Skip to content Skip to navigation

Will more online privacy bring micropayments back?

Could better privacy rules make micropayments attractive again?

Micropayments—tiny transactions of a few cents made in exchange for a digital good—have a long and rocky history. In the 1990s, micropayments were proposed as a way to pay for content on the internet that didn't involve advertising [1]. Every visitor to a site, like the Washington Post, would pay a small amount to view an article. Transaction fees associating with processing such small payments were an obstacle, but perhaps micropayments would be kept on a running tab until they reached a threshold, defined by Paypal as $12 [2], at which point they could be charged. However, this system created friction between users and providers of content—an extra step, perhaps a login to a financial platform—which neither party was particularly excited about. As we know, the advertising model won out, and the majority of websites make money by proving to advertisers that a certain number of unique IP addresses visit their content and, presumably, are looking at ads on those pages.

Since the early days of banner ads, the sophistication of online advertising has grown tremendously—even if its effectiveness is still low [3]. The proliferation of advertising trackers, and companies who parse that data, cross-reference it, and use it to make individual recommendations for which ads are shown to which visitors, has led to push-back from those who are uncomfortable, or just annoyed, when travel ads follow you to unrelated websites or seem to be targeted to your age or marital status. On the Washington Post website, at least eight separate trackers or beacons are trying to record my browsing activity. On the New Republic website, there are at least 16. I know this not because the site has notified me of this, or shown me a popup window outlining its agreements with each of these companies, and how it plans to use their data on me, but because I’ve downloaded a browser plugin that blocks the trackers. That’s why I say there are at least eight—there could be even more that the plugin didn’t catch.

A death spiral for ad revenue creates an opportunity for micropayments

The use of ad blocking software is on the rise across all platforms, with about one fifth of all internet users blocking ads, and much higher percentages from, for example, the communities that visit tech blogs [4]. And this is creating a problem for advertisers, and thus for the websites that rely on advertising income. Ad companies can use various means to determine how many visitors to a site are using ad blocking software, and revise their payments downward accordingly. With no incentive for visitors not to use ad blocking, it seems that online ad revenue is headed for a death spiral. This looks like the opportunity for a new era of micropayments. The newer micropayment companies, that sprang up in the early 2010s after those introduced in the late 90s had long since failed, are friendlier to payers and often involve a philanthropic spin. Sites like Patreon [5] suggest micropayments as a form of crowd funding: if I like a podcast, I can pledge to give a micropayment of as little as $1 to the podcast’s creator every time he releases a new episode. Other companies have tried the model of online tip jars, relying on social pressure to encourage visitors to tip when they’ve seen something they like. Jaron Lanier, in his book “Who Owns the Future?” [6], suggests a fractal-like system of socially balanced micropayments whereby users pay sites like Facebook a small amount to use their software, Facebook in turn pays users for the data they provide, which allows Facebook to create more features, which users then pay an incremental amount more for, and so on ad infinitum. Many users would like to pay for Facebook if it didn’t sell their data, or track them so intrusively [7], but it’s difficult to motivate a currently free site to start charging its users when it is already profitable. Sites that have made this transition, like the New York Times switching to paywalls, have usually done so because they weren’t profitable as a free provider, and most have done so incompletely (the New York Times paywall doesn’t apply to articles you find through Google search results, for example, and allows you a certain number of articles for free per month).    

More privacy, less ad targeting

What could motivate free sites to start charging micropayments, then? Privacy. If the majority of a site’s visitors are suddenly untrackable—virtually invisible to advertisers—or if it becomes legally complicated to track and store data on visitors, as has happened, and continues to happen, in the EU [8], advertising could become less economically viable than charging those anonymous hordes individually. Additionally, a few changes to the internet commerce system have lowered security and psychological barriers: Bitcoin has made it easier, and somewhat safer, to transfer money online than credit card systems, and the ubiquity of iTunes and in-app purchases have reduced the psychological friction of paying eight-nine cents for a song or extra levels of a game. In some cases, micropayments are working in unexpected ways: the online Jewish magazine The Tablet has been charging its readers to post comments for a few months now, starting at $2 for a day pass [9]. Not only are readers paying, but mean or “troll”-like comments have all but disappeared. Even if unlikely, the Tablet model represents one potential future of micropayments: they support the thoughtful consumption of digital goods, they don’t completely exclude those who can’t pay, and they make it easier for artists and authors to be recognized for their work. Recognizing that our current system of monetizing privacy disproportionately affects the poor [10], taking private data off the auction block in exchange for micropayments could be a nice change to the way the internet does business.

-Allison Berke



[3] Goldfarb, Avi, and Catherine E. Tucker. “Privacy Regulation and Online Advertising.” Management Science 57.1 (2011) : 57-71.









Read more of the blog