The digital currency’s low transaction costs may revive a long-frustrated online content model -- the paywall.

By David Z. Morris
March 5, 2014
March 05, 2014

FORTUNE — Since the mid 1990s, vendors have dreamed of being able to sell music, news, games, and other digital goods online for tiny amounts that would in theory add up to big revenue. But structural barriers including fees from payments processors have stymied the model for nearly two decades, leaving publishers to rely on meager advertising, underperforming subscription models, and expensive centralized stores from Amazon, Apple, and Google.

Low costs and other features are making bitcoin an attractive basis for resurrecting the micropayments idea. Two startups, Bitwall and Coinlock, could help shift consumer activity away from walled gardens like iTunes and toward a less centralized ecosystem in which independent vendors could offer content at micro-prices, ultimately opening up vast new flows of consumer spending online.

Bitwall, which has taken funding from Boost Venture Capital, offers tools, such as a WordPress plugin, that allow small online publishers to install highly customizable paywalls to control access to content. Bitwall also serves enterprises and collaborated with the Chicago Sun-Times to put up an exploratory paywall for one day on Feb. 1.

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Coinlock is focused on allowing publishers to set up bitcoin-denominated sales of video, audio, ebook, or other files without additional infrastructure. The service allows vendors to monetize content with only a Bitcoin address and a way to share a web link to their content.

The Chicago Sun-Times experimented with a traditional subscription paywall in 2011, but, like many other publishers, quickly abandoned it after mixed results. The inconsistent results of paywalls for sites like newspapers have been attributed to both high up-front costs and time-consuming registration processes. “The question of whether a traditional paywall is viable long-term is a little bit up in the air,” says Jim Kirk, the Sun-Times publisher and editor in chief.

By contrast, the micropayment wall that the Sun-Times set up for 24 hours on Feb. 1 offered next to no resistance for readers — in fact, it was completely optional. Visitors could access the site by paying one of a few different set amounts in bitcoin, paying an amount of their own choosing, tweeting about the Sun-Times — or by clicking “Skip” to bypass the paywall. Bitwall CEO Nic Melionis, who worked at the Royal Bank of Scotland and Visa before starting Bitwall, says the multiple options reflect Bitwall’s goal of creating a low-friction system. “A paywall is a payment product, but it’s also part of user experience,” he says.

According to Julian Posada, executive vice president for marketing and strategy at the Sun-Times’ parent company, Wrapports, Bitwall and the Sun-Times were more interested in testing consumer behavior than in generating revenue. (All proceeds of the experiment went to the nonprofit Taproot Foundation.) “When we say micropayment, is that a penny? What are some denominations that [are] going to be important?” The Sun-Times gathered 713 donations in the 24-hour window, ranging from a penny to over $1,000. 50% of users who clicked on the donation option followed through with a donation, and each tweet from the paywall generated an average of 38 clicks.

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Sixty-three percent of payments during the period were 25 cents, an apparent “sweet spot” that Posada found surprisingly high. But using conventional payments options with base rates of 20 cents per transaction would make revenue at that price point inaccessible. Bitwall’s transaction costs, by contrast, are at or near zero. Bitcoin processing fees are set to drop to less than half a cent per transaction soon, and for users that open a Bitwall account, the cost will be absolute zero because of the efficiency of shared accounting through the Coinbase exchange. According to Melionis, Bitwall did not collect fees for the experiment and currently has no set fee structure.

Posada described the results as “pretty good,” even in light of the high likelihood that numbers were skewed by bitcoin enthusiasts supporting the experiment. He says bitcoin early adopters are a worthy target. “Those are folks who like a lot of content, they’re highly educated, it’s a good demographic,” says Posada.

While Bitwall may finally make publishers’ microtransaction dreams a reality, Coinlock founder and lead developer Matt Branton has an even more radical vision, in which anyone can accept payments for content with nearly no infrastructure. “If you understand how to insert a hyperlink, you can sell your content [on Coinlock],” says Branton. “There isn’t this idea of integration, there isn’t this idea of programming. You don’t need an expert. You don’t need anything.”

Coinlock provides both payment processing and file servicing, and does not require registration for sellers or buyers — a flexibility enabled by the pseudonymous nature of bitcoin transactions. This could represent a challenge to centralized markets like iTunes and the Google Play store, which have become the only truly viable implementation of content micropayments.

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iTunes, and later Apple’s App Store, overcame the hurdle of high transaction fees by bundling payments — if a user buys several 99-cent songs, books, or games over the course of the day, the payments are processed at the end of the day as one transaction, with one processing fee. Though centralization has made the 99-cent app viable, Branton says the “walled garden” approach is not ideal. Apple AAPL currently takes a 30% cut of sales in the App Store, and Amazon’s AMZN model for ebook sales is more complex, but with similar rates. Branton speculates that Coinlock’s decentralized payment model “will drive the cost down to where it makes sense to adopt” his new model.

Even for more expensive content, Branton says Coinlock offers major savings and ease of use over current options. “When you’re running a traditional e-commerce site, you’re paying a lot of middlemen. For the shopping cart, for the payment processing, for the file delivery, for the bandwidth … I’m trying to flatten it so you can immediately deliver without that.” Coinlock also does not monitor or restrict content offered through its service.

For much of the 1990s, heavy hitters like IBM and Compaq, along with many startups, attempted to tackle the micropayments problem, but all ultimately failed. Widening adoption of Bitcoin, which can already be used to buy everything from laptops to basketball tickets, could lead to a radically different online ecosystem, in which Internet users become used to keeping a quantity of digital cash stored in their web browsers and paying for content regularly in a variety of locations online. The new models and potential new revenues that would be generated by such a shift is one reason investors are pouring increasing amounts of money into bitcoin startups, despite volatility in the space.

But Branton is quick to emphasize that such a future depends greatly on bitcoin adoption, which has been dealt a serious blow in recent weeks by news such as the failure of the Mt. Gox exchange. Mass adoption is crucial to making Coinlock and other micropayments solutions viable because volume is key to the model. As Branton points out, “The only problem with processing micropayments is that you get paid in micropayments.”


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