Cyndy Aleo-Carreira, a contributor to the Industry Standard, writes a pretty spot-on refutation of her colleague Jordan Golson’s claim that the volume of virtual goods sold on Facebook and its ilk will not be a serious contender to advertising revenue.
Aleo-Carreira cites the example of Electronic Arts, who gave up the battle against the pirating of its FIFA soccer game in South Korea and chose to give it away online for free. Rather than making EA’s bottom line suffer, this hurt the pirateers tenfold, and the company started to sell online customizations like outfits and enhancements starting at $1.60 a pop. It goes without saying that this was a successful gambit.
She says that online gaming is the place to look for models where people will pay for content. She also argues that the cheaper the goods (for example, $0.99 songs on iTunes and elsewhere) the less time a consumer will give thinking about purchasing. She calls these micropayments, and writes that, as small as they are,
Any money coming in is a good thing, and it’s fairly safe to assume that companies like Google (and Facebook) are looking beyond the typical CPM-dependent ad revenue model to alternate methods of collecting those nickels and dimes consumers aren’t afraid of dropping, even in a faltering economy.
She’s got a point. I’ll pay little payments into SL all month, then realise at the end of the month I’ve spend $50+ in SL that month…
Thanks Dusan. Jordan still thinks I’m on something hallucinogenic. There will always be a place for online ads, but within the next several years, I think we are also going to see an increase in the revenue models built on micropayments. Velicia’s comment is a perfect example; anyone would balk at paying $50 for ANYTHING, but tiny little things over the course of a pay period will add up. That’s how Amazon makes money on Amazon Prime; even frequent users will end up buying MORE things from Amazon over the course of the year based on the free 2-day shipping. It’s worth it to avoid a trip to the store, and the key is to make consumers think they aren’t spending that much money.
Micropayments have been shown to work in virtual worlds, the problem is that on the rest of the Web there’s so much friction between your cash and spending it. Until you convert money into some sort of denomination it’s hard to get you into a micro-spending spree. It baffles me why there’s not a more efficient system. I’d gladly pay a few cents here and there for reading a really great article, (voluntary payment maybe but I think of it like a tip jar in Second Life - easy to do, small enough that you don’t feel it, but adds up for the receiver). Or think iTunes - it’s easy to spend $.99 - but that’s after you register, after you load up your account or link it to PayPal and all that.
I mean - if the Long Tail theory is right (and sure, it is, I just have problems with the idea that it replaces traditional media models - all it does is supplant one large distribution channel for another, although content developers can still pick up sales at the long end of the long tail where they couldn’t before) then the monetization of that needs to be matched with a long tail finance model.
Does any of this mean that advertising is dead? Of course not. But micropayments will be the largest driver of economics on the Web and in virtual worlds and games, especially if this last barrier, the creation of virtual wallets say, is overcome.