Anita guided me a good roundup from the MIT Technology Review about recent developments in the micropayment area. It intensively portrays Peppercoin a very different approach to the transaction cost issue.

"The timing looks good, too---not just for Peppercoin, but for other micropayment companies as well. "One year ago, it was, 'Will people pay?' Now it's, 'How will they pay?'" says Ian Price, CEO of British Telecommunications' Click and Buy division, which uses micropayments to sell articles, games, and other Web content to customers in more than 100 countries. And in September, Apple Computer announced that its online music store sold more than 10 million 99-cent songs in its first four months. Apple's success was the "starting gun for a track meet of companies" planning to roll out pay-per-download services by 2004, says Rob Carney, Peppercoin's founding vice president of sales and marketing.


Micali knows two things: cryptography and coffee. His micropayment analogies involve cappuccinos. There are two standard ways of buying digital content, he says. One is like prepaying for a certain number of cappuccinos, the other like getting a bill at the end of the month for all the cappuccinos you've had. That is, the customer either pays up front for a bundle of content---say, 10 archived New York Times articles---or runs a tab that's settled every so often. The problem with both models is that the seller has to keep track of each customer's tab, and the buyer is locked into a particular store or site. But in the spring of 2001 came a "very lucky coffee break" when Micali and Rivest, whose office is just down the hall, put their heads together. "We started discussing this problem, and within minutes we had the basic solution," says Micali. "And we got very excited! First, from the discovery. Second, from the coffee."


What they discovered was a way to cut the overhead cost of electronic payments by processing only a statistical sample of transactions, like taking a poll. On average, Peppercoin might settle, say, one out of every 100 transactions---but it pays the seller 100 times the amount of that transaction."

"Perhaps even more crucial to Peppercoin's success, though, is its sales strategy. "The challenge isn't getting people to buy the math. It's enabling a new business model for the Web," says Rob Carney. In two respects, micropayment startups are fundamentally different from online person-to-person payment companies like Mountain View, CA-based PayPal, one of the most successful of e-payment companies. First, they are enabling Web merchants to sell low-priced digital content, not physical items. Second, they don't have anything approaching the captive market that PayPal has in the customers who use eBay, the San Jose, CA, online auction house that purchased PayPal in 2002."

The article also gives insight about Firstgate, a German start up providing micropayment services, which has already more than 2 million users and more than $1 million in monthly revenues.

"Most important, Firstgate has proven that a global market exists for Internet content priced in the $1 to $10 range, says Stangl, who is now the company's chairman. In late 2002, the company set up offices in New York. How will its success in signing up newspapers, magazines, and other media groups translate to the U.S. market? "We have experience working with so many online companies," says George Cain, Firstgate's CEO in North America. "What people are thinking about here, we've already got built into our system."