Jeff Bezos's Plan for World Domination
Andrew Raff
February 07, 2001
This week, Amazon introduced the "Amazon Honor System." This is a service that allows Amazon.com users to contribute money to third-party web sites (such as Adcritic.com) using their Amazon 1-click accounts. Now, I understand the idea behind patenting 1-click. It is not Jeff Bezos's desire for Amazon.com to become the best department store on the web, but to become the best financial transaction facilitator, to create the best electronic currency on the web. While Amazon.com has been the single best e-commerce store on the web, and they best understand the e-commerce shopping experience, Bezos now plans to make Amazon the center for all commerce on the web.
By spending the last couple of years adding new product lines at the expense of profits, Amazon has built a large customer base. Most of these customers are subscribed into 1-Click. Now, Amazon is hoping to make 1-Click the standard for transactions through the web. The Honor System could become the micropayment system that many pundits have claimed to be right around the corner for the last couple of years. A micropayment is a transaction for a small amount of money. It is meant to be transparent and inconsequential to the consumer. It will also have to be a standard, easily available system, as easy to exchange as cash. The number of users Amazon has for 1-Click users may be large enough to be the critical mass that will allow the Honor System to become the standard for online micropayments.
Will Amazon's micropayment system succeed where other attempts have not? There is certainly a demand for it. Web sites that have tried to build a business from advertising, but are not Yahoo, are failing. One attempt to save online advertising was launched by C|net's News.com last week. The new design of News.com is built around enormous animated (Flash) advertisements. This layout is ad-focused, not article-focused. While on most content sites, like the New York Times or Buzz Rant & Rave, for example, the content is central, with ad material surrounding it, on the new News.com layout, the ads are central with article surrounding it.
Without advertising to support content, subscription fees are an option. Some successful content sites, notably the Wall Street Journal and Consumer Reports are fee-based. However Slate tried the subscription idea early in its life and it failed miserably, forcing the Kinsley publication to go to a free, ad-supported model. Slate's early policies showed that web users were not willing to subscribe to a website like to a magazine. That may be changing.
Salon.com has been running a survey recently asking readers how much they would be willing to pay for premium content at Salon. Faced with the choice of not reading Salon, reading Salon with the annoying pop-up ads they've been running or reading Salon and paying a nominal fee for it, I would gladly pay for it. I think the long-term future of online content is for more user subscription fees (ala WSJ.com). Targeted online content will move to fee-based services before too long.
The third option is micropayments. With a micropayment system, readers pay a nominal fee a few cents at most to read an article. Since no one has actually created a working, widespread micropayment system yet, I don't know whether it will actually work or not. Economically, this is the most efficient system. Readers pay for what they read and publishers earn revenues from what is read. I am still unconfident for such a system's success among readers.
Amazon's 1-Click system may not be able to be a true micropayment system. The smallest amount it can transfer is $1.00. Micropayments will have to be well under $1.00 in order to be successful. Amazon is charging 15 cents per transaction plus 15 percent of the amount of the transaction for each payment. The Honor System's closest competitor, PayPal charges 30 cents for transactions under $15 and 30 cents plus 2.2 percent for transactions over $15 (and is free for person to person transfers.) For all transactions over $1.00, Amazon's is more expensive. This is probably too expensive to be a currency, because the transaction costs are high.
If 1-Click is not destined be a currency for micropayments, could it become a replacement for other transactions? Would other online merchants accept 1-Click payments rather than credit card payments? While I believe that this is the scenario that Amazon would prefer to happen, I think it is rather unlikely. Because Amazon is a store itself, it competes with many of its potential clients. I highly doubt that Barnes & Noble will pay Amazon to use Honor System 1-Click payments on bn.com, for example.
Even if sites accept honor system payments, will users even bother? There are significant privacy issues with the Honor System. Because the boxes that enable individual sites to accept 1 Click payments use Amazon.com's cookies, this enables Amazon to track users around the web. This may further deter users from being willing to use the Honor System.
It still remains to be seen whether Amazon will be able to transform its customer convenience into a viable online currency replacement. If successful, Amazon.com could become the center for all e-commerce and become far more important than just being a large department store. I am highly skeptical, but will be very impressed if this Honor System succeeds.
