At 7:57 PM 6/5/96 -0700, Nick Szabo wrote:
Some electronic commerce projects promise dramatically lower transaction costs, so that we can achieve "micropayments", "microintermediation", and so forth. Is this achievable?
Consider a feature fairly independent of the particular payment system: the statement of charges. Here lies a tradeoff here between completeness and complexity. On the one hand, merely summarizing charges creates the opportunity for salami frauds, allowing widely distributed false or exaggerated microcharges to go undetected. Furthermore, parties reading only the summaries get no feedback by which they can adjust their behavior to minimize costs. On the other hand, a statement too complex to be easily read also allows fraud, error, and inefficient usage to go unrecognized, because one or both parties cannot understand the rationale for the charges in relation to the presumed agreement on terms of service and payment.
This is, of course, an opportunity for agents (programmed, or two legged) to use their superior knowledge of the service/technology/business to optimize service for ordinary people.
There seems to lie here a fundamental cognitive bottleneck, creating a limit to the granularity of billable transaction size whether electronic or physical. One proposed solution to this has been "intelligent agents". But since these agents are programmed remotely, not by the consumer, it is difficult for the consumer to determine whether the agent is acting the consumers' best interests, or in the best interests of the counterparty -- perhaps, necessarily, at least as difficult as reading the corresponding full statement of charges. By sleight of hand we may have merely transformed the language of the transaction as it needs to be understood by the party, without reducing the complexity to be understood. Furthermore, the user interface to enable consumers to simply express their sophisticated preferences to an agent is lacking, and may represent another fundamental cognitive bottleneck.
I think that agent providers would gain reputations. Many consumers might trust an agent from Consumer's Union for example. If there end up being only a few types of agent, then I would expect to see an "arms race" between charging systems and agents. The providers would try to devise charges which maximize their profit, while the agents would try to get the best combination of service and cost for their users. This race would be similar to the situation we see in the telephone industry, with its continuously changing "special long distance deals". I assume any user interface will be in terms of the user's interests. Since these interests will change over time as the environment and user's knowledge change, the UI will be a hard problem. However, the UI will be another factor in the user's agent selection process.
Telephone companies have found billing to be a major bottleneck. By some estimates, up to 50% of the costs of a long distance call are for billing, and this is on the order of a $100 billion per year market worldwide. Internet providers have been moving to a flat fee in order to minimize these costs, even though this creates the incentive for network resource overusage.
With the current low speed dialup connections, the savings on billing costs are probably greater than the costs of bandwidth "over use".
A micropayments system assumes a solution to the billing problem. If somebody could actually solve the this problem, rather than merely claiming to have solved it via some mysterious means ("intelligent agents", et. al.), the savings would be enormous even in existing businesses such as long distance and Internet service -- never mind all the new opportunities made possible by micropayments.
Even a cash based payment system will have costs. The lowest cost IP payment system I know of, Norm Hardy's Digital Silk Road, has the cost of increasing the complexity of the IP routers. There is no free lunch here. Whether you call it accounting, billing, or micropayment; it is an additional function which must be performed by a piece of code with stringent performance requirements. Regards - Bill ------------------------------------------------------------------------ Bill Frantz | The CDA means | Periwinkle -- Computer Consulting (408)356-8506 | lost jobs and | 16345 Englewood Ave. frantz@netcom.com | dead teenagers | Los Gatos, CA 95032, USA