A Plea for Micro-Transactions

Marketers love subscriptions.

We love knowing that, whether you use our product twice a day or twice a year, we’ll collect our monthly rent.

We love knowing that you’ll probably forget you’re even paying it.

And we love knowing that when one day you do remember… well, is figuring out how to cancel even worth the bother?

We’re sure you’d understand — we really have no choice. We need to keep raising that customer lifetime value because, you see, customer acquisition cost keeps going up. So believe us when we say: This is what you want.

We invited you over for a couple drinks a few decades ago — a newspaper subscription, maybe a magazine or two. But the drinks turned into a bit of a party, and we kept handing you solo cups. Xbox Live, Netflix by mail, Office Online. Now it’s well past midnight, and your liver is being assaulted by Hulu, Prime, Washington Post, Birchbox, BarkBox (really?), sixteen shots of SaaS, Hinge, The New York Times, Bumble, the HBO you split with your friend, Spotify, Quip, Blue Apron or whatever meal kit is still in business today, Huel, Harry’s, plus four hardware devices that will stop functioning if you stop paying their makers every single month. Yeah, you don’t look too great, you keep mumbling that you should probably stop — and maybe we think twice about putting another beer in your hand. But then we look around and see that, hey, everyone else at this party is still drinking more. And who cares, anyway?

Jumbled metaphors notwithstanding, you should care. You, the consumers — and me too, as when I close Facebook Ads Manager, a consumer is what I become. Because while each of us can probably benefit from a few subscriptions, the problem is that we’re not able to stop there.

Subscription services are often the best possible payment model, and in many cases, allow us to maintain access to services that we’d want to hold on to anyway, whether or not we kept being automatically charged to use them. But they’ve increasingly gone from being a useful option, to being the only option. They’ve gone from being a convenience to being a burden.

Where once subscriptions were an innovation, they’re now a stagnation. At some point, selling people razors but via subscription was a unicorn-tier business model. Now, it’s so commonplace that there are probably MBA classes on the strategy. Subscriptions are not some preordained endpoint in the evolution of payment — they are simply where we find ourselves today, and they are a today that we should start moving past as soon as we can. It’s time for a new model. It’s time for a new way to pay.

The Prisoner’s Obvious Choice

As I do with most things that matter, I’m writing this article from a place of anger.

Last Friday, I was a bit distracted by the global pandemic and accidentally let a Bumble match slip past 24 hours without responding to her message. This, of course, means that I was no longer allowed to speak with this woman unless I paid for “Bumble Boost”, a $24.99 / month service that, as I understood, would increase my chances of meeting my wife.

Hoping to avoid a subscription, I opted instead for 1 week of Bumble Boost for $10.99. Not nearly as cost-efficient as the monthlong option, but I really thought Jen and I would hit it off if I just had a chance to reply to her bold, witty opener: “Where was your first picture taken?”

With $11.79 down the hole (I always tip the government), Bumble unlocked the chat, and allowed me to send my equally seductive answer: “Norway.”

Jen did not reply.

This morning, a full week later, with Jen just another lost love among the flotsam of my past, my phone buzzed with a notification. Could it be…?

No, it was not Jen. It was a notification from my credit card that I’d just paid $11.79 to Apple.com, and probably not for a new iPad. My Bumble Boost subscription had renewed, without me ever realizing that I was signing up for one.

But while the anger I felt at Bumble in this moment had its place, on a more sober level, I did not fault the (presumably) decent people at MagicLab — because I understood the position they were in.

I really am a marketer — this isn’t just a literary fiction. I sell subscriptions to people, and every day, I am actively trying to get more of my customers to subscribe. I do believe that I’m providing people with a more convenient experience when they subscribe, that it really does make their ability to benefit from my products better. But the truth is, I’d be forced to hawk subscriptions regardless of how much value they actually drove. And the reason isn’t my customers or my bottom line: It’s my competitors.

I’ll illustrate with an example that most of us are familiar with: Gillette vs Dollar Shave Club (Harry’s would work too, but I prefer to pick on successful exits). Let’s say Carl the Consumer has been happily buying Gillette razors at his local Super Target for his entire average adult life. Then, one day, he sees an ad for Dollar Shave Club and decides to try their subscription intro offer for $5. The first razor pack arrives, and while the razor cartridges are Alibaba-quality, the truth is, Alibaba-quality has become quite good, and Carl doesn’t mind. Still, he thinks, after he’s done with the set of Dollar Shave Club razors, he’ll go back to Gillette.

But then a month passes, and before Carl even wears out half of the razor cartridges he received, another box from Dollar Shave Club is on his doorstep. Unbeknownst to Carl, who doesn’t go through every line on his credit card bill before paying it, he’s already paid another $40 to Dollar Shave Club. Now, he’s got a lot of their razor cartridges in front of him, and while he could try to argue his way to a refund, they are perfectly good razors, and he will need them eventually, so he decides he might as well hold onto them.

And suddenly, Carl isn’t buying those Gillette razors that he actually preferred. Gillette loses a customer, just because anytime Carl wants a razor, Dollar Shave Club will already have placed four in his hand.

This isn’t about the convenience of to-your-door free delivery, because Amazon provides that for Gillette razors and any other brand that Carl might prefer. This is about Dollar Shave Club selling Carl a product before he even needs it, thereby pre-empting him from buying any competing product. The only way that Gillette can compete is by joining the game with their own subscription service, which is exactly what they did.

The whole situation almost feels like a Prisoner’s Dilemma problem, in which your counterparty harms you by committing an act, and you are therefore forced to commit it yourself to minimize the harm… except that in the Prisoner’s Dilemma, both of you would’ve been better off had you not committed the act. Here, if all the razor companies offer subscriptions, they’re all better off than when none of them offered subscriptions — because they’re selling people replacement cartridges at a far higher frequency than what these people would’ve otherwise consumed.

So it’s not really a Prisoner’s Dilemma: It’s an obvious choice. Sell subscriptions. If your competitors don’t, you win big. If they do, you still win.

In the case of Bumble, I’m Carl the Consumer, and for all my pretentious understanding of the marketing tricks behind what Bumble did, I dutifully play the role of Carl: While Hinge is the app I’d usually spend my lonely evenings on, I now find myself with an active Bumble Boost subscription, and another week before it expires (I… think I remembered to cancel). So for at least the next seven days, I’ll be opening up Bumble instead of Hinge. Bumble won. And Hinge, by not luring me into a subscription I don’t really want, has lost.

So How Can We Move Past Subscriptions?

The big problem with this article, in my eyes, is that while it’s the broad hegemony of subscriptions that I’m complaining about, the ways in which they’re deployed vary wildly in value. My gripe with subscriptions is that they’re everywhere — not that any one type of subscription needs to go. So instead of constructing an entire ontology about which subscriptions are Good and which subscriptions are Bad, I want to present one small way, in one small industry, through which I believe we can advance to something better.

Where does hope for a post-subscription future lie? Certainly not in an industry where most people prefer the subscription paradigm to what came before (e.g. Spotify), and, barring an anti-capitalist Revolution, not in an industry where market incentives force subscriptions (i.e. the Prisoner’s Obvious Choice that Dollar Shave Club and Bumble find themselves in).

The Prisoner’s Obvious Choice crumbles when the good in question is highly differentiated (Bumble/Hinge mostly have the same users, so if you’re using one, you don’t really need the other), and the good doesn’t have a low limit of daily consumption (you probably won’t shave more than once a day, regardless of how many brands send you their razor cartridges).

Because with differentiation and a high capacity for consumption, even if someone “locks you in” with a subscription, you’ll have ample reason to purchase from their competitors.

I can think of no industry that better fits these two criteria than journalism.

No matter how much news you’ve read in the Washington Post today, if there’s an article in the Wall Street Journal that everyone is talking about, you’re going to want to read it. Sure, we each might want a subscription to the news source that most aligns with our personal biases (or “facts”, as we each call them), but that one news source isn’t going to get every scoop, they’re not going to write every must-read piece. And when you want to see that must-read piece by someone besides your preferred paper, you’re met with…

…the paywall.

Okay, let’s say you’re unlike everybody I’ve spoken with about this, and you don’t think you already have too many subscriptions chipping away at your bank account every month. So you subscribe to the Wall Street Journal. But then the next exposé that Twitter is blowing up about is in the New York Times, and the next one in The Atlantic, and the next one in the New Yorker.

Sure, subscribe to all of them. But you will have to draw the line somewhere, and I doubt most of us will draw it at more than two or three news sites, if that. Even if we all try to maintain subscriptions to all the important sites, we limit the number of “important news sites” in the world to the number most people can afford to subscribe to. An oligarchy of information, even worse than the one the media already represents.

What’s the alternative? I believe the Wall Street Journal should let you purchase access to that one article alone.

That’s it. That’s my big idea. Not even my idea — I saw it in a Paul Graham tweet and I’m sure he didn’t invent it on the spot. But it’s an idea whose time has come.

I don’t believe this will cost the Wall Street Journal many subscribers. The people who count on them as their primary source of quality journalism will want to maintain access to all their articles. But for the right price, maybe ten cents per article, maybe a dollar, maybe two — the Journal will unlock a massive new source of additional revenue. And all of us will be better off for it, never having to turn away from a thought-provoking piece because we didn’t think the ability to read it was worth a yearlong subscription.

So why hasn’t this new way of paying emerged yet? If it benefits the seller, benefits the buyer, and benefits society as a whole, why are we not seeing micro-transactions dominate journalism?

Because nobody’s built a payment system sufficiently frictionless for them to work.

How We Make Micro-Transactions Happen

In payments, frictionless wins. Bartering gave way to currency because it was easier to use as an exchange of value. Hard cash has given way to checks, and then credit cards, because they are easier and quicker to use (and can be used remotely). Manually keying in your credit card online is slowly giving way to Apple Pay.

The amount of friction we’re willing to tolerate to purchase something decreases with its value (as measured by the cost). So you’ll happily spend an hour signing documents when you buy a car, but you’d never do that to buy a razor cartridge. Micro-transactions represent the extreme in low cost, and therefore, the extreme in the intolerance of friction. For micro-transactions to happen, I believe we need a system that fulfills the two major friction points of online purchases:

First, the payments themselves need to be frictionless. The trouble of typing in your credit card isn’t worth ten cents. For micro-transactions to work, payments need to be one-click, with no data entry.

Second, the ownership of goods needs to be established in a frictionless way. People don’t want to create a login for every website they purchase an article from — that’s friction. For micro-transactions to work, purchases need to be honored with no seller-specific user login.

These two criteria are necessary and sufficient for micro-transactions to work from the buyer-side.

In fact, the micro-transactions we’re familiar with today generally fulfill the above two criteria by occurring within the closed system of an app or video game. It’s easy to buy V-Bucks in Fortnite (I had to Google that example) because you’re already logged in. But to avoid the “oligarchy of information” I mentioned above, we can’t limit ourselves to a single ecosystem. We need a way for any website, no matter how small, to easily accept micro-transactions.

And this brings us to the other side of making micro-transactions work: The seller-side. Here, the criteria are the same as for any novel payment system: Merchant fees need to be tolerable (not 2.5% + 30 cents), and buyer adoption needs to be widespread enough to justify the implementation of this new type of payment system.

In summary:

• Buyers need to be able to purchase with a single click
• Buyers need to be able to access their purchase with zero effort
• Sellers need to be charged reasonable fees
• Sellers need to know that there will be a lot of buyers

Until recently, fulfilling all four of these conditions was still somewhat out of reach. But Apple Pay has shown that the first is possible. Login with Facebook / Google (SSO) has shown that the second is possible. Venmo has shown that the third is possible. And the success of all of the above has shown that the fourth is possible.

In simplest terms, payment authentication needs to occur at the browser- or hardware-level, so that the browser or hardware can then tell the website that it’s safe to accept the payment with one click — that the purchaser has the authority to spend the money. The ownership of content needs to occur on a similar level, and be communicated to the website. The fee thing is a nasty problem, because as a merchant, high credit card fees for low-price transactions feel inescapable to me. But Robinhood removed fees from stock trading, and now it’s hard to imagine a world where they still exist. And finally, the chicken-and-egg problem is something that could either be solved by the fiat of a tech giant (e.g. taking Apple Pay a step further), or by the ingenuity of an entrepreneur. I’m eager to see which one it turns out to be.

I may have it all wrong here. It does feel like the winds of change have been blowing for quite a while from the old way of buying things one at a time, to the new way of having subscriptions for all that one can imagine — renting everything, in a word.

And while I’ve read explicit prophecies of this notion of everything as a service, I believe that outside of a successful communist state (a la Iain M. Banks), such a system would continue to price more things beyond the reach of the lower and middle class. People need the ability to allocate their money to the specific things they want, rather than to be provided with an expensive access pass to more than they could ever consume.

I am a marketer. I do love subscriptions. And for many goods, subscriptions are here to stay. But for others, as a consumer, I hope for something better. I hope for micro-transactions.