Tipjoy: Rethinking Micropayments

Wikipedia defines Micropayments as:

… the means for transferring very small amounts of money, in situations where collecting such small amounts of money with the usual payment systems is impractical, or very expensive, in terms of the amount of money being collected.

To date, innovation in online payments, including micropayments, has gone something like this:

1) Secure credit card processing / merchant accounts – Allowing consumers to safely buy products and services online using a credit card.

2) PayPal – Allowing consumers to link a real world bank account / credit card with an email address, allowing anyone with an email address to receive online payments, and allowing payment by submitting a PayPal login.

3) Google Checkout – Combining PayPal type functionality with a (nearly) universal Google login, and letting consumers quickly see which merchants offer Google Checkout right from the sponsored search results

All of these innovations share one core aspect – consumers are required to pay at the moment of purchase.

What would happen if you could decouple the action of wanting to send money to somebody from actually having to send it?

This is what Mountain View / Boston startup Tipjoy aims to find out.

Their initial application is as a blog tipping tool.  Bloggers can add a Tipjoy widget (see my upper right sidebar), that enables blog readers to send a tip with just one click (members) or by submitting their email address (non-members).  There’s a default value of $0.10 associated with the tip.

Once a blog owner accumulates a balance of $5 or more, they can cash it in for an Amazon gift certificate or donate it to charity.  You can’t withdraw cash yet, because Tipjoy can’t yet afford to fill out the required state by state paperwork to become a money transfer service.

Tippers are nagged via email to add cash to their account so they can pay for their tips.  Eventually, Tipjoy will make money by taking a cut of the transaction when folks withdraw cash.

So what’s the pitch here?  It seems to be a couple of things.  First and foremost, it would seem to be a more direct and intuitive revenue model for bloggers than advertising.  I get a lot of value out of reading blogs, but as of today, I am usually limited to clicking an advertisement if I want to spontaneously reward them.  This is hardly fair to the advertiser, so it’s not ideal.

Additionally, by making the pledge process ridiculously easy, Tipjoy makes it much easier to spontaneously tip.  There’s no navigating away from the host site, deciding on payment sources, or entering in your credit card number.

Finally, it would seem to be a nice, monetary extension of the culture of linking and mutual back scratching that is such an important part of blogging culture.

As Tipjoy is only just getting off the ground, there are still a lot of unanswered questions about this service.  Will folks actually pay up?  Could a concerted fraud effort (say, tipping repeatedly from your enemy’s email address) break or take trust from the service?

Regardless, I really like the thinking behind this simple service and believe it to have potential throughout the UGC ecosystem.  For example, my employer, RateItAll, is the only consumer review site that shares revenue with its contributors.  But couldn’t each of our members benefit from a Tipjoy link on their profile page that would enable reviewer to reviewer tipping?  An API could really do wonders for extending Tipjoy's reach.

You can get your Tipjoy widget HERE.