PayPal Creates Universal Micropayments Or Just More Hype?

There is no universal method of processing micropayments. Many providers are working on a solution including PayPal. Recently there was a lot of buzz across Twitter and the Internet about a new micropayments offering from PayPal due to announcements made at the PayPal X Developer conference. Two announcements that warrant further investigation are (1) PayPal Partners with Appcelerator for Mobile Commerce and (2) PayPal unveils Micropayments, Facebook integration.

PayPal Appcelerator

The PayPal Appcelerator deal has potential for a number of noteworthy reasons. This first, based on a recent International Data Corporation (IDC) report looking at in-app purchasing, is that “iOS in-app purchasing and PayPal payments are also locked 48% to 49% in a head-to-head battle for mobile commerce leadership.”

Based on such adoption, PayPal has an opportunity to change the economics and standards used for in-app purchasing. Appcelerator claims nearly 90,000 developers on its tools, so the shift could have a bigger impact once developers get up and running on the new beta technology.

The second reason is that Appcelerator supports native code for both iOS and Android, which could allow for rapid deployment and targeting of applications to both iOS and Android phones with smaller, faster native code, and reduced porting delays.

Trying Out PayPal Appcelerator Beta

The verdict is out until I see how good it really is after they’ve fixed some of the bugs. When I filled out my beta info for the Titanium beta program to test and analyze how I could implement PayPal on my Android phone, I was met with document retrieval failures (timeouts) and lots of web info about payments for iOS, but not Android. In all fairness, the program is beta, so my search for additional PayPal information (try this) on the developer site lead to “No Results” – not unexpected at this time.

Of course, the PayPal Appcelerator deal makes more sense in the realm of the second announcement re: micropayments and Facebook. If developers can take advantage of micropayments, then the whole in-app purchasing process could lead to massive numbers of transactions at small monetary values.

PayPal Micropayments

I took a close look at the announcement on micropayments, and while encouraged, I was a little disappointed. PayPal said its, “fee structure for micropayments was five percent plus five cents for purchases under 12 dollars,” which is a pricing level I’ve discussed before on ReveNews.

This seems like old news to me since I used that exact same fee structure via PayPal back in 2006 when BitPass, my company at the time, used PayPal’s Payflow Pro for our micropayments system that offered music from HMV Music, several Disney Games, iStockphoto, web comics, Meegos, and more. So while the pricing announcement seemed like old news to me, the fact that PayPal is opening the system to developers should create more reach.

PayPal Integration of Micropayments with Facebook

Now onto Facebook integration with PayPal micropayments. This integration seems like a good deal for Facebook, but the announcement doesn’t say how or if Facebook developers will benefit. In reality, however, it may not matter. Facebook really wants its app developers to use Facebook credits. Users pay Facebook for credits (with Facebook paying a lower rate) then credits are used to buy virtual goods and services.

True micropayments allow for small-value transactions in a rapid, easy, and ideally frictionless flow.  While mass availability of a micropayments system is a good thing, it’s not a panacea for poor product, low brand recognition, buyer reluctance, or buyer cheapness. It’s easy to get distracted by the pricing differences (see chart below). However, without good product and customer demand, it doesn’t matter.

Not Quite the Endgame in Terms of Adoption

The power of PayPal’s brand does push micropayments one step closer to universal adoption. The key to that adoption is not just the technology hurdle of having networks and gateways work together. A technology solution like PayPal’s has to have widespread adoption from users in order to facilitate adoption by those who hold the keys to communities. While the  availability of micropayments and SDKs to integrate them are a good thing, it’s only a start. Until developers create content, games, or other compelling content people are willing to pay for, the problems of low brand recognition, buyer reluctance, or buyer cheapness will not be overcome, and micropayments won’t matter.

If you have an application where people are willing to pay you $3+ over and over via micropayments and have shown you the money, I want to hear about it.

About Duane Kuroda

Business ninja, deal hunter, Internet marketer, and technology fiddler obsessed about growing companies and launching products. Currently at Peerspin, Duane’s past lives include Vice President of Marketing roles at companies leading micropayments, Internet video, and online communities as well as research and consulting for mobile advertising. Duane has spoken at conferences including Digital Hollywood and Digital Video Expo on topics covering monetizing online content and online video, has appeared on TechNowTV and KNTV, and has been quoted in various magazines. Follow Duane on Twitter: @dkuroda.

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