Buying Tidbits Of Online Content

An idea that seemingly evaporated along with dot-com mania is back: that the Internet would realize its full grass roots potential if Web surfers could pay small amounts for tidbits of online content.

Several companies are again betting they can mine gold from ferrying around such "micropayments." Even credit card giant Visa USA is exploring the prospect.

Boosters believe people could sell countless new creations on the Internet — from essays to advice — if only mechanisms existed to facilitate small payments. For authors of popular content, all those pennies would add up.

The problem, as things currently stands: transaction costs make most credit card sales under $1 all but pointless.

By giving independent content providers an efficient way to collect money, micropayments could widen the Web's pool of things to see, hear and do, keeping the Internet from being dominated by media giants and other brand-name companies.

"We like to characterize ourselves as e-commerce for the rest of us," says Kurt Huang, co-founder of BitPass Inc., which carries small payments to 100 Web sites and plans to emerge from "beta" test mode in December. "What we're trying to do is enable diversity."

Micropayment handlers know they're treading over the skeletons of 1990s companies — the likes of Flooz, Beenz, CyberCash and DigiCash — that tried and failed to create virtual currencies. Back then, some hoped Internet currencies would evolve to eventually be spent as anonymously as pocket change.

Today's micropayment advocates say earlier attempts failed not just because they were cumbersome and lacked sufficient government and financial industry support. People preferred what was familiar, namely credit cards.

As well, bountiful advertising money and venture capital inflated the Web with so much free content in the late 1990s that there wasn't much point in charging 25 cents to view a comic strip.

With free stuff now fading, much more online material is available only by subscription.

"Times have definitely changed," said Ron Rivest, a prominent Massachusetts Institute of Technology encryption researcher who co-founded micropayment provider Peppercoin Inc. in 2001. "I think the market is ready."

There also are far more broadband Internet connections today, meaning more people might be interested in buying bandwidth-intensive digital content a la carte. Witness the quick popularity of new online music services like Apple's iTunes, which charges 99 cents per song.

Those sites aren't using any special micropayment formula — users often buy more than one song and establish prepaid accounts with a credit card.

But if competition pushes prices lower, and more individual artists want to sell tracks at their own Web sites, micropayment providers say they would be ideal helpers because they can track royalties and handle customer service.

"We're finding that music is just the tip of the iceberg," said Steve Elefant, president of Yaga Inc., which handles micropayments and larger transactions, including the $2.50 payments that Tribune Co. and Time.com charge for articles in their archives.

Eyeing such possibilities, Visa recently began exploring whether it ought to facilitate micropayments, too.

"While this segment is still small, we want to keep our eye on it," spokeswoman Randa Ghnaim said.

Micropayment carriers are using different technologies to collect, transfer and authenticate payments.

PaymentOne Corp., for example, lets consumers make several small purchases online and pay for them on their local phone bills. Some cell phones in Asia have software that turns the handsets into virtual wallets for vending machines and other small but cashless purchases.

BitPass and Peppercoin invite Web surfers to set up an account with as little as $3, which is charged to a credit card or PayPal, the popular Internet money-exchange service. A user's online micropayments are deducted from that larger amount, without the hassle of entering credit card information each time.

Here's the advantage for content providers: If you wanted to sell a poem for 20 cents, you wouldn't accept Visa or MasterCard, because the fees involved would drain most, if not all, of your 20 cents. Similarly, PayPal takes 2.9 percent of a sale plus 30 cents, so selling your 20-cent poem would be a dream deferred.

But with a micropayment carrier, you could expect to give up 15 percent. Your 20-cent poem would bring in a healthy 17 cents. And micropayment providers can make life easier by paying you $17 for every 100 poems, instead of 17 cents after each sale.

The trick for micropayment companies is to convince Web surfers that there's so much good online content available for nickels and dimes that it's worthwhile to bother stocking a prepaid account with a few bucks.

But some critics believe that will never happen en masse because of fundamental economic psychology: Few people are willing to spend time deciding whether to buy things individually, like newspaper articles, for pennies. That is why subscription models that bundle a huge amount of content are attractive.

Such doubts have kept PayPal from breaking into micropayments.

PayPal would figure to be a micropayment gorilla if it altered its fee structure for cheap items. With 35 million users, PayPal is the dominant peer-to-peer means of sending money online, especially at the auction site run by its parent company, eBay Inc.

"The problem with micropayments, is, they're micro," said Todd Pearson, PayPal's managing director for merchant services. "Nobody's going to make a lot of money off these things."

A different kind of skepticism rules at RedPaper.com, which should be a micropayment carrier's dream. Sort of like an eBay for the written word, RedPaper launched in July and has 26,000 members who buy and sell prose, poetry and essays that each cost less than $1.

Members have to put at least $3 in a RedPaper account that gets docked or credited when they buy or sell material on the site. RedPaper takes 5.25 percent from sellers.

RedPaper set up its micropayment engine all by itself. Founder Mike Gaynor said it took only about a week's labor by one programmer.

"Micropayment technology in and of itself is about as interesting as new and improved dish soap," Gaynor said. "Anyone who has content worth purchasing is not going to give a chunk of their revenue to somebody like BitPass if they could build the technology themselves."