The Internet is for snacking

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.

93 thoughts on “The Internet is for snacking

  1. Jason Coombs says:

    Nice thinking. Love your “The Internet is for Snacking” meme.

    During the late 1990s in the midst of the emerging dot com bubble I worked as a freelance programmer for Alta Vista and helped to build a micropayment platform called Millicent. The reasons Millicent did not catch on, aside from the need to add the HTTP extensions to servers and clients so it could be ubiquitous as just another feature of the Web, are complex and market-driven. See:

    http://research.microsoft.com/en-us/um/people/gbell/digital/timeline/1997-3.htm

    There was never any functional problem with the system, it can and will work, and maybe it will become the future of micropayment (from the grave, as it were, or in some new INTERNETSNACKS.COM startup that gets capital and goes big soon…) but during the previous iteration of “the market for paid content” there was no demand from customers for a ubiquitous always-on micro-PayWall. Who can blame us for not wanting to turn on that particular “feature” of the Web? Free is a more compelling price, and it is the necessary starting point from which to grow certain markets. This is the classic Napster #EpicFail and iTunes #EpicWin story.

    Anyone interested in making another attempt to build a viable micropayments market demand can contact me. When done right, ubiquitous micropayments will create more freedom and more free content for everyone, rather than taking those things away or making the Internet suck.

    Sincerely,

    Jason Coombs

    http://memecapital.com/CoombsJason

  2. arthur chandrasekhar says:

    Maybe we need a low-limit microwallet. Like a $140 (or $14 dollar) low risk loss account that would ave less of a psychological association with a large loss with users if it got hacked.

  3. Guest says:

    My previous comment stands. Get rid of that terrible attempt at an avatar. I bet you spent ages creating it, too. It’s rubbish. You need to replace it with something that isn’t such a crap piece of attempted drawing.

  4. Kyro Beshay says:

    Any reason you suspect why Amazon hasn’t risen to become the micropayment processor of the web? They have the trust and have atomized the payment process on the web better than anyone has with 1-click payments. They’ve effectively solved a lot of the problems Bitcoin has yet to face.

  5. “The credit card on file” statement has a silver lining, and that’s the frictionless experience. That’s why PayPal still works well.

    For Bitcoin to be that next easy payment system, I think the trick will be in its integration, 1-clickability and wallet forms it comes in. So far, it has been very encouraging. The Bitcoin wallets are innovative, and where I’ve seen BTC as a payment option, it was very simple.

    I think simplicity is the killer feature for payments.

  6. I think that’s why Bitcoin is exciting. Bitcoin enthusiasts have various motives. Some are poltically motivated, others to improve the Internet, others to make money. Maybe those forces are strong enough to break through the massive chicken and egg problem around online payments.

  7. How so? I was thinking, at least in iOS, if the OS knows my iTunes account and requires a credit card, and then ties that all together with my fingerprint (for redundant but needed re-verificaiton), wouldn’t it just be easier for me as a consumer to use an app that asked for my payment upfront and offered me the option to imprint my fingerprint into their app? And then, every time I left and Uber, I just had to touch the pad?

  8. Maybe. I assumed Apple’s toll applied to in-app purchases of digital goods, but not for transactions (like buying an airline ticket or stuff on Amazon, except books)…so whereas a company like Uber may use Stripe Connect to run their payment rails on iOS, Apple could create their own identity database tied to iTunes, which is tied to an active credit card, and just open that SDK to developers as part of the app.

  9. Hmmm. It seems that on the web and with content (non-game) the ability to charge for the snacks is hampered by huge supply of roughly equivalent stuff.
    Conversely, with games, once someone likes and is invested in a game, the supply is quite limited – which results in willingness to pay. They can’t go get the exact same game and start in the same place in the next app or website that is offering it free. apps (web or mobile or mobile web) that follow the Ian Bogost cow clicker formula will generate $$.

    so, the payment or currency system should only be a factor if there is a willingness to pay ( even if unbeknownst to the customer) and friction exists. …right?

  10. Touch ID will have a big impact on IAP. It makes transactions totally frictionless. And puts us consumers on training wheels for real world touch authorization in the future.

  11. Kartik Kanakasabesan says:

    I agree with your assessment, the internet does drive a utilitarian culture but that is also the reason for it scalability and forces application developers to think about specialization and integration at the same time. Internet is the key driver in an API based economy. I also agree with your statement about aggregation and the key beneficiaries. But I think the jury is still out on BitCoin. Yes it is an exciting concept but elements like Bitcoin need an equivalence in the physical world. Facebook went down this path with Facebook currency and it was, to put it politely, “mildly” successful and that is saying something. Although I do believe there is a future to consider about programmable money but in the current stage of the internet evolution needs to translate to something physical i.e. I own it. The reason why Apple and Amazon are successful is because at the end of the day I am entitled to “own” something with BitCoin I really don’t know what I own. It will be interesting to see how BitCoin can jump the chasm from virtual to actual physical entitlement

  12. suyogmody says:

    Great post. Love the metaphor about internet snacking.

    “The successful products took big meals and converted them to snacks”

    The compound has broken down into atomic because digital products can be distributed so much more easily than the physical world.

    Snacks will be paid for in one of a few ways-
    1. You control the market where you can buy snacks – ex. iTunes, Google Play etc. Some of this is based on tech, some based on direct deals with studios, music labels (old wave). Markets charge fees to the stores to create and enforce rules.

    2. You have so many people come and taste snacks at your store that you can charge a price or admission (membership fees) or better still, attract sponsorship. At some point, you get so big that you are the market and the largest and only store.

    3. You make it so easy to buy that even if the snack is cheaper in other places, you are willing to buy it in this market because of the ease of use (i use those words in a very general sense).

  13. I certainly agree the jury is still out regarding Bitcoin. I am just trying to explain why people like me think it’s a “natural” form of payments for the internet.

  14. I think it will help. Tech for touch and other improvements over password have been around for a long time. The problem is adoption. Apple has a lot of leverage to get adoption.

  15. Would you put $10/month in a “writer’s bucket” that got distributed at the end of the month to the best things you read or something like that? I read a lot of good stuff on the web. Just not all in one place,

  16. Not for everything, just digital goods – so far. You can buy airline tickets through an iOS native app and I’m pretty sure the airlines don’t pay Apple.

  17. suyogmody says:

    Amazon is an example. 1-click + huge catalog makes it so easy to use especially if you know what you want to buy.

  18. Bitcoin is a bad choice though.. Cryptocurrency or digital P2P money on the other hand is not necessarily a bad thing but it needs to come from someone reliable, have the backing of countries and global economy to give it actual real value and not come from the background of hackers and scammers as Bitcoin has been attempting to make those who don’t want to work money by mining GPU cycles.

    Hopefully we see start-ups executing properly and someone building a similar thing that gets everyone on board and is done right.. without it, if it’s a hack like bitcoin it will eventually fail.

  19. I think their 30% commission only applies when you use their payment system with iTunes with login / password. It makes sense because it facilitates the transaction. If you want to use some other payment system, you’re free to do that, but then the user has to enter credit card info or other types of logins that can be a less seamless process and you might end up losing 30% in the volume of transactions…

  20. me too ( this blog being one :) )
    part of me says yeah I might do the $10 thing. but how does it work? do i get to somehow control the % distributed? ..or even give my whole $10 to a blogger based on a single post if it was awesome? I wouldn’t want to accidentally pay for what I consider shitty content no matter how popular.
    i suspect i’m probably pretty irrational here and strongly anchored to the prevailing $0 blog price.

    Ha! thought! > maybe disqus could add a tip jar feature , so that I could have a small prepaid bucket of $ to tip from.
    ..that might change the anchoring issue.

  21. yessss.
    my head is still riffing on the disqus tip jar thing. i think what destroys the anchoring issue is post-payment (vs pre-payment).

    and come to think of it, post-payment is exactly what in-app purchasing is. it often just *feels* like your buying a feature. but your really just paying for the “free” features youve already consumed :o

  22. ok so now I’m replying to what you said vs my last comment :)
    yea agreed, that is the beauty of programable money. we don’t have to figure out the underlying implementation, but in the near term we still have to figure how to get our money into whatever system it is.

  23. Right now, it only applies to “in-app” purchases of digital content – hence, not all Amazon goods, but yes for Amazon books. If Apple were to take Touch ID to next level and tie into iTunes/credit card, the solution/fees will look more like Stripe/Square than current rake.

  24. Joseph Valente says:

    Great post.

    Something central at play here seems to be this idea of reducing friction. Tumblr, Twitter and Yelp all succeeded by reducing the friction required to perform the core activity that users were originally doing.

    With payments though, there is a trade-off inherent which doesn’t exist in other verticals of consumer web, which is the question of security. Every night when I get home I have to unlock the door and turn off the alarm – this is annoying but it’s there for the thief, not me. In the same way I think the crap people put up with in payments is there for fraudsters rather than consumers, and it will become a problem in the BTC economy as well (potentially even more so, given that there are no chargebacks to fight it with, and transactions take an hour to verify).

    I think solutions to combat this might be built with BTC (just because it is so easy to build on) but we still need some more innovation around the trust space. I love how PayPass and PayWave have done this offline – card provides physical verification, using a transaction limit and a daily limit to minimise the risk of fraud, and then the bank has an insurance layer to protect customers further. The lack of physical cards, and ability to programatically defraud payment systems on the web makes a solution like that a lot harder to deliver. That said, it is definitely still possible even if a seamless, snack-like experience is a while away. Very excited to see what happens in the space.

  25. Ayush Neupane says:

    On paying for music bit, I think there is a general shift towards a shared economy model where you will not purchase music at all. If you are going to be connected 24/7 and all the music that you want is going to be available for streaming, why would you need to purchase music, no? I like to stretch this further and apply this to the greater argument by Marx where he argued capitalism is necessary for mass consumption (think purchasing music) and then moving to communism (where you do not own, but share the resource as you stream the same “copy” of music from Spotify).

  26. Joseph Valente says:

    Definitely. And very programmable at that.. literally just a system of links that even a beginner can make use of. Really lowers the barrier.

  27. ThatBostonMan says:

    Why does it need to be political to be considered reliable? You trust politics more than you trust your community?

  28. ThatBostonMan says:

    Fingerprint is a terrible form of biometric and easily faked. At least choose a form of biometric which can’t be easily tricked or faked. Also decentralized is better than centralized, and the way Apple does things is stupid but what do you expect from a for profit entity with no stake in security?

  29. ThatBostonMan says:

    How about micropayments? Buy $10 worth of Bitcoins a month and put it in a web wallet and every time you go to a site it takes some Bitcoins to view the page.

  30. ThatBostonMan says:

    No it doesn’t. The phone does not know who you are just because you got past the screen.

    Biometrics are the only way for the phone to know you are you, but fingerprint is no better than using a pin number so it’s not any more secure. There are other forms of biometrics which are more secure though.

  31. douglasstewart says:

    What are the problems that Bitcoin will be facing re: micropayments? I thought (and could very well be wrong) that this issue was recognized from the outset and the system itself was created with micropayments in mind

  32. richardhk5 says:

    Stripe & other payment systems don’t need widespread adoption to be useful, but they do need widespread adoption to be viable.

  33. alexandrebourget says:

    The primary reason I think is that all those micro payments providers required you to register with them.. which hits hard in terms of the user experience.

    The guy is engaged and trusts brand X.. navigates X’s site and is now willing to buy. He gets redirected (that’s a killer too) to some unknown micropayments processor’s site and brand. . First time experience is usually the standard email/pass/email verification dance. The payment might be micro, but the cognitive hoops and hurdles aren’t.

    That’s what encouraged me to found bitcredits.io.. and you can see how slick and integrated it feels on idiotsguidetobitcoin.com under Get It Now.

    Bitcoin allows us to have very deeply integrated payment in a site… and in many use cases (especially the u-payment case) it makes sense to not even require account creation! Using your browser as an adhoc pocket change “account”.. like when you keep some coins in the car for pay tolls, you’d keep a small balance in your browser for such and such site.

  34. alexandrebourget says:

    Yeah.. but only if the micropayments processor puts itself in the middle..

    check my previous comment.

  35. i would like to beef with every element of this post.

    internet users don’t want snacks. what they want are integrated solutions; if we extend this to the eating analogy, they want meals designed from start to finish. paired drinks, appetizers that whet your palate for the main course, dessert that soothes you after the main course. if you go for the appetizer because it’s cheap and easy, you’ll need a real stellar chef (i.e. google/amazon) to acquire you and integrate you into the menu.

    bitcoin is dependent upon an ability to maintain exchange rate equilibrium. everything about it is dependent upon this. until this puzzle gets solved, all the programmable currency stuff is a pipe dream. i don’t think bitcoin will solve but, perhaps the next iteration of cryptocurrency will.

  36. Part of this is somehow tied to mobile context and the need for instantaneous acceptance of what is on our phone screens.

    Nothing is more personal or intimate than our phone screens. That’s why ads just won’t work there.

    I like the snack metaphor. To me this is grazing as the new consumer consumption model.

  37. If apple built into their OS a way for any app/website to request payment for a content/service, and the user would need to tap their finger to authenticate – and they only took 5% of that…big time opportunity. And still keep the 30% for digital downloads via the appstore.

  38. asdfasdfasdfasfd says:

    actually now amazon is not significantly cheaper than brick-and-motar stores, particularly after they start charging state taxes. many people just go there for the assurance that they will find what they want immediately and ease of use (and of course great customer service )

  39. thepriceofriceinchina says:

    It seems to me that what ThatBostonMan is proposing is the possibility of a retraction from that particular type of authorization on account of potential fraud. If fingerprint authorization proves to be vulnerable to fraudulence beyond a certain point, the leverage that Apple has ceases to matter, unless they’re able to quickly iterate upon that authentication solution.

  40. it’s still friction. chris is saying that anything in the old world (credit cards) don’t fit the new world (true micropayments). stripe is bridging the gap, but not creating a new road.

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