Cents and sensibility

[R.A. Hettinga]

<http://www.asiaone.com.sg/cgi-bin/utils/it/printf.pl?specialsprt>

IT AsiaOne - Specials


 Cents and sensibility
 Would you buy goods online that cost a few cents? Most people don't and
won't, for they would either want it for free or fork out a reasonable
amount for it

 By Raju Chellam , Business Times
27 Nov 2004

 ON Jan 21, 1998, Boston-based computer giant, Digital Equipment Corp (DEC)
began testing a new system for buying and selling low-cost information or
goods over the Internet. The system, called MilliCent, was the brainchild
of DEC CEO Kenneth Olsen and offered users the chance to buy information or
goods or services over the Internet at prices ranging from
one-tenth-of-a-cent to US$5 per transaction.

 That initiative was as revolutionary then as it is now. That's because the
idea did not take off then - and has not quite taken off yet.

 The idea seems simple enough: instead of risking tens or hundreds of
dollars buying stuff on the Net, would you mind parting with a single cent,
or a few cents, or even a dollar, to buy something you like online? Most
people don't - or won't - it seems. They would either want it free, or
would be willing to pay a reasonable amount for it, but not just a few
cents.

 Except perhaps for music. There are three success stories here: One, from
Soundbuzz.com, a homegrown startup which offers 250,000 songs at $1.99 each
for downloading on Creative Technology's MP3 players and other devices.
Two, from Apple's iTunes, which charges 99 US cents to download a song from
a repertoire of a million songs, to the iPod MP3 player. And three, from
the booming ringtone industry, which charges from $1 to $3 per tune
downloaded to your cellphone.

 All this however is a tiny drop in the ocean that is the Internet.
Micropayments currently form less than one per cent of the commerce done
electronically worldwide. While most consumers buy more goods or services
that cost more than a few dollars online, very few buy goods or services
that cost less than a dollar online.

 Gartner Inc says microcommerce will be a US$60 billion business, but only
in 2015. Forrester Research says online retail sales - called B2C (business
to consumer) - in the US are set to cross US$100 billion for the first time
this year. Of that, less than US$50 million will comprise micropayments.
That's a poor showing, even in the US.

 As for Singapore, IDC Corp says 2.8 million Singaporeans - 59.6 per cent
of the population - have an Internet connection. Of that, only 1.4 million
- 29 per cent of the populace - have shopped online for goods or services.
Most of them would have bought stuff that costs over $10.

 Are more people reluctant to buy stuff that costs a fraction of a dollar
online? Are there fewer goods available at those low prices? Or is it too
cumbersome for either the buyer or the seller to process e-payments through
credit cards for amounts less than a dollar?

 It is all of those factors and more. As for e-payments, there's a debit
card service, called eNets, from Nets (Network for Electronic Transfers
Singapore). In April, Nets launched eNets China Payment, that enables
millions of mainland Chinese shoppers to use their Chinese bank debit cards
to buy goods and services from Singapore's online merchants for the first
time. At the launch, 110 online merchants in Singapore signed up to offer
goods, including a dozen who offered to sell their wares online to
China-based buyers.

 One lurking fear in buying goods online is fraud. Though consumer fraud is
not yet as major an issue in Asia as it is in the US, it is still a major
concern. 'Illegal access to checking accounts is the fastest-growing type
of US financial consumer fraud, and thieves appear to be proliferating
through online channels,' says Avivah Litan, Gartner's vice-president and
research director.

 A Gartner poll in April concluded that 1.98 million online adults have
experienced this sort of crime in the past 12 months. The cost is about
US$2.4 billion in direct fraud losses, or an average of US$1,200 per
victim. 'It will take time for the financial services industry to develop
sophisticated backend tools, but banks must implement stronger access
controls to online and phone banking systems,' Ms Litan says.

 If issues like fraud are holding back the growth of online payments in
general, is there no hope for micropayments? Not quite. There's some
evidence that online payments, whether big or small, are getting traction
in the US now. The most well-known company in the category is PayPal. Some
others, such as Beenz, Flooz and DigiCash, which boomed in the dotcom era,
have since vanished. New ones are coming, with names like Bitpass,
Peppercoin, Salon, Valista, Payloadz, Firstgate, Paystone and Yaga. They
are all startups with dreams of becoming the next Google in mind.

 That will take time. Until that happens - or until the next rush of
interest shifts to the 'microfirms' that offer micropayments - buyers will
have to struggle to find goods and services that cost under a dollar
online, even as sellers of goods that cost little struggle to find buyers
online.

-- 
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R. A. Hettinga <mailto: rah at ibuc.com>
The Internet Bearer Underwriting Corporation <http://www.ibuc.com/>
44 Farquhar Street, Boston, MA 02131 USA
"... however it may deserve respect for its usefulness and antiquity,
[predicting the end of the world] has not been found agreeable to
experience." -- Edward Gibbon, 'Decline and Fall of the Roman Empire'