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Tips, Tokenization and The Micropurchase Economy

Kamran Rosen headshot
Kamran Rosen / Jul 25, 2019
In 2018, the hugely popular online multiplayer game Fortnite brought in over $2.4 billion—estimated to be the highest annual revenue of any game in history.

The kicker? The game is free to play.

Fortnite shines as an example of the business of the future, one that operates on micropayments and micropurchases. As of last June, 68.8% of the game’s users were “in-game purchasers” cumulatively spending over one billion dollars—in increments from five to twelve dollars apiece—on character upgrades such as skins, avatars, and celebration dances.

And it’s not just gaming that’s seeing major traction with the micropurchase model.

  1. 01

    In-app purchases have become the dominant form of revenue for apps of all stripes; since they were enabled in Apple’s App Store a decade ago, they’ve grown over 5,000%, pulling in $36 billion last year alone.

  2. 02

    China’s podcasting industry dwarfs its U.S. counterpart due to—among other things—tip-based and pay-as-you-go revenue models.

  3. 03

    Amazon saw users of its Echo smart speaker make purchases 13% more often, while basket size went down 3.1%.

  4. 04

    Grocery stores have been shrinking in size, as customers prioritize convenience shopping.

  5. 05

    Even the most hardened illiquid assets, such as real estate, are now being broken up into tiny fractional purchases as low as seven dollars each.

The concept of micropayments predates the World Wide Web, and definitions of “micropayment” vary, designating amounts anywhere from less than $20 on down to $0.0001. But when it comes to commerce, the bottom line is: less is more, and small is the new big. Businesses wanting to reach the modern consumer—and, more importantly, the future consumer—will have to engage them one small transaction at a time.

Digital Media and Tip-Based Content Creation

Last year U.S. podcasts generated $500 million. In China, that figure was $7.3 billion. Even adjusting for population, China’s podcasting industry is five times more lucrative than its American analog.

The difference? Chinese podcasters have figured out how to monetize small audiences.

Currently, most U.S. podcast revenue comes from ads, which require both a high level of listenership and conversion to off-app engagement. Advertisers are often scared to take risks on new shows, resulting in lots of unmonetized listening time while creators prove themselves. To date, this model has translated to an average audience value of only one cent per listener hour, making it very hard for small publishers to gain any revenue, in turn disincentivizing the content creation.

“One of the biggest problems we have is upfront investment in content,” says Peter Vincer, CEO of podcast network HiStudios, and former head of global operations at Castbox. “For instance, I could be in a situation where I pay forty thousand dollars upfront for a show, and then realize I don’t even want to air it because I don’t know if anyone will like it.”

Chinese audio content giant Ximalaya had a different idea: why not create a mixed revenue model that involves both subscriptions and tipping for free content? This way, not only can listeners subscribe to a broad range of paid content, but they can also tip free broadcasters they like, or pay àla carte for audio content—as little as three cents per book chapter. If they’re hooked, they can upgrade to ten dollars for a book, or forty-five for a full audio course. Ximalaya’s podcast market grew 22% last year.

Deloitte now predicts that tipping will constitute the majority of revenue for livestreaming in the future.

In the U.S., donations to broadcasters on the video game livestreaming platform Twitch topped $141 million last year; Deloitte now predicts that tipping will constitute the majority of revenue for livestreaming in the future. The potential is massive, especially when you consider that livestreaming already averages the same number of daily viewers the Game of Thrones series finale did.

In theory, once a pay-what-you-want model is accepted, there’s no limit to what can be monetized. The Chinese ebook platform YeuWen has over 7.7 million writers, many of them paid via micropayments to publish ebooks one text message at a time. Musicians who use streaming apps like YouNow and Periscope have earned as much as ten thousand dollars a month, using a PayPal account to receive donations. TikTok, the social music-video app that rocketed to five hundred million users in just two years—is widely rumored to be the next major player to incorporate tipping.

The future, then, looks to be one in which everyone can be a content creator and any quantity or type of content can be monetized. As barriers to entry disappear and feedback loops become nearly instantaneous, creators and publishers will be able to scale their operations as their popularity grows, receiving real-time feedback and financing through tips and micropayments.

Next Steps

Centralized digital wallets will allow for a complete streamlining of tip-based payments, eliminating all friction between content consumers and content creators. Anyone will be able to publish anything—poetry, art, video basketball tutorials, virtual-reality worlds—and receive monetary compensation for it through the same central account: no need to sync a payment system like PayPal to every platform. Eliminating that friction will in turn eliminate barriers for new content platforms to monetize, allowing an ever-growing landscape of content to be monetized instantly.

Fractional Ownership and The Future of Personal Possession

Roughly 75% of Americans want to own a home. Roughly 56% can’t afford to.

While many point to rising housing prices and wage stagnation as reasons for declining homeownership, few have examined the narrow mechanisms in place for financing a home purchase. Until now, cash and institutionally backed mortgages—both of which have steeply prohibitive entry points—have been assumed to be virtually the only means of buying a home.

75% of Americans want to own a home but 56% cannot afford to

But what if homeownership could be broken up —“tokenized”— into fractional pieces that can each be bought and sold? Much as the stock market allows average individuals to own shares of a behemoth like Microsoft, individuals could own pieces of real estate worth as little as ten dollars. What if, instead of a bank owning a mortgage, neighbors and family members could buy a house collectively, benefiting from its appreciation over time while also investing in their own neighborhood?

Tokenization changes the fundamental dynamics of ownership and value distribution. One instance: the experiment being undertaken by French blockchain investment platform Equisafe, which broke up the €6.5 million AnnA Villa hotel near Paris into 100,000 tokenized shares that cost only €6.50 each. By divvying the property into digital tokens with ownership rights and other legal stipulations hard-coded into them, crypto enthusiasts are hard at work creating easy entry points into historically illiquid assets like real estate. A $30 million Manhattan property was tokenized and sold just last year. “Owners” don’t get to live there (or even visit) but the value of their token can increase with the value of the property.

It’s not just housing. Last year, investors used digital tokens to purchase 31.5% of an Andy Warhol painting, 14 Small Electric Chairs, valued at $5.6 million. Several startups offer the ability to buy or finance a car entirely with cryptocurrency, embedding vehicle history, seller information, and insurance permanently on the blockchain.

Indeed, no sector appears as ripe for fractional ownership as the auto industry. With 55% of Gen Z believing owning a car is unnecessary, companies like Zipcar and Getaround have attracted consumers with subscription rentals and peer-to-peer car sharing. Car2Go lets you pay to drive by the minute; Clutch Technologies is creating vehicle subscription services that allow car dealers to lease their fleets directly to customers. Considering that the average car is only in use for 4% of the time it’s owned—a massive purchase inefficiency—these models make all the more sense.

In the fractional, partial, and shared ownership of the future, consumers will be able to pay for an asset proportional to their need for it, and suppliers won’t have to lose sales from inflexible asset quantities. The barriers to investment will become infinitesimally small, maximizing liquidity.

Next Steps

As tokenized assets grow to reach ubiquity, crypto-wallets will become necessary for every individual. Cars, homes, luxury items, and even tool sets will be partially owned and shared to maximize value. Virtual contracts will become part of the fabric of everything we buy, expediting sales, valuation, and division.