Wednesday, March 04, 2009

What is the story with Microtransactions?

During the initial boom years of the Internet at the end of the last and beginning of this century Micro-Transactions were a big topic. Then this concept went asleep for a few years, now the iPhone, Kindle, and the discussion of how to save newspapers brought it back into the center of interesting business models. Maybe it’s just a coincidence that Amazon announced today its new Kindle application for the iPhone and iTouch? Or this announcement might even further heat up this discussion. 

There are a few reasons why microtransactions are getting more attention than a few years ago:

  • The concept of “free economy” has taken strong place in today’s world in which huge players like Google establish themselves as major forces. Microtransactions are closer to a free economy than most other business models. Consumers got used to receive a lot of things for free which limited their willingness to buy larger items. But it will not hinder them to buy items for a small amount of money. The huge iTunes success with a $0.99 price tag per song versus widely available free music downloads proves the collaboration between business models centered around “free” and microtransactions.
  • Today’s world of recession and consumer hesitation of buying large ticket items might further accelerate the acceptance of microtransactions. I know that a $13 price tag for a monthly Kindle subscription for a New York Times is not a true microtransaction but it is definitely a significant cost savings versus a $40 fee for a monthly paper-based home delivery. The borders between a traditional microtransaction and a just cost efficient monthly subscription fee might get more and more blurry.
  • Even industries like computer games might move closer to a smaller transaction model instead of a sticker price of $40-$60 per game. Microtransactions will enable brands to move from a infrequent large transaction relationship to a more ongoing subscription like relationship. This could significantly enlarge a loyal and stable customer base for a lot brands. 

I don’t think that the verdict, success or failure, of business models around microtransactions is settled yet. It’s more likely that this concept will just enrich the current business universe with one more particular flavor. And this is an enjoyable one


Anonymous Dan Taylor said...

Actually Michael - the case can be made that microtransactions are making a 'stronger than ever' return, primarily driven by the video game industry. The Asian market pioneered the free-to-play/microtransaction based concept a few years back, and have been reaping the profits ever since. North American companies have started turning their attention to this business model, and even giants like EA are developing microtransaction based games.

The flurry as of late is not a 'return' of microtransactions, just simply a new applied use of an already thriving business model.

12:46 AM  
Blogger Michael Fassnacht said...

Interesting comment, thank you. I have not seen that many examples of North American game companies like EA entering the microtransaction space but I might not know all their activities. It would be great if you could share some examples.

10:13 AM  
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