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The small fortune to be made on the web

On Pet Society, one of the most popular social games on Facebook, users can pay $1 for a digital bonnet to adorn their virtual pet. It may seem like small change, but with 10m monthly active users, Pet Society is doing brisk business peddling digital accessories one dollar at a time.

Through Pet Society and thousands of other online games, a growing number of internet users are readily spending small amounts on these virtual goods. Taken together, they comprise a global market worth more than $2bn, according to Charles Hudson, vice-president of social game developer Serious Business.

Online games are one of several industries that have found micropayments to be a lucrative model for supporting their businesses.

Now a new breed of online stores is selling applications for smartphones, such as the iPhone and BlackBerry. More than 1bn applications have been downloaded from Apple’s App Store, most of them for free, but many for between $1 and $10.

Users are willing to pay small amounts of money for communications and applications because they increase productivity or provide entertainment.

When it comes to online games, users are willing to part with some small change for the gaming experience, just like playing at an arcade. Scott Loftesness, managing partner at payments consultancy Glenbrook Partners, says that, when it comes to online gamers, “you’re primarily dealing with addicts”.

So caught up in the gaming experience are they, that “their resistance [to paying] is reduced”.

On the other hand, while people seem willing to pay for entertainment, many believe that “information wants to be free”.

This is why even as game companies and vendors of digital content rake in cash, online publishers have a hard time convincing readers to pay for individual newspaper stories. “I’m still not willing to pay for a news story,” said Mr Loftesness. “I’m not addicted to it, and I can get it somewhere else.”

To service those companies that are doing a brisk business in microtransactions, a new generation of companies has sprung up to provide payment systems and capitalise on this emerging market. These new payment systems focus on a frictionless experience that makes it easier for users to spend small dollar amounts in large volumes, as opposed to shopping with credit cards online, which requires users to enter billing information for each transaction.

One company, Spare Change, lets people use their credit cards to buy points that can be redeemed on hundreds of applications across several social networks. For example, a user will buy 500 credits for $10, then use the credits to play games or buy virtual goods. Founded just 15 months ago, Spare Change is on course to process $30m in transactions this year.

Previous generations of micropayment processing companies went bust. In the 1990s, companies such as FirstVirtual, CyberCash and DigiCash all tried and failed to facilitate small-dollar, high-volume transactions across the web.

Earlier this decade, BitPass and Peppercoin tried again, but failed to gain traction. Many of these companies had systems that worked well, but none processed enough payments to stay afloat. In the past, there simply was not a large enough market for digital content to support an ecosystem of payment processors. “The use-cases for microtransactions were never as good as the technologies that enabled them,” says Mr Hudson of Serious Business.

Источник: Financial Times

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