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Micropayments: the next big online revenue model?
Sep 23rd
When Google enters a new line of business, it’s a safe bet that this business will get a lot of attention from the technology ecosystem. Micropayments, an already hot trend this year, got a further boost when Google announced two weeks ago that it will offer micropayment services through its Checkout system.
Micropayments are transfers of small amounts of money. Small may mean anything from several dollars to fractions of a cent. Such payments in theory should have a big potential on the internet, where they would fill the gap between free (or advertisement-sponsored) content and things that cost over several dollars. However, several individual areas notwithstanding (iTunes being the most prominent example), they are yet to be widely adopted.
For instance, newspapers are pinning high hopes on micropayments, in the anticipation that they will help the industry get more money for their content. Currently some newspapers run subscription services, while many are advertisement-based. Neither model is fiscally sustainable in the long run, especially as print sales decline. Making online readers pay for each article they read may bring in more money for the newspapers.
The problem with micropayments, though, is that such small sums are impractical for sellers and vendors to deal with. This is because payment processors like Visa or MasterCard charge relatively high fees for each transaction. (For example, for a typical transaction Visa charges about 1.5% of the transaction’s value plus $0.10.) An easy solution is to lump together several small transactions before actually processing them: if a reader views ten articles worth $0.10 each during a week, his or her account would be charged $1 at the end of the week.
While the technical challenge is easily overcome, not so is the issue of ubiquity. A MasterCard is accepted at “millions of locations” throughout the world, according to the company’s sales pitch. By contrast PayPal, an online payment processor that can also handle micropayment transactions, is not widely used outside its owner, eBay. Then there is a problem of trust: would you put your money to an account at an obscure payment processing company?
So Google’s announcement focused attention on the merits of micropayments, Google’s competitive position in this business and the robustness of Google Checkout as it currently stands. On the last count, some issues have been reported with ordinary payments through Checkout. More importantly, Checkout’s market share in online payments is just 11%, compared to 25% each for PayPal and Bill Me Later, another payment processor.
Google expects to give a boost to Checkout by striking a micropayment deal with newspaper publishers. If the deal goes through, it may in a classic blue-ocean fashion give Google access to a newly created market of pay-per-view articles. And why stop there? If Google has its way in a separate deal with book authors and publishers that would allow it to scan millions of books, pay-per-view books may not be far away.
Fundamentally, the advent of micropayments may bring about a new revenue model to the Web. Today advertising remains at the core of business models of many online outfits. Micropayments may offer new ways of extracting money from website viewers and customers—and pricing information along the way. While a pay-per-view Wikipedia is a faint possibility, imagine a medical Q&A discussion board where users ask questions and exchange advice. The most competent answer to a particular question can be priced by the author, who would profit from his or her knowledge. The experience of experts-exchange.com, a programming discussion board that charges subscription fees, suggests that users may be willing to pay for answers to their specific questions.
Now that would make the contribution of micropayments to online business worth more than two cents.
Regulatory obstacles for the Microsoft-Yahoo search deal
Sep 13th
After all the excitement and press releases about the search deal between Microsoft and Yahoo, the serious market analysis is now beginning. US regulators have decided to scrutinize the deal, to understand if the reduction of the number of major search providers, from three to two, will hurt competition in the search market.
Regulators will likely first look at if this reduction will hurt advertisers, since there will be fewer search advertising options. Google's advertising prices have soared as search advertising has become a basic part of general advertising campaigns, and fewer competitors could leave advertisers with few options and an extreme price increase in the market. Further, Google may not feel the need to innovate if Microsoft's search technology does not turn out to be effective and successful.
Some analysts feel that the US regulators will require the companies to sell Yahoo's search technology and infrastructure, so that a new competitor come into play and preserve competition. As the search market has matured, it has developed high barriers to entry, and the likelihood of new significant competitors is becoming more unlikely. Serious technological innovation and infrastructure investment are now required to be a player in the market. However, with Yahoo's assets, a new provider might have a better chance at getting a hold in the market.
During the review process, Microsoft will likely argue that the merger is necessary for them to stay competitive with Google. Google's market share has been steadily increasing, and it would still be much larger than Microsoft/Yahoo after the deal. However, because of Microsoft's significant resources, this may be a hard argument to sell, particularly since they were able to create Bing on their own, and since they have been fairly successful in gaining search market share since Bing's introduction.
If the regulators do force the sale of Yahoo's search assets, the big question will be whether Microsoft will accept the entry of a new major player that uses Yahoo's technology. This could lower the value of Yahoo and cause Microsoft to reevaluate the deal.
Using Twitter for Business
Aug 11th
A few months ago I did a short post on this blog about the research study on the enterprise use of social media for external collaboration that we are currently running. While the study in still in progress and I cannot report any of the detailed findings, one thing is pretty clear – the number of businesses that have started experimenting with social media, and Twitter in particular, continues to grow; yet for most this very much remains a trial and error process.
On numerous occasions, both during the study interviews and in my teaching, I’ve been asked questions about how firms should go about using Twitter for business purposes (Twitter just happened to be the hottest social media platform of the year). And so, in this post I decided to pull together various resources concerning this very issue. In the future, as I come across more useful links I will add them to this list. Also, once our research is complete, I will add insights from the study as well.
- Let’s start with the official guide. On July 23rd, Twitter for the first time launched a Twitter 101 Guide for business. The guide provides a quick overview of how to get started on Twitter along with a list of best business practices and a few case studies.
- The Twitter Guide Book by Mashable – Mashable provides a collection of blog posts (many of which are accompanied by helpful follow-up comments) on a wide range of topics related to the use of Twitter. The posts are organized by categories, such as Getting Started on Twitter, Twitter for Business, Building your Twitter Community etc., which makes them easy to navigate. The book is now also available for download.
- Web Clients for Twitter – Orli Yakuel, a guest author at TechCrunch, breaks down the pros and cons of various web interfaces for accessing Twitter. Since using the service for business purposes often requires additional features on top of those of the native Twitter interface (such as, multi-account support, retweets, channels etc.), Orli’s analysis will come in handy when choosing a client that fits your company’s needs best.
- 4 Ways Brands are Earning – and Buying – Followers on Twitter – Jeremiah Owyang of Forrester takes a stab at the one-million question of any business getting started on Twitter – how to attract and retain followers. The four strategies identified in the post may strike you as somewhat obvious. But they do a good job at capturing the range of practices that currently existing on Twitter and provide a good starting point for devising your own approach. Once again, pay attention to the follow up comments – these are often as insightful as the blog post itself.
- Types of Twitter Profiles – in another recent post, Jeremiah Owyang classifies different types of twitter profiles with respect to their focus on personal or corporate representation. Again, this is a common dilemma for businesses as the use of Twitter, as well as other social media platforms, often blurs the boundary between personal and corporate. Brands, Jeremiah suggests, should employ a combination of different Twitter profiles and provide internal coordination to ensure complete high-quality user experience.
- One last idea – during the study we’ve seen several examples where firms, usually smaller ones, encourage personal use of Twitter by employees in order to develop first-hand experience with the platform. Seems like a good idea to me.
Finally, Microsoft + Yahoo…
Jul 30th
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After months and months of merger and acquisition talks with Microsoft and Google, Yahoo has finally reached a deal to merge their search and search advertising functions with someone – Microsoft! The deal will last 10 years, and “Microsoft will now power Yahoo search while Yahoo will become the exclusive worldwide relationship sales force for both companies’ premium search advertisers,” according to the companies. Further, Yahoo will get 88% of the search revenue for the first five years, which is higher than the 60% or so that is typically given in these types of deals.
To some Yahoo supporters, the deal may be disappointing, because it is much less lucrative than the $44 Billion buyout of Yahoo that Microsoft attempted last year. The companies announced that the new deal will likely lower Yahoo’s costs and increase their profitability, but it may not have a huge impact on their revenue. The cost reductions
are due to the fact that Microsoft will absorb all of the search technology development and infrastructure costs. However, Yahoo will lose the chance of having a distinctive competence in search, the most lucrative area in internet advertising.
Yahoo will now be able to focus on the portal content and display ads areas, which they are a leader in now. However, this has not been a recent growth area for the industry. AOL has focused on these areas in recent times, and the results have not been pretty.
For Microsoft, this deal will allow Bing to gain market share, and it will possibly cause Bing to become more prominent in the eyes of users. Further, the deal eliminates one of their main search rivals. As Bing receives more traffic, it will also allow Microsoft’s engineers to improve its engine at a faster rate.
The deal will need to pass regulators, who did not look favorably on the recent potential Google/Yahoo deal. However, even combined, Microsoft and Yahoo will have a share in the search market that is less than half of what Google has. The companies hope that the deal will be quickly approved and that the merger will start in early 2010.
The next exciting step will be to see the reaction of the industry leader, Google. They may try to step up their search offering, and they may try to influence the decision of the regulators. More on this to come…
The future of office printing
Jul 16th
As far as consumers are concerned, before Amazon’s Kindle arrived, the last time printing had been considered high technology had been around 15th century, the time of Johannes Gutenberg. Today people seem to be reading mostly from screens, be it mobile, desktop or Kindle screens. Declining newspaper sales are merely the most visible reflection of a larger trend: the days when people read things on paper seem all but counted and digital is king.
That is, unless you happen to be in charge of your company’s printing operations. Gartner estimates that between 1% and 3% of an organization’s revenues are spent on print. Think about the last time you went to a meeting and needed to print out meeting notes for everyone to keep everybody on the same page—literally. And what happens to these notes after the meeting? Many of them end up in the trash bin. In fact, according to Xerox, 40% of documents that are printed in the office are only viewed once. That is a huge waste, not to mention that it’s environmentally unfriendly.
While Kindle and other electronic readers are surely useful for books and newspapers, people still prefer to read many documents from paper. This is a major reason why the promised revolution in corporate workflow where electronic documents (say, in the form of PDF files) would be created and shared without the need to print them out, despite much hype, has not materialized.
So instead of changing people to wean them off paper, some are trying to change the paper itself. Xerox for one has been working on what it calls “erasable paper”. A special printer would print on special paper, and the printed image would disappear by itself in 16—24 hours, or be erased immediately by heating it, after which the paper can be reused. Separately, a team from Northwestern University is working on plastic-sheet “paper” that allows printing in color and defining the time after which the image disappears.
Neither technology is yet available commercially and their prices are unknown, so the economics of their use compared to traditional paper cannot be estimated. But if and when these technologies come about, the need for shredders and dedicated paper recycling bins would fade away, much like the text on the erasable paper.
