Alejandro@Oxford

Do you know Freakonomics? It is a New York Times’ blog by a journalist, Steven J. Dubner, and a University of Chicago economics professor, Steven D. Levitt. They are the co-writers of the popular book Freakonomics, and their blog is its continuation. Some other people contribute regularly – Ian Ayres, Daniel Hamermesh, Eric Morris, Sudhir Venkatesh, and Justin Wolfers. Why do I mention it? Because I regularly follow it and I often find it quite interesting. This is the case with one of Dubner’s latest posts on What Would Micropayments Do for Journalism? A Freakonomics Quorum. In it he comments on the idea of introducing micropayments to rescue the dying old newspaper traditional economic system. They also asked a group of four people – William Baker, Alan Mutter, Clay Shirky, and Marshall W. Van Alstyne – their opinion about three questions:

1. How would micropayments best work?
2. How possible is it that micropayments could be applied to the majority of online content?
3. How would this affect both online and print journalism?

Let me tell you my opinion about their comments. I think William Baker and Alam Mutter don’t get it. Baker’s response is plainly full of generalizations, his solution is

a combination of advertising, subscription, philanthropy, and micropayments to be a solution

What these four mean and how they are implemented, he doesn’t really say.

Alan Mutter’s replies are more substantial, but still wrong. He believes that users will be willing to (micro)pay for news instead of looking for them somewhere else free because it will be made easy, fast and in very tiny quantities. Three conditions though are necessary: users will have to fund accounts for this payments (a hussle), publishers must re-oligopolize the market because

one problem with this solution is that it wouldn’t work for one publisher if a competing publisher decided to provide the same, or nearly identical, content for free.

and content would have to be protected, so people cannot share it with their friends. In all cases,

there naturally will be fewer consumers for online content requiring payment. [duh?]

On the other hand, Van Alstyne and Shirky get it right. Their replies are well thought and based on actual thinking about the issue. What Van Alstyne says about information goods has been proved right in the last decade.

News is not like an iTunes song; it’s perishable. Today’s front page is tomorrow’s fish wrap, and we don’t need to replay it. If anything, a reader benefits more from a second source than repetition from the first. Facts are delivered; songs and movies are created. Facts also can’t be owned, so when the Internet places geographically dispersed media in direct competition, the price of facts falls to marginal cost. In digital markets, that’s zero.

Furthermore, any micropayment system is adding a barrier in a networked information world where going around is easy, very easy. The proposed systems are at best inefficient to stop that.

Putting micropayments on news is like putting tollbooths on an open ocean. Internet users, awash in a sea of information, will avoid new barriers by navigating around them. And frankly, the interests of a free society are rarely served by building barriers between the people and their news.

He proposes a different option: adding value instead of adding cost. How? Bundling media platforms with technology platforms, coexistence of free and paid premium versions (though I agree in principle with this, I disagree with him when he says that

Faced with a choice of an ad-supported free New York Times and a faster-loading, more graphics-rich version for $1/year, I suspect even digerati would choose to pay)

and matching people to content and advertisement, creating a bidding system with different values according to the audience (a la Google perhaps?).

Shirky’s answer is very much complementary to Van Alstyne, if the latter argues in favour of adding value, the former underscores the importance of sharing . He agrees with Mutter in the need for the publishers to control the pricing system, but if the latter think it is not only possible but also desirable, the former sees as simply a fantasy

the fantasy that small payments will save publishers as they move online is really a fantasy that monopoly pricing power can be re-established over we users.

The stress should be put in sharing, for

the competitive loss of hiding them behind a paywall reduces the users’ ability to share them with friends, and it is this secondary distribution that creates the most important new opportunities online.

People like sharing and reward those services that allow as much of it. Sharing adds value to content beyond its inherent quality, and adding value to content increases the chances of it being shared. The solution is not in creating ineffective microbarriers and controlling the pricing system, but in adding more value and opening the space to all the sharing a person can make use of. How do you monetirize it?

One: creating (or improving) a bidding system for advertising online that allows pinpointing consumers where they are and selling the ads according to their value to the vendors, à la Google.

Two: I am not a big fan of subscriptions, but I reckon they can work for some premium services around news e.g. deep analysis, direct contact with authors…Not fully convinced though.

Three: traditional news companies, particulary newspapers, are doomed in any case. Small companies, even individual journalist will win the day. This is not bad. I don’t think this means the end of investigative quality journalism, but the emergence of a new way of informing, where journalist are independent and structured in an open network. This model will get rid of many barriers that stop many good journalist to work together to make good stories. They can then post their stories on their websites, making money with advertising and selling their services in more profound analysis of subjects they are specialized on.