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Nicholas Lovell
Home   >   Analysis and Opinion   >   Opinion   >   Why micro-transactions won’t work

Why micro-transactions won’t work

By on February 11, 2009

Clay Shirky is my favourite Web 2.0 thinker (his piece on the cognitive surplus should be required reading for anyone thinking about how to engage consmers in the Web 2.0 era).

His latest post discusses the futility of micro-transactions for online publishers. His primary target is journalists hoping to sell their articles for anything from cents to dollars a time, which he believes is ultimately futile.

A number of key points leap out for games publishers seeking to use the micro-transaction model:

  • Consumers hate being “nickeled and dimed” – the phrase exists because we hate it.
  • Where micro-transactions work (Apples iTunes store, Korean MMOs) it is because there exists a de facto monopoly in that area. So if you want music for your iPod, you have to purchase it in micro-transactions; yet if you want a podcast on your iPod, you can get it for free, even though Apple has the facility to charge you for it. The combination of Apple’s distribution monopoly and the music industry’s organised and litigious nature create an environment where micro-transactions can thrive.
  • We are no longer consumers of media: we are users. We use our media to inform our discussions with friends, to develop conversations, and hence we need to share it, through Facebook, email links or social bookmarking sites. Shirky calls this superdistribution, and argues it “matters a lot. It matters so much, in fact, that we will routinely prefer a shareable amateur source to a professional source that requires us to keep the content a secret on pain of lawsuit. (Wikipedia’s historical advantage over Britannica in one sentence.)”

Micro-transactions can work in a closed environment where users have no free alternative and where the items purchased have meaningful value. However, the focus has to be on thinking about what the user will buy, not what the corporate would like to charge them for.

About Nicholas Lovell

Nicholas is the founder of Gamesbrief, a blog dedicated to the business of games. It aims to be informative, authoritative and above all helpful to developers grappling with business strategy. He is the author of a growing list of books about making money in the games industry and other digital media, including How to Publish a Game and Design Rules for Free-to-Play Games, and Penguin-published title The Curve: thecurveonline.com