Why Online “Tip Jar”-Style Payment Systems Don’t Work

Flattr, the online-payment startup founded by Peter Sunde of The Pirate Bay, said Tuesday it’s launching the ability to pay — or “flattr” — people using their Twitter username. But as we pointed out in our post on the news, the odds of this kind of “tip jar”-style micropayment system actually taking off are astronomically low. So why don’t online tip jars work? Ivan Kirigin, who founded and then shut down a tip-jar startup called Tipjoy, has some theories about that. One is that getting people to pay for things (such as content) that they aren’t already used to paying for is a very difficult thing to do — a point media companies looking at paywalls and other similar schemes might want to consider.

Although Kirigin says Flattr may have a leg up on similar attempts because of its plan to leverage Twitter — something Twitter is apparently interested in helping with, if a recent tweet from Twitter Director of Platform Ryan Sarver is any guide — the former Tipjoy founder says there are other flaws in the model. Among them, he says:

Twitter is an inappropriate platform for direct commerce [because] it is an information network.

In other words, says Kirigin, it makes sense to use Twitter to allow users to publicize that they have donated to someone using Flattr, but it doesn’t necessarily follow that the payment itself should take place on Twitter or via the Twitter network. This isn’t necessarily a fatal flaw to Flattr’s idea, but it’s an interesting point. The Tipjoy founder also says peer-to-peer payment is a lot smaller market than many people seem to think it is:

Roughly speaking, think of commerce as two orders of magnitude more common than transactions to non-profits. Similarly non-profits are an order of magnitude more common than P2P transactions.

But one of the biggest challenges for Flattr or any other system, according to Kirigin (who now works at Dropbox), is that “they are monetizing content that people don’t currently pay for.” And during a discussion about “tip jar”-style services on Twitter on Tuesday, the founder of another Twitter-based payment service called Twitpay expressed a similar view. Michael Ivey — whose startup has gotten investment from Google Chairman Eric Schmidt and is now focused primarily on appealing to non-profits and social-gaming companies — said that “monetizing content that people don’t currently pay for may be the hardest thing for a company to pull off.”

There’s a cautionary tale there for media companies trying to implement revenue-generating schemes such as paywalls and selling apps. Rightly or wrongly, news and related content from publishing entities has been free online for at least a decade now, and longer in some cases. Getting people to pay for that content even in a small way is likely to be just as difficult as getting them to use an online tip jar.

So then why are lots of people willing to tip waitresses or musicians who play in the subway, but are apparently unwilling to use online tip-jar services? Shouldn’t there be more tipping online because it’s so easy to do? Not necessarily, says Ivey. There’s one thing missing online that exists in the real world, and that’s the social pressure to tip. If you don’t tip or throw money to a musician, you feel bad, and the person you didn’t tip is looking right at you. Online, there’s no risk of that kind of awkwardness. Plus, you know you’re going to get the content for free anyway.

It’s possible Flattr could overcome these kinds of hurdles, and tipping people via Twitter could become a new social norm, just like tipping waitresses on your credit card. But we have a long way to go before that future arrives.

Post and thumbnail photos courtesy of Flickr user Dave Dugdale