by Malcolm Wheatley

E-Business: Mark White on Microtransactions

Jun 01, 20012 mins
BPM Systems

Business-to-consumer e-commerce has had a rocky couple of years. Not surprisingly, American consumers and investors are looking askance at what’s been billed as the ultimate B2C business model: so-called microtransactions.

The idea is that instead of carrying around a ton of loose change to pay for sodas and the like, pay for them electronically.

Microtransactions can be a successful business model. Japan and Germany are proving the point. In fact, they are leading the world, explains Mark White, managing partner at the London office of consultancy Quidnunc.

Q: Why have microtransactions taken off in Germany and in Japan, but not yet in the United States?

A: American attempts to develop microtransactions have mostly revolved around creating digital cash for consumers to spend over the Internet. But microtransactions are most useful to people on the move?and America’s expensive mobile telephone networks mean that compared with Europe and Japan it has relatively few mobile Internet users. What’s the point of a mobile microtransaction when the cost of the call is more than the cost of the transaction? On the other hand, Japan’s I-Mode mobile Internet standard is hugely popular, and?importantly?is “always-on,” which means consumers don’t need to dial up the network each time they want to buy something.

Q: Always-on mobile telephony isn’t operational in Europe. What do the Germans do?

A: They use smart cards, not mobile phones. The German Geldkarte is a microtransaction debit card that is as popular in Germany as I-Mode is in Japan?there are something like 40 million of them in circulation. Germans use them for things like purchasing soft drinks and paying for parking meters, recharging them when necessary with a maximum of 400 deutsche marks (around US$190) at a loading station.

Q: So there’s very little common ground between the German and Japanese approaches then?

A: But what there is, is revealing. Success seems more to do with critical mass and consensus. For microtransactions to be feasible, you need a convergence of three things: the mobile devices themselves, a country’s financial systems and institutions, and finally the external infrastructure such as vending machines and parking meters.