Not so micro transactions

9th November 2009 – 7.44 pm

There is currently a lot of commentary on micro-transactions to be read in blogs and journals, but I am perplexed, as none of the transactions mentioned seem to be particularly small. As I understand it, and would define it, a micro-transaction is a cost that is too small to be paid in physical currency1. Micro-transactions should be tiny and many, building up to a normal transaction over time. Because of the problems associated with charging fractions of pennies, I may stretch my definition to include costs of less than a pound, but anything larger is definitely not a micro-transaction. I wouldn't call buying a packet of crisps a micro-transaction, so paying an order of magnitude more surely cannot be one either. Calling it such strikes me as employing marketing jargon to manipulate buyers in to perceiving the cost as being smaller than it actually is.

It is particularly odd when the cost of the transaction is a significant fraction of the cost of a monthly subscription to a game, because I consider one aspect of micro-transaction systems is to differentiate themselves from subscription services. Buying 'points' for games or services in a normal transaction and then spending those points is a way to realise micro-transactions, as it allows for spending pennies or less at a time without incurring prohibitive processing costs. For example, it is possible to buy thousands of points in a single transaction and then spend those points over a period of time. Buying a large chunk of points could leave the buyer with points unspent, but the overall cost to buy the points can be set to be similar to a single monthly subscription for a game, making the points affordable and offering a guideline as to how long a period of time over which they are expected to be spent.

The problem with points systems, in my experience, is that the points are never spent in micro-transactions. I may be able to buy a thousand points for a game or platform, but I am rarely encouraged to spend one or two points at a time, instead offered items costing hundreds of points, an equivalent cost of several pounds. Again, a system designed to allow micro-transactions is being used to disguise the cost of normal transactions. There is opportunity to create micro-transaction systems to compete with subscription-based systems, but there will be considerable resistance to current so-called micro-transaction systems until the costs become much further removed from a typical monthly subscription fee.

1. Note: the converse doesn't hold true, as £π can not be paid in physical currency, and is also not a micro-transaction.
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  1. 4 Responses to “Not so micro transactions”

  2. I'm not sure an actual micropayment system is any more practical now than when Ted Nelson was first proposing Xanadu, but it's interesting how the term has evolved. I s'pose, as you say, individual points in most online systems are the "micro", but typically used in large quantities; macro-micro-transactions?

    By Zoso on Nov 9, 2009

  3. I also think there is element of transaction cost that needs to figured into the equation. Thus it costs providers a flat rate + percentage for each real money transaction made. Their sales plan then is two-fold:

    1) Minimize the total number of real money transactions made [fewer flat fees over all]

    2) Increase the number of 'points' or virtual game currency in circulation that might never get spent.

    They [the micro-transaction entities] could care less whether you use the virtual converted currency as they have already been paid. I also realize this really doesn't address the concept of whether or not it's a 'micro' transaction in scope or volume, but does help define the threshold for real currency transactions as the point where flat fees associated with those transactions begin to approach the percentage rate fees.

    tl; dr; It's all about maximizing their profit and keeping costs down.

    By Kename Fin on Nov 10, 2009

  4. Is there much of a transaction cost when spending virtual currency in the form of points? There must be some overhead, but it can't be much more than logging in to a game server.

    I'm sure there is a market for a single entity to supply unified points, which can be traded on their own site for any number of Microsoft Live, Nintendo Wii, or any other points, so that the consumer only needs to pay for and use the points they desire, and the single entity can consolidate all the individual companies' transactions to avoid hefty flat fees.

    By pjharvey on Nov 10, 2009

  5. Ooops, that is what I was meaning to convey. The virtual currency transactions are nearly costless to the content providers. Where they incur transaction costs is on the "conversion" transactions where you buy points/gold/isk/marks to spend in the game. Thus they want to minimize the number of transactions but certainly not the amounts, resulting in a push for consumers to procure point 'packages' if you will in real money transaction friendly sizes [like £15, £25, £50] that limits their costs.

    By Kename Fin on Nov 11, 2009

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