Web products have followed a steady evolutionary path from the compound to the atomic. Today’s popular social sites are spin outs of behaviors that emerged from blogs and forums, the primordial soup of the early social web. Before there was Twitter, people were doing something similar to tweeting on so-called link blogs or micro blogs. Tumblr was a direct descendent of a particular strain of blogs known as tumble blogs.
The successful products took big meals and converted them to snacks. The Internet likes snacks – simple, focused products that capture an atomic behavior and become compound only by linking in and out to other services. This has become even more so with the shift to mobile. People check their phones frequently, in short bursts, looking for nuggets of information.
A notable exception to this pattern are online products that users pay for. The dominant payment systems (mainly, credit card systems) were designed to be offline systems and only much later awkwardly grafted onto the Internet. They are inefficient and prone to fraud. As a result, paying online means making a commitment of time and trust. That’s why one of the most valuable assets an online business can have is “credit cards on file”. It is also one of the reasons there is a rich-get-richer dynamic for paid products. Big companies like Amazon and Apple are the beneficiaries.
The perverse result of this system is that products that are naturally suited to be “paid snacks” have to contort themselves to make money. News and music are good examples. Only a few news sites are popular enough to entice users to commit to paying, and even those have had only limited success with paywalls. Other news sites depend on intrusive ads to support themselves. Music is mainly purchased through aggregators like iTunes and Spotify who charge a hefty tariff. You need a comprehensive catalog to convince users to commit to a payment relationship.
In-app payments on iOS and Android are the one place where paid snacks exist at scale. They have been wildly successful, quickly becoming the dominant business model for games, replacing up-front payments and banner ads. (There are individual games that generate over one billion dollars per year from in-app payments.) Outside of games, entrepreneurs have started building interesting new products that wouldn’t have been viable without in-app payments.
This is one of the main reasons people are excited about new payment systems like Bitcoin. A broadly adopted form of “programmable money” has the potential to bring paid snacking to the rest of the Internet, and in doing so enable the save level of innovation in paid products that we’ve seen in the free and ad-supported products.