Can Flattr Plus Twitter Make Micropayments a Reality?

Updated: Flattr, the micropayment startup founded by Peter Sunde — one of the co-founders of the notorious Swedish file-sharing site The Pirate Bay — said Monday it’s preparing to launch a new feature that will combine its payment system with Twitter, and allow any Flattr user to send money to someone via their Twitter name. Could this help launch a “tip jar” system that actually works on a large scale? If it does, then Sunde and Flattr could transform the online content industry in much the same way The Pirate Bay disrupted it, but for the better. If it doesn’t, then Flattr will be the latest to join a vast and star-studded cemetery of failed micropayment startups.

As announced on the Flattr blog, the new feature allows users of the startup service to “flattr” or send a payment to someone using only their Twitter user name. Under the previous system, those kinds of payments — which come out of an account that users set up for the purpose — could only be sent to people or companies that were already signed up for Flattr. But now, if the person or content producer a user wants to pay isn’t already a member of Flattr, the payment will be stored until the content producer or person becomes a member. The user or content producer will get a Twitter message saying there is an outstanding payment waiting. Flattr says it’s currently undergoing maintenance to add the new feature.

The benefit of this approach for Flattr is obvious. As the blog post notes, one of the problems with growing a new kind of payment system — or any web service — is letting people know it exists. By telling Twitter users they have money waiting for them should they sign up, it creates an incentive for them to join.

For individual content creators, meanwhile,¬†Flattr could create a “tip jar” that actually produces more than a trickle of virtual coins. Sunde’s vision in creating the service, as described in the company’s video (embedded below), is that it would become a way for struggling or independent artists of all kinds — musicians, writers, and so on — to be paid for their content directly by their fans. Could such a system allow a blogger to be paid by readers? Could someone curating news on Twitter, the way Andy Carvin of National Public Radio has been during the revolutions in the Middle East, use something like Flattr to turn what he does into a standalone business?

The combination of the personal connection that Twitter allows and an easy system of micropayments has a lot of potential, but the odds of success are still astronomically low, if the history of micropayments is any guide. The concept behind Flattr is almost as old as the web itself: the idea that, using the power of the distributed web, an economy of “micro-payments” could be created that would make it possible for both individuals and corporations to charge tiny sums for their content. Since there aren’t any of the physical restrictions on money and transactions that occur in the real world, the theory goes, this kind of micro-economy should work quite well. The only problem is that it never has.

No one has ever managed to actually make this idea work in practice, and plenty of well-funded companies have tried. In the first bubble, they had names like Beenz and Flooz, but others (CyberCash, DigiCash, Millicent, etc.) have tried with more traditional models and they have also failed — although people are still trying, including an open “peer-to-peer currency” project called Bitcoin. One of the biggest hurdles for this or any other payment system is the need for scale: Using paper bills or coins or even credit cards works, because they are accepted virtually everywhere, and they are a known quantity and have well-established companies (and government regulations) behind them. No micropayment system has been able to gain that kind of scale.

Can adding a connection to the Twitter network give Flattr what other systems have been missing? That’s clearly what the company has in mind, but it remains to be seen whether enough people can be convinced to join a brand-new and completely unproven payment system. And when it comes to adding a social element to payments, there’s also a rather large player who could enter the scene at any moment: namely, Facebook and its Credits system, which the social network is said to be interested in expanding outside its own platform. If scale is what wins, then Facebook already has that in spades.

Update: Ivan Kirigin, who founded a “tip jar”-style micropayment company called Tipjoy, has written a response to this post about why such ventures rarely succeed (Tipjoy was shut down and Kirigin now works for Dropbox) — in which he mentions that payment systems are invariably harder to manage than most people think, and also that getting people to pay for things (such as content) that they have never paid for before is not easy. Kirigin also mentions several other ongoing experiments in using Twitter for payments, including Twitpay — which Google chairman Eric Schmidt has invested in — and Twippr.