Illustration of mobile payment via smartphone

The market of micro-transactions, is it all it’s hyped up to be?

Microtransactions. We’ve all heard about it. It’s the next e-commerce revolution, but it is always around the corner. When you hear the term, what immediately comes to mind? For many, it may mean paying for things that are less than $1; for others, it may mean making a lot more little purchases from many different people than you would normally do. But practically speaking, if put on the spot, can you think of actual practical examples of something that you may want to buy for less than $1? Or a time when you would like to make 1,000 individual tiny purchases from 1000 vendors? Most people struggle at this point. That is because the market for micro-transactions is new, and it simply doesn’t exist yet. But like any new market enabled by developments in technology, it just requires a little bit of innovative thinking and imagination on our part to start to see the potential opportunities made available.

I could evoke often-used analogies of the steam engine and the industrial revolution, but I think something more recent would ring more true for readers of an article delivered via electrons emitted through the ‘aether.’

Think of the humble transistor. The device you are reading this on is essentially just a collection of billions and billions of these tiny electronic switches, without which modern computers would not exist. When the advent of modern transistors allowed for the invention of the personal computer, established companies scoffed at the idea that anyone would ever need the power of a computer all to themselves. They didn’t see the potential market for the possibilities created by everyone having their own personal computing device.

Today, we can’t hardly get through a day without using our personal mobile computers we all have in our pockets. But can you blame them? At the time, the established companies came from the age where computers were used for scientific research only. There were no such things as games, business applications, photo editing, word processing (aka blogging to you millennials), or even spreadsheets. The computer was just a big room-sized machine where specialist scientists who were trained in the art were able to write arcane programs in punched cards to solve mathematical problems or model physical phenomena by translating math and calculus problems into a form that a computer could ‘crunch away’ at. Why would any individual ever need something like this?

They invented but didn’t recognize the value of the ‘digital hammer’ that had just been created.

More recently, within the last 25 years, telecom companies, which had just managed to connect the whole planet in communication networks (which was itself a grand achievement), were sitting on top of the world. Companies like Bell Atlantic, which would eventually become Verizon, were flush with money. Everyone was now buying a personal communication device called a cellular phone, and they were charging everyone for using their telecom networks by how many minutes they would be connected to the network. When Apple (NASDAQ: AAPL) in 2007 engaged supply-side economics by reinventing what they thought people would want and introduced the iPhone, this turned the existing market upside-down and brought about the new way of charging for network access: by bandwidth. Data-based pricing was born. This evolution of data being the meter by which exchanged value can now be fully utilized with the advent of microtransactions.

Imagine (in the best internal Steve Jobs voice in your head) if you could suddenly charge for the smallest amount of data sent over to any network connection; what would you be able to sell?

Data, it turns out, is a very value-dense commodity. When people talk about value density, they usually talk about how much something is worth vs. the size or the weight of its physicality. Gold and diamonds, for instance, have high-value density, and so do iPhones, incidentally. But data can be infinitely more value-dense than any physical good. Consider the value of a signed $1,000,000 cheque from Elon Musk; what is a cheque but a particular and verifiable piece of information or data? So, if there was a way to verifiably and reliably pay for the smallest iota of data, what kind of data would you be able to sell or monetize?

For starters, we could pay for streaming services by the minute or even second of streamed content.

We would be able to rent a movie and only pay for the amount that we watched. If we stopped the movie in the middle, we would not have to pay for the remainder. For videos on social media, perhaps we would pay certain amounts for different parts of a video. Streaming services would no longer have to impose the annoying “must watch within 72 hours of the renting” to keep the billing system manageable. You would be able to watch a rented movie anytime in the future, perhaps paying more if you skipped backward to rewatch parts.

In fact, the whole notion of “renting” a movie would eventually fade away, replaced with just “paying to watch” content. All that is required is viewing apps or browsers able to manage your wallet and the flow of payment transactions as fluidly as it manages the flow of the streaming video or audio data to your device. This would be an excellent example of paying for something that is worth much less than $1…as 1 second of a streaming movie would likely cost $0.001251. What if you could then just own parts of a film? Perhaps with a limited license to use in your own composite videos or clips? What if you could buy and own parts of a song composition? Would this bring about a revolution for indie DJs making their own mixes while still benefitting artists for their work?

And what about a use case for making many transactions because there is something valuable in the aggregate? How about weather sensor data? While it is clearly not very valuable to know what the temperature is like outside my house right now (as I could easily find that information elsewhere for free), what if I could find out the temperature in the Amazon rainforest right now? Worried about melting ice caps? How about Greenland or Antarctica? Or boiling seas, how about off the Florida Keys? Why not install sensors in these far-off places and have them publish data to whoever would want to buy them? With Bitcoin and a micropayment transaction framework, that sensor could fund itself independently as a vendor of the data it collects in real-time, and the people who install the devices don’t have to collect and warehouse the data themselves in order to re-sell it. They can simply install it and let whoever wants to pay for its data to subscribe to its stream and pay as they go.

These are just some unique paths to explore about what can be transacted over data networks with a micropayment infrastructure. This isn’t something that we should expect to be developed by the big incumbent players. They have way too much invested in the existing way of doing things to be able to imagine the possibilities that don’t involve them being used as the middlemen.

So get up, put on your innovation-thinking hats, go out there, and re-invent the world! And send me a postcard; I’ll pay for the postage when I receive it!

For more general information on micro-transactions, general terminology, or just to get more accustomed to the field, look further than this great summary article by CoinGeek.

Jerry Chan
Wall Street Technologist

[1] Assuming an average movie price of $15, comprising of around 2 hours of content.

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