From the git-go, the Holy Grail of e-commerce has been micropayments, those sometimes tiny financial transactions that take place as you buy and sell goods and services over the Internet. But the problem with micropayments has always been their administrative overhead. To date, most Internet transactions have been based on credit cards—Visa, MasterCard, American Express, or whatever—with fees of at least $0.30 or more, depending on the size of the transaction. This is okay for selling $20 DVDs or $20,000 automobiles, but when it comes to items like a single software component, MP3, or PDF file, which might sell for a dollar or less, this administrative overhead quickly chews into profits.
Not that there haven't been plenty of cracks at breaking the micropayment bank. Let's see, there is (or was) Cybercash, CyberCoin, MilliCent, DigiCash, Cartio, NetBill, SOX, ClickShare, NTSys, Trivnet, NewGenPay, Ultimus, Enition, OpenMarket, Wave Systems, Internet Dollar, Qpass, VeriSign, and Visa, (whew!) to name a few. Although not specifically a micropayment system, PayPal has established itself as a creditable means of person-to-person money transfer, while Microsoft's credit-card-based .NET Passport could likely accommodate micropayments of one kind or another.
With all these goings-on, you'd think that there would be some efforts made at standardization. As luck would have it, the W3C's Micropayment Working Group (http://www.w3.org/e-commerce/Micropayments/Overview.html) tried to specify a set of HTML tags called the "common markup for micropayment per-fee-links," but alas, the project ran out of steam in 1999.
Still, new companies with new ideas continue to take a run at micropayments. For instance, Peppercoin (http://www.peppercoin.com/) is a scheme devised by Ron Rivest and Silvio Micali and named after English law, which states that one "Peppercoin" is the smallest payment allowed in a contract. Considering Rivest and Micali's backgrounds in cryptography, it comes as little surprise that Peppercoin uses cryptography and aggregates multiple micropayments. Peppercoin randomly drops 99 percent of the tens of thousands of transactions sellers get, sending 1 percent of them to the bank for 100 times the payment. The bank then processes the transaction, charges buyers, and pays sellers, while reducing its processing costs by 1/100th. To use the system, all you have to do is set up an account and begin using the free PepperPanel viewer to buy and pay for items. Likewise, sellers set up their accounts (including the bank account for deposits) and use the PepperMill program to package and encrypt the digital goods they want to sell.
Another interesting approach is Tibanna, from Pocketpass (http://www.pocketpass.com/). The Tibanna digital rights management and micropayment system lets you create portable, standalone files that include the content itself, along with rules, a wrapper, and the payment system.
Like Peppercoin, Tibanna (named after Tibanna gas, which Darth Vader used to freeze Han Solo in Star Wars) requires that both sellers and buyers set up accounts and use the company's freely available software. The software consists of a generator to produce the wrapped content, and a player—a small application contained within each piece of content wrapped by the Tibanna generator—to view and purchase content according to merchant-specified rules. Tibanna-wrapped content can be distributed either as executable programs (.exe) or standalone content (.xmfg). The executable program contains and installs the necessary Tibanna run-time files, as well as the content. The standalone content is able to download and install or update any necessary run-time files without user intervention. Tibanna-wrapped files can be copied and freely distributed by any method (server, e-mail attachment, peer-to-peer, CD-ROM, and the like) as specified by the seller's rules.
Tibanna has an interesting twist, in that it provides a disincentive in terms of piracy. Say, for instance, you're a musician who wants to sell a single song as an MP3 file. You run the file through Tibanna, setting rules for price and commissions to "affiliates" for reselling it. You put the wrapped (encrypted) MP3 file on your web site, where someone downloads it to post on their Napster-like peer-to-peer server. They can buy it or not. If they buy it (that is, unwrap it), you get paid. If they don't buy it, they can't listen to the MP3—but they can repost it on their system. If someone else then buys it, you get paid and the reposter gets a commission. The more files are copied and passed around, the better off everyone is because everyone gets paid. In other words, since anyone who posts and sells the file gets a commission, there is less incentive to pirate the file. Of course, the kicker is that everyone has to have a Pocketpass account, which is how the company makes its money.
Before someone strikes it big with little bucks, there surely will be other approaches to micropayments. And it's my guess that the most innovative ideas will continue to come from small outfits like Peppercorn and Pocketpass.
Jonathan Erickson
editor-in-chief
