Micropayment: Striking a Balance at the Crossroads of Information Policy

Over a decade ago, the seminal article, “The Digital Silk Road,” by Norman Hardy and Eric Dean Tribble[1] conceptualized the Internet as “a flee-market where cash and anonymity prevail.” This vision helped spark a flurry of activity and multiple attempts to develop a successful model for collecting payments for small online transactions. After numerous failed attempts over the last decade, certain micropayment systems, such as PayPal and iTunes, have attained considerable success. Micropayments—small transactions that are generally too small to be individually processed by credit card companies—are undoubtedly here to stay.[2]

To the dismay of eBay, the owner of PayPal, the popular online payment system, Microsoft and Google are both aggressively entering the fray to compete for dominance in the micropayment market.[3] While Google’s online payment system, Checkout, has offered a $10 credit to users to gain market share, Microsoft is taking a more creative approach and is allegedly planning to model its micropayment system on the point-based system it developed for Xbox Live. Using the Microsoft Points system users will be able to redeem points for new levels, maps, and characters for specific game titles.[4] Users will be able to purchase these points using Microsoft’s micropayment system. While this is not Microsoft’s first attempt to enter the micropayment market, it may be its most creative. If Microsoft is successful in launching its strategy on a broad scale, other micropayment systems will have to be increasingly ingenious to attract users and will have to offer them access to innovative, high quality content.

If important players, such as Google and Microsoft, are escalating their efforts towards devising attractive methods to control and charge for content over the Internet, what does it mean for the proponents of an Open Internet?[5] In his influential book, Free Culture,[6] the well-known Stanford Law professor, Lawrence Lessig, argues that as our society becomes increasingly information-driven, we will be forced to make the choice as to whether or not we want to allow this information to flow freely. [7]

The increasing pervasiveness of micropayments can be viewed as a sign that we have reached the information-policy crossroads alluded to by Lessig. While some view micropayments as an innovation destined to fail due to the superiority of free content,[8] others view the notion that they should not charge each time their content is accessed offensive.[9] Perhaps, it is not the case that we must choose one path over the other; the existence of an Open Internet and a market for high quality content purchased via micropayments are not necessarily mutually exclusive. In fact, it arguably already exists with “paid-for” concepts, like WestlaweCarswell and HeinOnline, and “open” concepts, like CanLii and the Directory of Open Access Journals, thriving side by side in the online marketplace. A strong market for free content can only encourage business innovation and vice versa. A great degree of competition will result in higher quality content and, ultimately, more options for the information consumer— both free and paid-for.

A climate that simultaneously cultivates business innovation and the free flow of information is a delicate thing; it must be fostered with the appropriate legal framework. Aggressive prosecution of copyright violators[10] and the creation of additional layers of copyright protection with digital rights management and anti-circumvention legislation all profoundly affect this climate. While we must ensure that paid content is adequately protected to provide an incentive for innovation, too much regulation results in infringement of personal freedom and over-policing of the Internet, reducing its functionality as a forum for information exchange.

The legal framework that Canada chooses to adopt regarding copyright protection will profoundly influence this delicate balance. While Bill C-60[11] is slightly less invasive than the US’ arguably unsuccessful Digital Millennium Copyright Act (DMCA),[12] even the creator of the DMCA acknowledged the shortcomings of the DMCA and urged Canada to take a more creative approach.[13] Although this will likely require new business models and a great deal of creativity, clarifying Canada’s somewhat vague fair dealing provisions would be a good place to start. This clarification would enable more avenues for consumers and content creators to use or comment on content without obtaining a license from the copyright holder.[14] If Canada ultimately chooses to adopt a framework similar to the DMCA that focuses on anti-circumvention, without broadening our fair dealing provisions, the so-called Open Internet may indeed become a thing of the past, ultimately stymieing the exchange of information that has been one of the hallmarks of the Internet.


[1] Available online at http://www.agorics.com/Library/dsr.html.
[2] Dan Mitchell “Micropayment arrive on the Web” The International Herald Tribune, Monday, (27 August 2007) online: http://www.iht.com/articles/2007/08/27/business/micro.php October 12, 2007.
[3] See Mathew Ingram, “Microsoft wants to put the Micro in Micropayment,” The Globe and Mail, (1 February 2007) online: http://www.theglobeandmail.com/servlet/story/RTGAM.20070201.gtingram01/BNStory/Technology/einsider) accessed October 11, 2007
[4] See http://www.xbox.com/en-AU/support/xbox360/live/account/account-faq.htm#points.
[5] Jennifer Granick, “Open Internet, We Hardly Knew Ye” Wired (14 September 2005) online: http://www.wired.com/politics/law/commentary/circuitcourt/2005/09/68850.
[6] Lawrence Lessig, Free Culture: How Big Media Uses Technology and the Law to Lock Down Culture and Control Creativity (New York: Penguin Press, 2004).
[7] See http://creativecommons.org/).
[8] See Clay Shirky, “Fame vs Fortune: Micropayment and Free Content” first published September 5, 2003 on the “Networks, Economics, and Culture” mailing list. Online: http://www.shirky.com/writings/fame_vs_fortune.html.
[9] See Scott McCloud, “Misunderstanding Micropayment: BitPass, Shirky and The Good Idea that Refuses to Die” in response to Shirky’s article. Online: http://www.scottmccloud.com/home/essays/2003-09-micros/micros.html.
[10] Joshua Freed, “Woman isn’t seeking help for $222,000 download award she owes” The Seattle Times (6 October 2007) online: http://seattletimes.nwsource.com/html/businesstechnology/2003929098_download06.html?syndication=rss.
[11] See http://www.digital-copyright.ca/static/billc60/fromgov/questions_and_answers_e.pdf.
[12] See Stanford’s Fair Use and Copyright Website for varying opinions on the DMCA: http://fairuse.stanford.edu/primary_materials/legislation/dmca.html.
[13] Michael Geist, “DMCA Architect Announces Need for New Approach,” (23 March 2007) online: http://www.michaelgeist.ca/content/view/1826/125/.
[14] Giuseppina D’Agostino, “Healing Fair Dealing? A Comparative Copyright Analysis of
Canadian Fair Dealing to UK Fair Dealing and US Fair Use” CLPE Research Paper 28/2007 Vol. 03 No. 05 (2007).

  1. The broadening of the online market for micropayments by the entry of Google and Microsoft signals a positive step forward in the development of e-commmerce. Consumers, in any medium, benefit from competition – which we are already seeing here with the introduction of rewards for consumer loyalty (a strategy that has proved massively successful when employed by credit card companies). While Google and Microsoft are clearly using these bonuses as a way to attract users, there will likely be a larger benefit as well. If ITunes or Microsoft provide benefits to consumers when they pay a small fee for their music or games, it may become more attractive to pay for this copyrighted material than to download it for free.

    This is not to suggest, however, that the rise in use of micropayments will limit the free-flow of information online. One can, in most cases, distinguish between information that should be freely disseminated online, and copyrighted materials that warrant protection. On this point, the comparison above between Carswell and CanLii is apt – scholarly articles published in journals are legitimately covered by copyright, while legislation should be freely available to those who wish to access it.

    Indeed, the growing popularity of micropayments could serve to protect the free flow of information online. If the fear of piracy on the part of copyright owners is lessened, it could encourage them to make more readily available that to which access should not, and need not, be limited.

  2. One Response to “Micropayment: Striking a Balance at the Crossroads of Information Policy”

    Micropayments are here to stay. That is something everybody can agree on, now PayPal and iTunes are very successful and show that micropayments have arrived. Micropayments make sure that right-holders are entitled to compensation and they make sure that there will be more competition, what means that quality of content will improve.

    But are we really before a crossroad now? I think that people will still choose for an Open Internet and that they, if the product is a product they are ‘expect to pay for’, are more then willing to pay for. Like George Peabody says, in ‘Micropayments arrive on the Web’ an article by Dan Mitchell, consumers are willing to pay for certain types of content in certain situations. They expect to pay for music and movies and, but not so much for the printed word. So I agree with the author that we don’t have to choose one path over the other. And so the existence of an Open Internet and a market for quality content purchased via micropayments are not mutually exclusive.
    But I also think that the ‘paid-for’ concepts will still be a minority, also because of the ‘closed loops’ systems. Those systems, like iTunes are the most successful. That’s where consumers have a continuing relationship with the merchant. But such a relationship is very difficult to establish. So micropayments are here to stay, but I don’t think they will be a threat to the free flow of information, yet.

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