments will be central to shaping this new market. Two recent Web initiatives offer clues on how these issues will develop over the next few years.

Smart cards that hold electronic value as a substitute for cash are on the way and could provide a gateway to wider acceptance of micropayment methods. Developing trusted systems technology will enable content providers to limit access to valuable intellectual property. Together these developments represent a paradigm shift that will could make micropayments practical.

The main problem with micropayment ventures to this point is that customers who take the time to set up an account find their purchasing options severely limited. Most micropayment vendors have to work out payment arrangements with vendors in advance, which introduces high barriers to participation. Furthermore, the process itself is technically complicated.

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What is needed is a way to make micropayments user friendly and ubiquitous. Enter Microsoft, which has recently launched a smart card initiative to compete with Visa and MasterCard to control the standards for issuing digital money. Smart cards work like ATM or debit cards in that they enable users to pay electronically for goods on the spot. Electronic value is held by the user, not a bank, and purchases can be made without any financial intermediary. Purchases can also be made in tiny increments, which makes it an ideal vehicle for micropayments.

If Microsoft can successfully link its smart card business to its increasingly popular Windows suite of programs, then micropayments may be able to reach a critical enough mass for network effects to begin. Once smart cards are established as a common mode of payment, micropayment technology will succeed or fail based on business strategy rather than barriers to entry.

Once the technology is in place to enable easy micropayments, content providers will need ways to protect digital works from being copied. Presently there is little reason, copyright laws aside, to buy a digital product when you can copy it for free. Trusted systems are one way to ensure that digitized intellectual property can be restricted to paying customers.

Trusted systems work by embedding a code in software products that can be recognized by specially equipped hardware instructing the computer or printer to allow only certain operations. Vendors using trusted systems then could have control over how much access to allow consumers and instill value-creating scarcity on the digital information market.

Consumers could be induced to acquire trusted system technology with initial offers of free information in exchange for installing trusted systems software. This has already occurred to some extent with the pdf format, which makes documents available in a digitally unalterable form to anyone who downloads Adobe Acrobat software.

The Siren Song of Internet Micropayments

Trusted systems would have broader applications, including software, music, video, and interactive documents. Once trusted systems become prevalent, digital information will have value because it is once again scarce. Companies and individuals will then have an enormous incentive to produce original and value laden products because they know their work will be protected. Micropayments will be an ideal way to charge for that value. That kind of flexibility could represent a sea change in Web commerce that establishes micropayments as a viable alternative to credit cards of checks.

This would capitalize on some of Amazon. Linking such an arrangement with Microsoft smart cards, with the handling software already in Windows, would be make micropayments user friendly and significantly reduce the current barriers to entry in a micropayment environment. Two examples of disaggregated goods finding demand on the Internet demonstrate the beginnings of micropayment success and the influence it may have on Web markets.

Greed Is to Blame for the Radicalization of Social Media

Music and news archives are currently individually distributed on the Web with some success. Meanwhile advertising, which marks the biggest obstacle to micropayment success, may be moving toward incorporating microcommercial mechanisms to attract more viewers.

The most interesting example of desegregating traditional bundles and trading them over the Internet lies in MP3 technology that enables compressed music and video files to be downloaded from the Web. Copyright pirates on hundreds of not-so-secret servers have established clearinghouses for downloadable digital tracks of almost any CD imaginable.

MP3 files are roughly one sixteenth the size of a CD file and can be stored on a hard drive or burned into a blank CD with the right equipment.


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Although there is no fee for this service, many pirating sites require that visitors upload at least one thing of value in exchange for access to the pirate database. So for the price of sharing your latest version of Eudora you can receive perfect digital copies of the latest U2 single along with programs and games. The beauty of the system, beyond its cost, is that since you do not pay, there is no incentive to take unwanted tracks. That way you can compile a greatest hits CD from among the top current albums or pick from among the Microsoft Office Suite programs that you will actually use.

As MP3. The music industry is understandably concerned with this pirating and efforts are underway to stifle MP3 distribution sites. With MP3 players emerging on the market that can play rerecordable, downloaded music much like a walkman, a niche market in Web music may explode, forcing major music labels with the to sell music by the track at a significant discount. A report by Forrester notes that MP3. It seems natural then that as companies develop technology that would disable a pirated program, artistic work, or article, there is some point in between free and the price of a magazine or CD that consumers would be willing to pay for individual pieces of information.

That price is probably very close to zero and the key is to facilitate ways to make such small payments without much effort. Micropayments would make those individual transactions possible and thus attractive to the consumer. Another arena ripe for micropayments is in downloadable news archives.

While many online papers offer access to their archives for free, searches are often unreliable and are not user friendly. Many that do have user friendly archives charge for access and you have to set up an account with your credit card in advance. The Financial Times recently introduced a pay-per-view archive that offers searchable access to four million articles online in addition to its free daily content. The director of FT.


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  5. We want to lock them into the subscription model as it is cash up front and easy to administrate, but the key is to offer them the choice. Differential viewing schemes offer great promise for micropayments if customers are guaranteed that they can rely on the quality and relevance of articles for which they are paying. Stefan Thomas and Evan Schwartz invented Interledger in In october of that year the whitepaper and the first implementation were released and Interledger W3C Community Group was formed. Many individuals and companies from different backgrounds are now involved and working on the project.

    Interledger uses connectors to route payments across different ledgers. Conditional transfers are used to secure multi-hop payments so funds cannot be lost or stolen in flight. In conditional transfers , funds are put on hold at the source while the best route to the destination is determined and confirmed. If the conditions are met, the transfer is executed, otherwise the transfer times out and funds are released at the source. Interledger pulls inspiration from the packet and address format of the Internet Protocol to instruct connectors where to forward payments.

    For more detailed information see the Interledger Docs here. Interledger is focusing on supporting developers and projects building both infrastructure and applications in the Interledger ecosystem. If you are interested in connecting ledgers, building with micropayments or getting involved in the protocol development you can join the Interledger W3C Community Group here. Coil - Micropayment app that integrates XRP and the InterLedger protocol to pay out to any website using Web Monetization , a new standard for how browsers can pay websites using Interledger.

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    The first provider creating interoperability and liquidity for blockchains, wallets, and exchanges. Working on an open source payment system for emerging markets, using Interledger to increase financial inclusion through interoperability. This site uses cookies to improve your browsing experience and perform analytics and research.