Pull Your Own Strings

Monetizing with Micropayments

Saturday June 11, 2016

Everyone is obsessed with micropayment and tipping with Bitcoin, which inevitably devolves into a South Park Episode. You know the one where South Park is invaded by hobos asking for change, and eventually Gerald (pictured below), gives up his last bit of change turning him into a beggar.

Can anyone spare some satoshis?

“Can anyone spare some satoshis?”

This is the exact reality of the micropayment. It’s a system where people toss fractions of cents at each other in hopes of aggregating a small fortune. 21.co dresses up this turd of a system with its marketing as so:

Why would such a web be desirable?

We start with the observation that you don’t want to go through a paywall every time you visit a new website. Instead, you just want to click a link. Similarly, you don’t want to enter in your credit card every time you try out a new paid API. Instead, you just want to send it some digital currency.

If you could do this, it would solve several problems in one stroke. First, it would provide a way to monetize APIs on a per-request basis without requiring developers to provide or accept credit cards. Second, it would reduce the siloization of APIs, as any developer with some bitcoin could now trivially call out to another API as easily as importing a new library call. And third, it would unify fulfillment and billing, with the HTTP request and the corresponding digital currency payment occurring within the same series of packets.

But this doesn’t make mathematical sense, not without each machine running itself as if it were a business – a non-trivial endeavor. First each computer will have to know its running expenses, particularly the time it is idle, in order to calculate cost per API request. These expenses would need to factor in electricity, and bandwidth usage averaged per HTTP call. From here the machine would need to set a fair market price against its expenses so it could at least see some profit. At the end of the day, the human owner of said machine will need to do some reconciliation of funds with some accounting. Seems like a lot of human work for something automated.

How much hypothetical profit are we talking about? Well lets take a look at 21.co’s API marketplace and get an example cost per API call. Viewing the first 100 or so listings, no call costs more than a dime per request. Lets say the operating margins are 80% (I’m being extremely generous), that means roughly 8 cents per every call is profit. To make $100,000 in profit just on that call, one would have to furnish a request every 30 seconds for an entire year for a total of 1.25 million requests. This is borderline enterprise level activity, which would require more than a single computer attached to a home internet connection. It would likely need a load balancer, basic enterprise grade routers, and a small business internet package for starters. At this point, your micropayment service now requires a human just for operation management – it will now require someone on-call in case of production issues. Any downtime breaks the automaton paradigm, as any machine depending on these API-resources assume ideal uptime.

This doesn’t take into account that nearly every API request you could think of (from Google, to Twitter), are free. Most services that are trying to monetize their API’s charge a monthly/annual subscription fee. In this instance you’re paying to use a suite of tools: a full-fledged application.

By the time sales from micropayments build up to a minimal substantial revenue, the amount of work to maintain the system starts to escalate dramatically. Also the only services people would want to use in this system are the most reliable ones – the services that have minimal downtime. This would likely create less incentive for small developers to sell API calls on 21.co’s marketplace. They could make significantly more money using their servers for other tasks.

Micropayments are not sustainable alone. ChangeTip, which desperately tried to develop a micropayment platform based on tipping, was doomed for failure. When I reported on 21.co last year, they were selling off their unprofitable mining chips via their 21 Bitcoin Computer. This was after claiming they would be able to cheaply put their mining chips in everyday electronics, such as smart phones, toasters, and lightbulbs. Now they’ve open sourced their product, and are hopelessly trying to get people to join their micropayment network.

It won’t be until someone anonymously rents a self driving car for a drive-by shooting, that we’ll see the true insanity of a machine payable web.

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