Your 0.002 Cents Worth

E energy too cheap to meter was the great canard of the atomic age. It’s beginning to look as if “information for micropennies a page” will be the Internet-era equivalent. As the World Wide Web gained popularity, dozens of entrepreneurial groups rushed to meet the need for small on-line payments so that people could buy articles from their favorite newspaper, reports on new products, beautiful images for their computer screens.

Giants such as Visa International and Carnegie Mellon University hawked their digital-payment wares right alongside the tiny start-ups with a patent and a dream.

Today, even as a Web standardization committee is putting the finishing touches on a format for encoding micro-transactions in Web-page text, all that’s left of most of the would-be five-and-dime tycoons is the Internet equivalent of an empty store-front: “404 Not Found” or “The server does not have a DNS entry.” First Virtual, which billed itself as the first Internet bank, has abandoned the business altogether; DigiCash [see “Achieving Electronic Privacy,” by David Chaum; SCIENTIFIC AMERICAN, August 1992] is in Chapter 11 reorganization, and its only telephone number leads to a message from the company’s “interim president” saying he no longer listens to messages left there

Ostensible market leader CyberCash has stopped offering “cybercoin” transactions in its U.S. soft-ware. In the U.S., at least, all the banks that once supported micro-payments have taken their resources elsewhere. Once they got out of the pilot phase, micro-payment schemes suffered from the dark side of the law of increasing returns: consumers didn’t want to download unproved e-commerce software without an attractive range of things they could buy. But most Web firms weren’t willing to invest in digital-cash servers and parcel up their sites into easily salable chunks without a guaranteed audience of willing buyers.

In addition, at least within the U.S.,widely accepted Web security standards have made credit-card payments a defacto Internet standard. You can surf almost anywhere and buy with plastic, as long as the price tag is large enough-- about $5 or $10—to cover transaction processing fees and still allow a profit in Europe and Asia, where credit-card transactions are not so ubiquitous, digital cash is making more headway, just as “smart cards” have in previous years.

U.S. consumers who might have been interested in data by the pennyworth (had they been for sale) have generally not been willing to buy information by the sawbuck. Web-based publications such as Microsoft’s Slate—before the company gave up on paid subscriptions—found themselves with only a small fraction of the subscribers they needed to break even (or to match their print competitors). As a result, instead of micro-payments (or macro-payments) from consumers, the Web has grown to its current multi-million-site sprawl in large part with micro-payments from advertisers. Traffic statistics suggest that half of all pages sent over the Web every day contain an ad. Every time you click on a page with an advertising banner, the site owner gets anywhere from a few tenths of a cent to a dime from companies who believe a 60-by-460-pixel animated display might make you want to buy their products. Site managers settle accounts with an ad broker, rather than with thousands or millions of individual viewers.

About 1 % of sites generate enough traffic to attract advertisers; the best, such as or, earn revenues in the millions. Advertisers measure the effectiveness of their banners by “click-through,” the percentage of surfers who follow the banner link to a company’s Web site. That number started above 10 % in the earliest commercial days of the Web, sank to 2 % by 1996 and last year (1998) dropped to 0.7% . As advertisers find themselves spending more money for fewer responses, many have begun to insist on “action-based” pricing, which rewards sites based on the number of users who click through. They may offer a percentage of the take or payments of $10 or more when sites refer someone who actually makes a purchase.

The next step for Web sites being paid according to click-through is to share some of that revenue with Web surfers. Cybergold, for example, offers on-line payments of several dollars per click to people who sign up with the site and make purchases at the dozen or so participating merchants. Users can withdraw the balance in their account for a fee or buy a small range of digital products from the Web site. offers users 50 cents for every hour (up to $20 a month) they spend on-line with the company’s software displaying ads across the bottom of their screens.

Russ Jones of Compaq Computer suggests that the opportunity to ‘earn as well as spend small sums may eventually create a real market for digital cash and micro-payments not tied to a single company or Web site. Jones is business manager for the company’s MilliCent project (named for the size of the transactions its software was designed to handle without excessive overhead), which will see commercial application this summer (1999) in a collaboration of KDD, Japan’s second-largest telecommunications provides and 18 of the nation’s leading magazines and newspapers. In trials last year, 10,000 users spent an average of a little more than a dollar each on items priced as low as 0.2 cent. They included such fare as dictionary searches, high-quality pictures of museum artifacts and articles from special-interest

magazines, offered by 45 vendors.

It’s very unlikely anyone will get rich from micro-payments, Jones says—for a small Web site, the income could cover Internet access fees and a holiday bonus. Depending on your opinion of the multibillion-dollar market valuations of Internet

start-ups, that prediction could be a harbinger either of failure or of eventual success for digital small change. In either case, after making a few broad assumptions, expect this article to have cost you no more than four cents.

                                                                                                       —Paul Wallich



News and Analysis, page 37

Copyright@June 1999.

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