iPhone “in-app” payment will bring micro-payment to the masses

диваниOver the past 10-15 years, several companies have tried to crack the micro-payment market by building transactional systems for customers, merchants, telecom operators and other large service providers to permit the exchange of small amounts of money.

The number one problem faced by the companies who built these solutions was the “chicken and egg” problem: to be successful, the network needs merchants and lots of customers (we are talking about transactions of one dollar or less). It is hard to convince merchants to deploy a solution when there are only a few customers ready to pay for their goods/services. Similarly, it is difficult to convince customers to join a network which has little to offer.

Some solutions were successfully deployed. None became a standard, or involved more than one provider/operator. They have always been operated as closed ecosystems.

With iTunes, Apple has already proven that they could build and operate a working platform to sell music and movies. However, only large merchants (music majors – independents at a lower level – and movie studios) beneficiate from this solution. With the 3rd version of their mobile OS, Apple will offer a unique micro-payment solution for developers and content providers. When Apple’s in-app payment functionality will launch two critical factors for its success will be in place:
1. A large community of customers – with over 40 millions iPhones and iPod Touch sold around the world – already exists.
2. There are thousands of developers and companies which have already developed iPhone applications and are ready to take advantage of the new in-app payment functionality of the iPhone OS 3.0.

Beyond the classic examples where users will pay $0.99 for a new car in a racing game, or to access the next level of a FPS, we will also see a new kind of applications which will be primarily designed to give access to premium content. On the phone or on a computer. It could be an article from the NYT or detailed weather forecast for airplane pilots.

Now there are still some unknowns regarding this new feature:
– what will the user experience be?
– how will the settlement process work?
– what will Apple’s cut per transaction be? Hopefully it will be less than the current 30-70% in place for iPhone developers’ applications.

Regardless, I am convinced that this feature will help micro-payment become a day-to-day reality for millions of users and will transform the way we pay for online services. Surely, it will be a key differentiator for Apple which will allow them to keep their advance over the competition.

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