Apple is in a position they’ve been in a lot of times before. They’re like Moses showing the way to the promised land, but they don’t actually go there. Tim O’Reilly¹.
Over the past few months there has been a variety of blog posts and articles written in the media suggesting that iTunes is the holy grail when it come to finding a solution to the problem of processing micropayments received from the sale of low value products for digital delivery.
How realistic is this ? Not very.
One issue which needs to be clarified is, what is a micro-payment ? Some seem to see micropayments as lying in the range of US$1.00 through to say, US$9.99 with the pricing of individual music tracks at $0.99 being used as an example. These are not micropayments, micropayments are much smaller, say in the range of 1cent through to 50cents.
Looking at how the iTunes system works therre are a number of reasons why it is out of tune with what is required of a micropayment system which both rewards the creator of digital content and is easy and safe to use from the perspective of the consumer.
Firstly the products to be sold need to pass the gatekeepers to Apple’s walled garden, where the products are available for purchase. A process which can sometimes be both time consuming and arbitrary when it comes to products not being accepted.
Once a product is sold the revenue has to be shared with Apple. Apple’s share may be acceptable for products priced above US$1.00 but there is not going to be much left over for the creator of products priced in the range of 5 – 50 cents.
From the customers’ side there is always the concern of having to hand over personal data including credit card information to a third party for them to hold and charge your card from time to time. This method of charging also exposes the customer to risk through the technique of bundling multiple transactions, possibly including fraudulent charges, with these bundles being charged to the credit card periodically rather then when the transactions are incurred.
This danger was recently highlighted by the headline for an article written by Joseph Menn in the FT² the other day ,which caught my eye:
“Hacking fear grows for iTunes accounts”.
Apple last week banned an independent developer from the iTunes App store after complaints from US consumers who discovered that their accounts had purchased his ebooks. Apple stated that “…..about 400 users…. were impacted”. Experts however disagree with this, due to the fact that one of the developer’s ebooks reached number 21 in the US books chart. A level which would require significant sales, thereby implying that many thousands of accounts could have been compromised.
“He got greedy – if he had been more subtle about it, he would not have been caught” said Joel Feather, one of a group of successful app programmers who complained to Apple.
Apple will now need to tighten up the ordering process, possibly requiring customers to enter the security code off their card whenever a purchase is to be authorised, thereby adding more friction to the purchasing process. Friction or rather lack of friction is vitally important when it comes to micropayments, the purchaser is simply not prepared to enter any data to authorise a payment of 50cents, this has to be done with one click of the mouse at most.
For micropayments to succeed we need a system which allows the creator of content to obtain the maximum from the sale of that content by losing very little in the way of charges to middlemen and payment processors. The authorisation process needs to be friction free and the customer should have to hand over the absolute minimum of personal information, i.e. Digital Cash, an electronic form of cash in your pocket.
¹Tim O’Reilly is the founder of O’Reilly Media and a supporter of the open source movements.
²FT – www.FT.com and the print copy of the Financial Times