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Where is the Money Going to Come From?

By Jordan Gold, UniNews online Web Correspondent


Would you pay $1 to read this article? No? How about 50 cents? No? How about 25 cents? Am I getting warmer? I thought so. The fact is, you're probably willing to pay for information online as long as you don't have to pay too much and as long as you have a good idea of how much your monthly expenses will be each month.

The reason why it's so difficult to make money on the web has nothing really to do with the fact that people aren't willing to pay for information. It's more a result of the fact that users CAN'T pay what the material is worth, because there isn't an easy way to charge for information, or for users to pay online in small amounts.

In 1995, many of us believed that transactions were a key to making money online. Transaction revenue didn't grow very much in 1995, so in 1996, we shifted to accepting online advertising as the holy grail of Internet revenue. That has also been slow in coming. Now, many observers believe that micro-transactions are the key to the Internet's future. A cynic would say that we're just shifting our expectations. In actuality, however, all of these revenue streams have to pan out for businesses to be successful online. Businesses with only one revenue stream are likely doomed to red ink for the foreseeable future.

I believe that microtransactions will be very important for the success of the Internet in the future. However, we first have to make it easy for users to pay for information. And the amounts have to be small enough that users will be willing to pay a little here and a little there without having to think about how much they are spending. This form of payment will likely come through Smart card technology.

A smart card is a "smart" version of a credit card. It typically has an integrated circuit embedded in the card that holds information about you, including financial, medical, or other information. One of the more popular uses of smart cards currently is as telephone cards. A smart phone card is typically available for $10 or so, providing you with a preset amount of time on the phone. A timer embedded into the card ticks down to zero as you use it.

Of more interest to us, however, are smart cards for use on the Internet. These smart cards will replace currency on the Internet by serving as an electronic wallet. You'll have a preset amount of money on the card and it will tick down to zero as you access information online. To use a smart card, you'll need a smart card reader in your PC. You'll then put the smart card into the reader and authorize it to spend a certain amount of money over the next month. Then, as you surf the Net, you'll pay a few pennies here and there without having to make users get their credit card authorized each time they want to buy something.

An example of an Internet smart card is from Mondex (www.mondex.com). Late last year, MasterCard International purchased a 51% majority stake in Mondex. The agreement gives all MasterCard financial institutions the ability to use the Mondex stored value card, which works much as described above. Because the card is electronic, it can be used both on the Internet and in non-cyberspace as well. The company is conducting smart card trials throughout the world. Wells Fargo in San Francisco is part of the trial, with 900 employees taking part. Schlumberger is developing the cards for the company.

Cybercash has a service called Cybercoin, which allows users to pay as little as 25 cents for access to services. ESPNET SportsZone recently announced an agreement with Cybercash to support this technology, by allowing uses to access premium content areas of the service for as little as $1 per day. The company also offers a digital newsstand with content from Barron's, Financial Times of London, and the Los Angeles Times, among others.

The idea... is to allow people to access content based on impulse. Users don't want to pay fixed subscription fees to access content. They're more inclined to pay a small fee to access it.

The idea behind all of this is to allow people to access content based on impulse. Users don't want to pay fixed subscription fees to access content. They're more inclined to pay a small fee to access it. However, you need a Cybercash Internet Wallet to take advantage of this. So, it's not an impulse. You have to go to the Cybercash web site (www.cybercash.com) access a wallet, download it, and put some money into it by charging your credit card. This is too cumbersome for most users, who don't want to download anything. When Netscape and Internet Explorer offer built-in payment options (neither has that capability now, nor in their next versions, at least in their current form), users will be more inclined to use spend money online. Even better is a smart card reader that you can plug into your computer. We're probably a few years away from true ease of use in microtransactions online. Advertising and other transactions will also have to carry their weight, but the trio will form a nice revenue base for companies hoping to be profitable online. And profitability is key to the Internet serving as a true business medium.

Mondex and Cybercash are just two of the companies involved in the microtransactions market. They and many others will be at the Cyberpayments Imoney Show in Washington, DC on June 19 and 20. For details, call 1-800-529-7375. Outside the US, call 216-464-2618.

Jordan Gold is Vice President and Publisher of Macmillan Online, a division of Simon and Schuster/Viacom. His worldwide web site can be viewed at http://www.mcp.com. He can be reached via e-mail at jgold@mcp.com.

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