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Fast forward to 2018: The future of micro payments

In June 2015, at its annual developer’s conference WWDC, Apple unveiled iOS9’s beta version to a large audience. Hidden away in the list of enhancements and new features was the support it offered for apps to filter content in Safari.

Developers immediately understood its importance. Essentially what Apple was offering was the ability to filter the content to identify and block ads.

Ad blockers, as they were called, were already on nearly 200 million desktops by summer 2015, but they were a rarity in the mobile space given certain technical issues. Now, with Apple offering the ability for developers to create ad-blocking extensions on Safari on mobile – the most popular mobile / tablet browser – developers began their furious coding spurt.

In September 2015, in front of a packed hall and the world’s eyes, Tim Cook announced the release of iOS9. Amongst the developers chosen to show off their apps and thereby show iOS9’s enhancements was Michael Gundlach, who had created AdBlock, a prominent extension.

He showcased AdBlock for iOS, a Safari extension that would allow the user to block ads, thereby reducing page loading time, enhancing the browsing experience, and also reducing the phone data bill.

Everyone in the hall realised that mobile browsing, and the world of online advertising, was set to change forever. Tim Cook announced that the extension would be free for the next three months, and promised it would make browsing a more streamlined and enjoyable experience for everyone.

The next day, share prices of every traded publishing site had fallen by near-double digit percentages or more as investors started to price in the drop in digital advertising that was expected.

As people started raving about the smooth browsing experience in blogs and Facebook posts (credit to Charles Arthur for the scenario), Android users started ditching their Samsungs and Nexuses for iPhones. Soon Android, too, introduced its extensions after a lot of internal handwringing, for Google had a large stake in the ad-led model.

By summer 2016, a year after the announcement, about 60% of all smartphone users had downloaded an extension. Spurred by the enhanced browsing experience on mobile, more and more people started downloading desktop ad blockers as well.

The online ad market was never the same.

Publishers that were impacted less included sites like BuzzFeed, which had a strong native ads unit, and publishers and platforms such as The New York Times and Facebook, which had popular apps that could serve ads because ad blockers couldn’t reach them.

Also, those like Financial Times and The Wall Street Journal fared well, as they were more reliant on subscriptions. Publishers that relied largely on ad revenue and the open Web, such as Yahoo, Guardian, and Daily Mail, were the biggest victims of the ad-block phenomenon.

In this brave new ad-blocked world, the only route to survival for mid-sized publishers such as The Dallas Morning News or The Kansas City Star was to grow subscription revenues by focusing on creating strong content. This would help them charge fees from users. And by putting their content on Facebook Instant or Apple News, they could sell advertising that couldn’t be blocked.

Publishers seeking to grow revenues from content started exploring every single option they could. A route that looked promising was micro payments – getting readers to pay small amounts such as US$0.15 or US$0.20 for a story.

Micro payments had a long and tortured history. There had been talk about the promise of micro payments since the late ‘90s, when the World Wide Web was still evolving and there had been talk of integrating micro payment links into the HTML standard.

Somehow it remained just that: a promise.

Companies such as Bitpass, Millicent, and Beenz launched and then went bust. Influential critics such as Clay Shirky and Nick Szabo pointed to the immense mental transaction cost of micro payment and said it would never ever be overcome.

Still, that didn’t stop start-ups from attacking this sphere, and media companies desperate to shore up their revenues were happy to latch on to any possible option. Or as Monday Note’s Frederic Filloux puts it, “miss a possible train.”

So had micro payment’s moment come? Were the conditions ripe for the concept to take off?

Investors had, by then, started lining up their bets, focusing on the Dutch firm Blendle and Swedish firm Klarna. Blendle saw a massive investment round from a consortium of affected news publishers in December 2015. Klarna, which already had Sequoia and DST as its investors, raised funds from a clutch of powerful Silicon Valley firms around the same time.

Spurred by these investments, many start-ups emerged to attack micro payments from different areas. In Y Combinator’s winter batch that year, the most popular themes were micro payments or ad blockers. Clearly, micro payment was the hottest, latest buzz in town.

Strangely enough, within a year from then, roughly the summer of 2017, the biggest companies in this space were two traditional publishers – the New York Times and Washington Post. Blendle and Klarna were barely hanging on, though Klarna had a lot more than content in its scope and was the lesser affected of the two. Investors who had backed these companies, writing long blog posts on why these were the next big decacorns, quietly retreated.

So what happened? How did NYT and Washington Post come to dominate the micro payments space?

In March 2014, NYT’s NYTNow app launched. A key feature in the app was Our Picks, where NYT linked to content from other publishers such as Rolling Stone, Wired, Recode, and Vox. While NYTNow wasn’t a great success by itself, the experiment afforded the NYT’s mobile team an opportunity to learn from the process, and this soon began to make its way into the main app.

During fall 2015, NYT relaunched its mobile to app to great acclaim. One of the features was a freemium Editor’s Choice tab featuring content from other high-quality sites including New Yorker and Atlantic. One of the key attractions for external publishers to sign up was a revenue share from NYT (ad as well as subs share) out of the total app revenue. An algorithm running in the background totaled readership of each story and shared a cut of the revenues based on the story's share of readership.

Initially the fees were really small, with the likes of New Yorker earning just over US$100 for a story. Gradually, as traffic built up, NYT began to reduce the free content and increase prices.

Soon, by summer 2017, the Editor’s Choice app cost US$5 a month with ads, US$10 without ads. Readers loved it. Niche sites such as Pando and Ars Technica started seeing more revenues from NYT than from their sites.

Similarly, sometime mid-2014, Washington Post had announced its partnerships with smaller regional newspapers whereby it offered the Post’s digital content free to their subscribers. The Post had initially seen this as a way to increase eyeballs and recoup through advertising. Soon, it started to explore the opportunity of bundling high-quality content from these newspapers, starting with sports and local business, through the Washington Post app.

Not to be left out, WSJ also started a similar bundling platform. However, given its late start, it never did catch up with NYT and WaPo. Across the Atlantic, the British quality dailies led by Guardian created a fourth bundling platform.

Eventually, international publishing houses such as The Times of India Group, The Straits Times, South China Morning Post, and Naspers also started to provide their content to the four big bundlers. Publications such as NYT and WaPo stopped sharing content with Blendle and Klarna, choking the flow of English content to these two sites, which thus became regional (European) players.

Facebook and Apple News were the other big platforms/bundlers. They allowed publishers to get a slice of the ads served on the platform. Facebook’s early move in this space via Facebook Instant gave it a majority share of the market, though Apple News wasn’t too far behind.

In emerging markets, Facebook positioned WhatsApp as a platform to distribute content, striking innovative deals with telecom providers to enable payment via Talk Time. Google, meanwhile, emerged as the biggest loser, as the market started pricing in its declining growth curve.

By the end of 2017, the NYT’s role as gatekeeper to high-quality content fortified with a slew of apps across every point along what the CEO Mark Thompson termed the “engagement curve.” These apps featured content from various high-quality publishers curated by NYT. The platform model, which enabled micro payments to publishers without any of the hassles and mental transaction costs, was a runaway success.

It was around then that Mark Thompson announced the decision to sharply curb the print product, with an intention of becoming a Sunday-only newspaper by 2020.

He also announced an innovative newspaper print-on-demand service in partnership with Uber, whereby clicking a button on an app allowed a special, personalised version of the NYT to be printed on a Oce press and delivered in minutes via Uber cars. While the actual cost would have been US$10 to US$12 including delivery, the customer paid only US$5 because Uber subsidised the delivery charges with the point of promoting the innovative concept.

The NYT was followed by the Guardian and the Washington Post in a move to Sunday-only circulation. The future of the newspaper, it seemed, lay in becoming a curator of content in the digital space (and a magazine in the print space).


Behind this rather breathless view from the future, are some key thoughts that I want to reiterate:

  1. Every few years, a new crop of tech-led startups arise to take on micro payments without realizing the key barrier is not technological but psychological. Almost every one of them will fail.

  2. Ad blockers are here (the iOS beta supporting provisions for AdBlock extensions and developers working furiously is the only fact in the above essay). They will have a sizeable impact given that the browsing experience is broken – publishers insert a slew of ad trackers and scripts into their sites, which leads to page bloat and slowing browsing speeds, thereby impacting the browsing experience.

    I am not sure it will be as dramatic as I make it out to be, but it will have an impact, and Google will be one of the affected parties.

  3. The rise of ad blockers and fall in ad dollars will create a huge incentive to drive up content revenue. Large publishers who can support “distributed content” features can help extract content fees out of consumers. Thanks to their already existing subs relationships, it becomes easier for them to become gatekeepers and charge a transparent but invisible fee, thereby reducing the psychological barrier around micro payments.

    Let me rephrase this again for clarity: The only way micro payments will work is through a prepaid wallet, and the best wallet is one that you have on you, not a new one. Because at least one-million people have an NYT wallet/subs relationship (the biggest content wallet today), it makes sense for NYT and others with popular wallets to leverage this.

  4. Will NYT and WaPo be able to really do the above? I don’t know.

    I am a big fan of the NYT and would want the company to, but there is no reason to assume it will be able to. Perhaps it will be another firm such as Forbes. It understands this space, having provided its brand as an umbrella to aggregate content, though it has not been able to build a solid content revenue model. Further, the content it aggregates is not really uniform. If anyone can do it, it will be the big global brands that have strong subs relationships, and that is where NYT really scores.

About Sajith Pai

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