Kachingle’s Business Model
Originally uploaded by kaysov.

Financial crisis has been particularly harsh to newspapers and many people have written about how to save newspaper businesses. Walter Isaacson of Aspen Institute thinks an iTunes of newspaper articles will save the industry [1]. He proposes a pricing scheme to charge $.50 for an article, $1 for an issue and likewise. It is essentially a micropayment based argument bolstered by the recent success of iTunes store.

Clay Shirky, among others, argues against micropayments [2]. He contends that iTunes worked because of a closed system and non-existence of a real alternative. He thinks micropayments are destined to fail because they break the ecology of information sharing. If some of the below listed URLs are behind a gateway and you share this story with some of your friends, chances are not everyone of your friends has a subscription to those articles behind gateways. This clearly is a bottleneck for sharing.

He also points at other problems in Isaacson’s pricing mechanism. He talks about mental transaction costs, where in the consumer has to make a purchase decision for every single article he wants to access. Consumers in the United States and elsewhere have been reluctant to such pricing schemes in related markets like bandwidth and DVD rentals, which brings us to a new startup idea called Kachingle.

Kachingle relies on an NPR like voluntary contribution from readers. Content providers partnering with Kachingle get to keep a little badge ontheir webpages that keeps track of the amount of time a reader spends on the website. Kachingle later distributes readers’ voluntary contribution among partners based on the amount of time he or she spends with them.

There are many things that are elegant about the above solution. It lets the reader set a monthly budget that acts like a flat rate minimizing mental transactions. It also lets the readers set their individual budgets based on their willingness to pay. It could report back to the reader the time they spend on individual websites and thereby let them perceive the value for what they paid for. It could also potentially let them redistribute their donations based on their perception of the value they received.

Where I see it failing is its inability to address a couple of perverse incentives. In the world of content, there are original contributors and there are voracious readers with an excellent eye for quality writing. The latter hyperlink to the former acting as a quality filter for the less voracious mortals. The Kachingle idea parts a tiny slice of its donations to the voracious linkers and a major part to the contributors, which by all means is very fair.

But it can also encourage these voracious readers to crystallize lengthy original contributions into comestible morsels and not link to the original article in the first place [3]. This should help maximize their slices from donations, which again sounds fair given the ubiquitous information overload. This has implications for original contributors, they need to come up with several variations of their essays.

Mr. Isaacson wonders how come users wouldn’t pay for professionally written articles when they pay for music, in spite of mountains of amateur music freely floating on the Internets. The problem I think is, it is far more easy to summarize or meaningfully excerpt a piece of an essay than a song, and there lies the trade off between original contributions and elegant synopses.

[1] http://www.time.com/time/business/article/0,8599,1877191,00.html
[2] http://www.shirky.com/weblog/2009/02/why-small-payments-wont-save-publishers/
[3] I believe the credibility of the summary is enhanced by linking to the original article, but readers may not be spending as much time as they should be on the original article’s website.