Monday, September 26, 2005

So what *is* the payment model for Web 2.0?

This is increasingly the most important question around. I started noodling on this in my last post, and Blogsicle really lays it out in this post:
Oh but the economics! you say. Why would one group with a kick ass AJAX’d calendar app let out event data to a less-than-beautiful but popular community event aggregator? Why would I let you view all this in RSS? After all, you’re not seeing my google ads…

BTW Blogsicle is a smart blog I found via Peter Caputa. Update: I've since swapped emails with Peter Brown, the man behind Blogsicle, and can put a name to the blog.

So how does this work? Capitalism works by people paying other people money. One of the reasons that Capitalism 1.0 had a very large granularity (meaning relatively few big companies) is that electronic payment systems were very expensive and non-electronic payment systems (cash and checks) were even more expensive. Micropayments died about twenty times. Web 1.0 (call it capitalism 1.1) saw the innovation of cheapER payment systems like PayPal, which enabled companies like eBay to get reasonably large (still nothin' on WalMart or GE). But they still ain't cheap, and they are still far from automatic. And oh yeah, they still rely on a platform of bank accounts and credit cards and other Capitalism 1.0 kind of expensive bits and pieces.

So if Zvents has an event in it (say, an NFL football game), and someone finds it via Technorati, who serves them an ad about a related event (say, a charity benefit before the game) that WhizSpark is hosting the PR for, and the user clicks on that ad, and ends up signing up for the $50 event, who gets what? And how is it different if they click through to Zvents from Technorati, and *Zvents* serves them that same ad from WhizSpark, and they sign up in the same way? Clearly the people who need to get paid here are:
Technorati
Zvents
Whizspark
The event host/promoter (the charity)
and possibly the "big event" host/promoter (the NFL team)

The way this happens in Capitalism 1.0 is a study in high friction. Ticketmaster goes and signs multi-year contracts with big venues. Big venues book touring acts months in advance. Ticketmaster buys advertising space in local media. It's all done with paper and signatures on multi-month timelines, and the granularity is tens of thousands of dollars in most cases.

In Web 2.0, the theory is that we can a) create a payment system that is low-enough cost that it can efficiently allocate that $50 among as many as five players and that b) such a system and its associated contracts, representations and warranties, fraud control mechanisms, return policies, and other necessary legal blother can all be rolled into some sort of open-market-like API so that Technorati, Zvents, and WhizSpark can all jointly work in this value chain.

That sounds like a Very Big Problem to me, that needs a Very Big Solution. PayPal? Google Payments? Some sort of open consortium? You tell me.

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