Tipjoy’s Founders on Passing the Hat

Ivan and Abby Kirigin founded their startup, Tipjoy, to give consumers of free content a new way to pay for the stuff they really like: by leaving a tip. While the idea sounds simple enough, what the Kirigins want to do is actually far more ambitious than their quaint company name suggests. With Tipjoy they aim to exploit the commercial power of micropayments, a hip, Long Tail business concept in which consumers pay for things in tiny increments.

Until now, micropayment systems have proven most useful for philanthropy. No more, say the Kirigins. The couple (they are married) believes Tipjoy’s version of micropayments, which involves consumers paying for products in increments as small as 10 cents, but paying — and here is their innovation — voluntarily, is powerful enough to help Tipjoy become the next PayPal.

The Kirigins developed Tipjoy’s model as participants in Y Combinator’s winter 2008 startup class. Below the couple shares some lessons learned through YC’s collective iteration process.

F|R: “Free” is de rigueur in business, and micropayments aren’t worth much, so what is the value of using them?

Abby: We get asked that a lot: “Why would someone pay $1 for a picture when they can get it for free?” But people are happy to give money for content they like, it’s just that in the digital world they want to get it first, then if they like it, they’ll pay. You can think of Tipjoy as a recommendation engine, like Digg, but lots of arbitrary stuff gets [Dugg], because it’s free and easy. We’re using real currency as a passive filter for quality. Even if you pay 50 cents to “tip” a site you like, chances are you’ll have been more selective than if you paid nothing to recommend it.

F|R: Why haven’t micropayment systems worked in the past?

Abby: One reason is that on sites like Amazon or PayPal Donations, no one knew you were doing it. Because the dollar amounts are so small, people make micropayments for symbolic as well as economic reasons. Without visibility for your payment, the act of making it loses some of its value to the giver — there is no social reinforcement. On the other hand, look at Facebook gifts. People pay $1 to give a “gift” to a friend because it’s fun and social, and they get recognition for it on the site.

F|R: By making payment voluntary, don’t you risk never being paid?

For content that is free to begin with, unpaid donations aren’t a big problem. So far, our payment rates are around 30 percent, and the TPM (tips per mille), or eCPM, are competitive with advertising, though this varies with the type of content. We know it works. When Radiohead released their album “In Rainbows” using a voluntary payment model they brought in $750,000. We will support other models, which mandate payment and would require a pre-paid account or payment withing 30 days.

F|R: How do you make money?

Ivan: If you’re a blogger and a Tipjoy client, you have a widget on your site that lets consumers “tip” you for your content. Tips go into your Tipjoy account. We hold the money and earn interest on the float until you withdraw it. When you cash out, we take a 3 percent fee. There are many ways to optimize and improve our business model, which is a luxury of handling money.

F|R: Can you share a key lesson from the Y Combinator experience?

Abby: The most important lesson is also YC’s motto: “Make something people want.” Before Tipjoy there was no marketplace where people could voluntarily give money to each other for stuff they like. So we built it.

Ivan: Another great aspect is the weekly dinners at which we could discuss our ideas with Paul and the other founders. The takeaway is that founders should talk up their idea to as many people as possible. It is invaluable to get outside your echo chamber and solicit feedback. One huge mistake founders make is staying too long in stealth mode, which means you won’t get any feedback. Another benefit of launching early is the community of early adopters. Tipjoy didn’t have plugins for all the blogging platforms on launch, but within a week our community had made plugins for MovableType, WordPress and Textpattern.

F|R: You’ve said you will extend Tipjoy’s business model beyond voluntary payments, why?

Ivan: Our goals are pretty big, and while people like to give back, that alone isn’t enough to build a big business. So Tipjoy will ultimately offer many options for how and when users make their micropayments. Now we support tipping. We could also allow up to a week or month for payment in a “pay later” model. Another options is subscriptions: Pay if you want, but the service is only on if you pay. Web services could use that model. But we think the nature of digital content allows for a real innovation voluntary payments. That’s how Tipjoy started and we’re always going to be very excited about voluntary.