Two days ago I wrote a post explaining why I am bullish on crowdfunding and skeptical on micropayments as an alternative to funding content, especially journalism. The explanation was a bit dry and abstract, but in the comments I provided a more concrete example that seemed to resonate, so here it is:

Would you pay $2 for a joke you haven’t heard yet? No because you don’t know if it will be funny. What is your incentive to pay after you have heard the joke? It is much diminished.

What about 1 cent? Here is where people make the big mistake, they think that 1 cent is close to paying zero, so why wouldn’t I do it? Because my *actual* cost is much, much higher than that – it is the time I will spend listening to the joke in the first place (time I will never get back if the joke is a dud).

That’s why even a comedian as big as Louis CK doesn’t sell single jokes but rather a special. It is a large bundle of jokes and I know that in toto it will be worth my time *and* money.

Now in the earlier post I had also remarked that subscriptions can be a way around this sometimes. For instance, subscriptions seem to be working reasonably well for music. What has to be the case for a subscription to work? Well, getting more technical again, my expected benefit from the subscription has to be higher than my total cost (which once again includes the opportunity cost of spending time).

That explains why subscriptions work reasonably well for music. The cost of listening is relatively low as it is often a background activity (ie. I am listening to music and reading a book or doing email). And the average benefit on music that I like is high. This is an important caveat – if you tried a subscription and gave me random music it probably wouldn’t work very well either.

This is why a subscription for all written content is so hard. Reading is a foreground activity, just like listening to the joke in my example above. Now if I am only reading things that I have a high expectation of liking then a subscription might work – that’s for instance why we have a subscription at home to New York magazine and to the New Yorker.

But what if we tried to extend this to the internet at large, including say random tweets and blog posts? Well the more content you stuff into this subscription the lower you drive its *average* or expected value per unit of time. And eventually it breaks apart and no longer works at all and I will cancel the subscription.

All the “metered micropayment” schemes where you put up say $10 per month which then gets spread out over all the content you read based on usage are unfortunately just that: a subscription to the entire internet. So unless you make that a mandatory scheme, say by including it in the internet access fee you pay to your ISP you will wind up with a low participation rate in the metering scheme.

That, by the way, is not a reason to just give up on it. There may, over time, be a reasonably high voluntary participation *if* you can use the blockchain to converge multiple such schemes into a single payment for content creators. But I am still skeptical that it will amount to much compared to the potential for crowdfunding both in the upfront and ongoing modes.

Why is that? Because crowdfunding taps into the fact that a small fraction of readers get high value from someone’s content. And crowdfunding is a way for those readers to contribute directly in much higher amounts. For instance, Techdirt raised close to $70,000 on Beaconreader for stories on Net Neutrality. Because this is coverage I want to exist in the world, my benefit includes not just my own reading but the fact that many more people can read independent stories. So under a metering scheme my contribution might be a couple of cents per story at best (take $10 and divide by everything I read in a month on the web). So Techdirt might have gotten maybe $1 from me. Instead I gave significantly more on Beacon (I would put the amount here but somehow Becaon’s UI makes it hard for me to find that).

Again, the two aren’t necessarily mutually exclusive but hopefully this makes clearer why I am bullish on crowdfunding and skeptical on micropayments.