Go on, Flattr yourself

By L.M. | MUMBAI

WILL consumers ever embrace the idea of paying for online content using micropayments? The idea of charging tiny amounts for such content in the hope that it will all add up has been around for as long as the world wide web itself, but despite numerous attempts at workable systems, micropayments have never taken hold. (Paying $0.79 for a track on iTunes doesn't count—it isn't "micro".) Many schemes suffer from the problem of "mental transaction costs"—the additional time and effort required by users to decide, for example, whether a blog post is actually worth three cents before clicking on a link. The real transactional costs imposed by credit card companies and services like PayPal don't help either.

In an essay, "The case against micropayments", Clay Shirky of NYU summed up the main problem in three words: "users hate them". The trouble with micropayments, he argued, is that "users want predictable and simple pricing" and, as a result, "anyone who can offer flat-rate pricing becomes the market leader". That was back in 2000. Mr Shirky reiterated his point in another essay, "Fame vs fortune", sparked by the launch of a micropayment system called BitPass. More recently he wrote a gloating blog post when BitPass died.

The founders of Flattr—a play on "flatter" and "flat rate"—seem to have taken Mr Shirky's criticisms seriously, and have done their best to address them in their own micropayment system, which adds a few novel twists. Flattr functions like a cross between the Facebook "like" button and a flat-rate PayPal, with a bit of StumbleUpon thrown in for good measure. Users pay a fixed monthly fee of at least €2 ($2.70) and no more than €100. In return they can click the Flattr button on any site that uses the service and install the button on their own websites. At the end of each month, the amount of money deposited by the user is divided by the number of clicks (minus a 10% fee for Flattr) and distributed among the site owners.

Unlike its contemporaries Kachingle and Sprinklepenny, Flattr doesn't make a distinction between consumers and publishers. Nor does it display information about who is paying whom. Launched as a limited beta version in February 2010 and made available to the wider public in August, Flattr has already acquired 70,000 users, some 70% of whom are purely donators.

Babbage met Peter Sunde, who founded Flattr in collaboration with Linus Olsson, at a recent conference in Mumbai. Mr Sunde is convinced that people want to pay for content but do not have an easy enough mechanism with which to do so. "It takes time to create digital information or intellectual property and people need a salary," he says. This robust defence of the importance of paying people for their creative work is a surprising statement, given that Mr Sunde is also the former spokesman for (and one of the co-founders of) The Pirate Bay, a search engine that has been the subject of a high-profile lawsuit for assisting in copyright infringement, by helping users of the BitTorrent file-sharing system to locate pirated material.

Yet Mr Sunde, a 32-year-old Scandinavian who claims to have no fixed address, sees the two ideas as similar, rather than contradictory. "Pirate Bay is an easy way to share information. Flattr is a way to share information about money," he says. "You can't fileshare money, but if you could, it would be Flattr." And although the term "social micropayments" is bandied about on Flattr's website, its founder prefers to call them donations or "money sharing".

Flattr tackles the problem of Mr Shirky's transactional mental costs in two ways. By letting users spread their monthly donation as thinly as they desire, Flattr discards the notion of per-item value. Clicking to make a donation on one item does not prevent you from clicking on others; it just shares the money out more widely. And by making payments optional, and allowing people to decide whether to click after reading a blog post or watching a video, users are not forced to guess whether their purchase will be worth the cost. Meanwhile, banking fees are minimised by accepting, for example, €24 at once instead of €2 per month.

For Flattr to have an impact on the way online content is consumed and produced, however, it would need to become massive. The service aims to have at least a million participants by the end of 2011, but even that would represent only a tiny fraction of the internet's 1.5 billion or so users. For comparison, PayPal has over 230m registered users, 87m of whom are active. More importantly, according to Mr Sunde, Flattr needs to provide more options for online payments. This month, for example, it added the option to make direct payments to its service, letting users donate a specified sum directly to a website. One of the big beneficiaries was WikiLeaks, which has been using Flattr since August, and has lately been prevented from using other means of accepting payment (such as PayPal and credit cards) following its leak of classified diplomatic cables.

Mr Shirky wrote in "The case against micropayments" that for online payments to work, they must incorporate offline solutions: aggregation, subscription and subsidy. Flattr may have found a formula that ticks all the boxes. Yet that is a necessary but not sufficient condition for its success.