This is the first post in a series on micropayments. At Unbounded Enterprise, we believe in leveraging the ability of emerging technologies that allow for the widespread adoption of instant micropayments as low as a fraction of a penny.
In 2021, the pre-SaaS era is almost quaint. When we think of a software product, we think of a cloud-based service, accessible from any device, paid for by subscription or “free”. If one is in a niche industry, maybe there are still products that one buys which are for a one-time, up-front fee for a perpetual license. But, these are becoming rarer and rarer, and increasingly, they have a SaaS component on top of the baseline product - for example, video games where one pays up front for the game but uses a SaaS style subscription to qualify for online play.
The reasons for SaaS’s dominance are obvious in retrospect. These products are more convenient, being device independent, and free up storage space because they operate in the cloud. Perhaps more importantly, the arrangement reduces risk for both the consumer and producer of software. Consumers don’t have to pay up front - they just pay for the time and amount of their usage, relatively speaking. Producers, who now have continued costs because they finance the cloud resources, get continued revenue for a continued service. If producers had to charge a one time up-front for cloud-based services, the prices would be obscene.
Cloud providers further reduce risk for producers and increase product quality. With an on-prem setup, software providers take on the up-front risk of purchasing and setting up servers for a product that might not be successful. If they are too successful, this can also pose problems. AWS and other cloud providers make it easier to pay for what one uses and to easily scale up or scale down. This centralization has also helped applications take advantage of cloud providers’ increasing expertise and experience at operating data centers and making products reliable.
SaaS has also solved issues with software piracy. When software is run locally and is purchased up-front, the incentive for piracy is extremely high. When software runs in the cloud and is paid for by subscription, piracy is not possible in the same way, nor is it as desirable.
All of these trends have greatly increased the ubiquity of software, the value delivered to consumers, and the revenues generated by the software industry. Cloud computing has become one of the largest industries in the world. But, these trends are all unfinished.
SaaS reduces risk for producers and consumers of software, but doesn’t eliminate it. Free tiers can constitute a major cost for producers, and everyone is familiar with paying for subscriptions one does not end up using or wanting. Device independence is convenient, but silos still dominate. Software operating in the same cloud environment is not implicitly a recipe for interoperability. Cloud computing is essential, but data breaches, catastrophic failures, and even censorship are major threats to companies reliant on providers like AWS. And, piracy is still prevalent in the form of account sharing.
Micropayments Continue the Trends of SaaS
SaaS represents an evolution in architecture without an evolution in payments. Your software may be running in the cloud, but you still pay for it with a credit card. However, that is changing quickly. Certain blockchains are making micropayments - instant payments as low as $.0001 - possible at global scale. Micropayments are a better fit for SaaS than credit cards, and they will help to finish the trends that SaaS started.
One of these is risk reduction. SaaS lowers the risk to consumers by allowing them to pay one month at a time. Micropayments eliminate this risk to consumers by allowing them to pay for exactly what they use when they use it. Take streaming services like Netflix. Netflix is a highly affordable service, but ten Netflixes, the reality for many folks who want access to all of yesterday and today’s hit shows, is increasingly unaffordable. Micropayments make paying for individual episodes, or even time watched possible.
This also reduces risk for the producers. Netflix is making plenty of money, but they take on the risk that super-users could watch more than they are actually paying for due to the flat price. Piracy is a common example of this. If multiple people are sharing accounts, they are cheating the system making services more expensive for honest actors. Paying as one goes eliminates this loophole. Have as many people share an account as they want. If they are paying per stream, there is no more unfairness.
Much more importantly than these, however, is micropayments' ability to drive real interoperability. This interoperability is achieved through a two-fold mechanism - increased security through utilizing a blockchain, plus the economic tools to coordinate interoperability through utilizing micropayments. The former, utilizing a blockchain for security, is downstream of micropayments, since the cost of securing independent pieces of data is bounded by payment minimums.
With micropayments, data independence can be achieved the same way device independence was achieved with SaaS. Sometimes, exchanging data is something all parties involved with that data are happy to do for free. Other times, money ought to change hands, but perhaps a very small amount. Take a video game character, Mario, for example. Nintendo puts a lot of work into Mario - his 3d models, animations, sounds, and the lot. They aren’t going to give him away for free. On the other hand, wouldn’t it be better for Nintendo if Mario games came out every day instead of a few times a decade?
With micropayments, Nintendo could make Mario available for license in an economically viable manner. An indie game developer may not be willing to pay whatever astronomical fee there would be for a perpetual Mario license. They may not even want to pay the monthly cost, but if they could pay a licensing fee each time someone played their game, that is something anyone can afford. All they have to do is charge their players more than the licensing fee - 25 cents per play with 10 cents going to Nintendo, for example.
Maybe micropayments aren’t necessary for the producers in the above scenario, although it makes things simpler. However, for the gamers, it is 100% necessary. Why? Because no one can pay up front for millions of Mario games. If Mario is unleashed and indie game developers are coming out with new Mario games every day, how can a gamer forced to buy each game with a one-time fee keep up? They can’t. But, if they can pay as they go arcade style, then it works. Maybe some games are cheap, just a few cents to play, and others are premium, a few dollars for a session. But, as long as the developers can cover the licensing costs, it works.
At Unbounded Enterprise, this is the future we are striving to create. A future where micropayments not only eliminate risk for consumers and producers of software, but a future where the possibility set is dramatically expanded, where software applications proliferate and communicate. To learn more, check out our platform NFTY Jigs and our game Duro Dogs.
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