DAVOS: Microsoft To Set Up Online Payment System
DAVOS, Switzerland -(Dow Jones)- Microsoft Corp. (MSFT) is developing on an online payment system that will be cheaper than credit card transactions, making it possible for companies to charge small fees for Web-based content and services they now offer for free.
Context & Ripple Effects
Microsoft's payment effort sits alongside its exploration of free Web-based business software and earlier consideration of free desktop applications. Those moves made the question of how Web services earn revenue more consequential than a conventional card-payment integration.
A lower-cost transaction layer would give Microsoft and online providers a way to charge for small units of content or services that had been offered free, rather than requiring a subscription or absorbing card-processing costs.
First-order effects
- Microsoft gains a prospective payments component for its online services, while Web-content and service providers gain a potential route to charge small fees where credit-card transaction costs are uneconomic.
Second-order effects
- Providers that rely on free access or larger bundled charges face pressure to test per-use pricing if Microsoft's system lowers the cost of collecting very small payments.
Third-order effects
- If low-value online payments become practical at scale, the economics of Web services shift toward payment platforms that can combine distribution, identity and settlement rather than treating transactions as a standalone card function.
The trend: Microsoft's move is part of a broader effort to pair low-cost or free software services with new mechanisms for monetizing their use.