Turning pocket change to big dough on the Net

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Web marketers hope microtransactions will add up

Internet merchants are hoping big profits come in small packages.

Microtransactions, payments under a few dollars for value-added content or other online offerings, are starting to catch the interest of Internet executives looking for additional revenue to supplement their advertising and subscription operations.

"In terms of where Internet commerce is heading, I see microtransactions as a bigger and bigger part of the picture," said Keith Arnold, manager of interactive marketing and merchandising for CompuServe.

Web publishers including Sportsline USA, Discovery, Rocket Science Games and Playboy all plan to roll out transactional portions of their sites this year. But for microtransactions to reach widespread implementation, the Internet will require a digital cash payment system, which is likely more than a year away from becoming commonplace.


Unlike upfront monthly subscription charges, microtransactions take advantage of consumers' serendipitous shopping habits by providing for the low-cost impulse purchase.

"It's the chewing gum model of the check stand," said Magdalena Yesil, VP-marketing at CyberCash, an electronic transactions company in Reston, Va.

Sportsline will use microtransactions within the next few months, most likely as admission price to a chat session with a sports superstar like Shaquille O'Neal.

The company has established a sophisticated proprietary billing system for its regular subscription service, which will facilitate the microtransactions. Small charges can be added automatically to a customer's monthly invoice total.

Microtransactions also allow sites to generate revenue from some content while keeping a ma-jority of content free, helping maintain all-important visitor traffic for advertising sales.

"Bottom line on this is how do you get revenue for your content when most of the content is free?" said Tom Hicks, publisher of Discovery Online. "I think the nickels and dimes will add up."

Mr. Hicks said Discovery will look to integrate microtransactions with a cable modem service, likely Tele-Communications Inc.'s @Home venture. A consumer reading an article on French cooking would likely be willing to pay 50 cents to download a 5-minute video on souffle making, he said.


Playboy, meanwhile, has contracted Neoglyphics, a Chicago Web developer, to program a pay-per-view portion of its site offering communication with Playmates and access to photo archives.

Since many content providers do not want to invest in elaborate credit card billing systems such as Sportsline's, they must wait for a digital cash mechanism to provide a seamless payment method.

One of the first tests of such a system will happen in the second half of this year when Rocket Science Games, in conjunction with CyberCash, launches a virtual arcade where Internet surfers can play videogames for as little as 25 cents. The site will use CyberCash's CyberCoin feature, intended for small digital cash transactions on the Internet. CyberCash plans to introduce CyberCoin at the Internet World conference in May.


The service will provide consumers with a desktop wallet fitted with a virtual coin purse. Consumers will transfer money from their bank accounts to the wallet, providing ready cash for small-denomination purchases.

Other groups developing similar digital cash payment mechanisms include Carnegie-Mellon University, which will test its NetBill project this year.

Eileen Kent, VP-new media at Playboy Enterprises, likes the potential of microtransactions but doubts consumers will quickly take to digital cash. She also worries that small purchases will cost more money than they'll make.


"The financial model is the nut of the problem," Ms. Kent said.

Other content providers are simply eschewing microtransactions to concentrate on building advertising revenue. Dan Stone, senior VP of Turner Interactive Marketing and Sales, said his company has no plans to integrate microtransactions into its service.

"It would take a change in strategy to adopt that," he said.

Still other Internet executives worry that microtransactions could frustrate consumers by confronting them with too many purchasing decisions.

Market research conducted by CompuServe indicates that consumers prefer fixed prices, said Mr. Arnold. Although CompuServe doesn't currently offer microtransactions on its service, Mr. Arnold believes "their growth is inevitable."

Copyright April 1996 Crain Communications Inc.

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