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Ben Elowitz (@elowitz) is co-founder and CEO of Wetpaint, a platform for social web sites, and author of the Digital Quarters blog. Prior to…

Ben Elowitz, Founder and CEO, Wetpaint

Ben Elowitz (@elowitz) is co-founder and CEO of Wetpaint, a platform for social web sites, and author of the Digital Quarters blog. Prior to Wetpaint, Elowitz co-founded Blue Nile, the online retailer of luxury goods. He is also an angel investor in various media and e-commerce companies.

Earlier this month, John Donahoe, CEO of eBay (NSDQ: EBAY) and its subsidiary Paypal, was interviewed at the D8 conference. It was a flashback to see him speak: I had worked under him 15 years ago when I was a freshly minted undergrad just hired into the San Francisco office he ran for Bain & Company. A strapping and charismatic up-and-comer, John was known for his bold visionary talks and his strident walk.

But at D8, I didn

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  1. Ben,

    This is not a cost-effective solution because you missed the per-transaction merchant cost the content producer will incur with PayPal. The solution in the current economy is pre-paid, not post-paid and media firms will have to incorporate a pre-paid model to create their own digital economy to sell media goods.

    Paypal still charge a fee and if you charge .99 cent for something, I believe they take .40 leaving you with .59 cents! I remember Paypal has a micro-payment option that charge a lower fee. But even still, Paypal is taking a cut of the per-transaction cost.

    With the prepaid model and this is what I have adopted – the customer deposit $20.00 using Paypal and we give them 2000 credits. Now if they want to download media or content, it can cost 100 credits and we are not dealing with any per-transaction cost from the merchant account like a Paypal. This is also an international solution as we can also take currency deposit from any country and even sell PVC cards with scratch-off codes similar to what we see with online gaming/pre-paid phone cards at Target and Wal-Mart.

    Once we move the customer into a credit system, we can keep them in-house and do the “impulse click” transactions you speak of and deduct credits accordingly. This is also a better workaround to that Amazon 1-click patent.

    BTW, this prepaid model is excellent way to self-fund our web technology startups real fast without VCs who tend to ignore people like us. Instead of dealing with debt financing which is all the VC want to offer us, we can collect interest from the deposits instead of pay interest on debt financing.

  2. I absolutely agree. Impulse buying of low cost items (like music tracks) is a lost opportunity that could be captured by a company with reach like PayPal. They have already started down that road with their recent foray into micro-payments. $0.05 +5% is a lot better for a $0.99 track than the old $0.25 +x%!

  3. Well, I’m not sure that having media rely on “impulse buys” for funding is a long-term viable solution. But let’s leave that for another discussion.

    The problem with Paypal is that they’re not a bank and they’re not really a financial institution. Which means that if you’re ever unluncky enough to have a problem with them, it’s like negotiating with a drunken DMV employee. If a visitor to a media website has a problem with Paypal, the customer will blame to media website, not the backend solution. And trust me, there will be problems.

    1. There is no other solution than paypal on the internet, and in the 10 years I’ve been using them to get paid online, I’ve never had problems.

  4. AllYourTV,

    I do not see impulse buying as “funding” but generated revenue. I believe generating revenue is a long-term viable solution for digital media companies…

  5. Draft Media Release—Confidential

    “It is with very great sadness that eBay’s Chief Headless Turkey, John Donahoe (aka “Peter Principle”—among many other derogatory terms), announces the probable demise of eBay’s most ugly daughter, PayPal. PayPal is about to be stricken by particularly virulent strains of Visa+CyberSource and Mastercard open platform, aggravated by an insurmountable lack of direct financial institutions participation and a great deal of PayPal user/merchant dissatisfaction, particularly with respect to PayPal’s grossly unfair, “all responsibility avoiding” UA, primitive risk management processes, and totally unprofessional, buyer-biased, fraud-facilitating, transactions mediation.

    “PayPal’s health may therefore be expected to deteriorate and, if ultimately not completely incapacitated, will most likely be eventually confined to its mandatory offering on what little there will be by then left of the Donahoe-devastated eBay marketplaces. There is no cure for this condition, and the “eBafia Don” is particularly saddened by the inevitable presumption that it is unlikely that PayPal will be able to continue to underpin eBay’s sagging bottom line in the future.”

    Also, in Australia, unlike other payments processors, PayPal has declined to sign up to the payments processors’ “code of conduct”.

    A detailed examination of and prognosis for PayPal (including a further link to the “PayPal Nightmare Tour”) at
    http://www.auctionbytes.com/forum/phpBB/viewtopic.php?p=6504554

  6. Hi Ed, actually Paypal already offers a microtransaction processing program for which they only charge $0.05 fixed + 5% of transaction value.

    While prepaid accounts may work for certain publishers who have a very high relationship factor (e.g. Facebook), most publishers will get way too low of a take rate if they require an entire account setup before the first purchase. Reducing that barrier for the consumer to pay is key to making transactions happen.

  7. AllYourTV, I think the nature of consumer media is a perfect match for impulse purchases: it’s about temporal value. Content is quickly transmitted and quickly consumed; it’s based more on interest than need; consumers love to enjoy a lot of it from a lot of different sources; and the wide variety of products and experiences available are perfect for striking a fancy at any given moment. These are the same things that make everything from checkout magazines to music to snacks and chewing gum get purchased millions of times per day.

    The great thing about bite size purchases is that if they don’t work out, there’s not so much invested in them as to have a ton of resolution required.

  8. This article misses one barrier to purchase of news and other digital content, namely, why pay when most of them are available free-of-cost, either from the original publisher, or from news aggregators. This is not surmountable by any form of micropayments.

  9. Have you not noticed that most are going behind paywalls – ie. The Times? WSJ? FT? PayPal micropayments make total sense. The real challenge will be whether the publishers will play…….

  10. Fully agree with your points on how to save media. Great article!
    Just one tiny change: PayPal isn’t the white knight, because it has pretty few client contracts. 219 million are small compared to the number of the world population, and even the 219 million figure in a lot of one-time buyers who were forced into PayPal because they needed to get an item on a PayPal only shop once.
    3-4 billion clients would be better, so look to telecoms instead of PayPal.
    Here is an interesting article about it: http://telcoserve.blogspot.com/2010/08/tax-google-give-winners-money-to-losers.html has an impressive list of telco differentiators over PayPal, Amazon, and iTunes.

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