Small Revenues, Big Fees: PayPal Scores In Online Media

$0.99 for a TV show?  $3.99 for a movie?  Good deals for consumers and Apple has set a very generous standard of giving 70% of film and music revenues to the copyright holders.  The challenge for competitors: that leaves just 30% of the total live off and that's not a lot if you want to take credit cards from consumers as payment.

PayPal and Google Checkout are two of the biggest companies in the market space and they both ask for similar fee structures: $0.30 plus a portion of the purchase value - between 1-4% depending on your monthly revenue run rate.

So, on  $1 product where 70% goes to the supplier and $0.30 goes to the transaction processing company that leaves precisely $0.00 left to live on.  Makes it hard to grow any substantial volume in those conditions - perhaps by accident or design, that has left the market with fewer competitors.

The major credit card companies do not charge $0.30, but linking to them directly brings it's own complexity and cost and they are not exactly free either.  In the end, small payments online face some big challenges: how to keep the cost manageable.

Big companies have scale: they can interlink directly to the banks.  They also have volume.  It's true, Apple gives 70% to copyright holders for content, but they can also batch charges to your card if you buy more than one item and they also do things like offer gift cards.  All of these have their own costs too (as well as dis-economies of scale in large enterprises).

That makes advertising look like a very attractive alternative to micropayments.  Rates online have been rising fast in recent years - Hulu leading the way - but they are still not enough to cover the cost of most top-shelf content.

What then? Well, I'm not sure yet.  I'll let you know when I figure it out.