Micropayments Potential Attracts Growing Optimism Among Experts

The stunning success of such ventures as Apple Computer Inc.'s iTunes music service, coupled with a huge, untapped potential in transactions, has many expert observers becoming more and more optimistic about the prospects for micropayment processing. That may bode well for recent startups such as BitPass Inc., Palo Alto, Calif., and Peppercoin Inc., Waltham, Mass., both of which began operations within the past six months. This optimism comes despite the doubts of naysayers who point to the failures in recent years of processing ventures in this market. They argue that micropayments services are destined to struggle with niche markets and what some waggishly call microprofits. Now, say some, these niche markets are beginning to show promise. “We think there is reason to be cautiously optimistic over demand drivers for this market,” says Ed Kountz, senior analyst at the TowerGroup, a consultancy based in Needham, Mass. Kountz contends surging demand for products such as ring tones and digital music?products that only recently came into existence?has begun to change the economics of micropayments for the better. Apple's iTunes business is on track to sell enough 99-cent songs to do $150 million this year, observers say, having essentially created the legitimate online music business from scratch. Meanwhile, the entire market for digital content?available on both the wired and wireless Internet–is expected to balloon from $2.33 billion last year to more than $15 billion by 2008. And Kountz adds that content sellers looking for ways to profit from online sales in the face of drooping advertising revenue are also driving the market. Such marketers may sell such items as new articles, pictures, or comics for prices under $1. “We see the ability to pay by the drink becoming a much more prevalent option,” he says. Kountz doesn't discount the probability that some of the recently minted processors will fail, as others have in recent years. “The market does require the ability to weather the storm,” he notes. But this time, he argues, the survivors may well be in position to divide up a rapidly growing pie. Will consumer brand recognition be important? Probably not, he argues, pointing to the success First Data Corp. has had processing credit and debit card transactions without itself being a well-known name. “The necessity of a strong consumer brand may not be as important if you've got the transaction volume,” he says.