Posted on February 5, 2010 Ben
I was following the commentary about Kwedit Thursday, like I think a lot of payments professionals, my initial reaction was something between ‘how cute’ and ‘seems a little crazy.’ Glenbrook and Finextra didn’t have a lot of commentary, but TechCrunch was certainly optimistic. Over the course of the day as I thought about it more, it became more clear that Kwedit could really take off. I was pleased to open my Google Reader this morning and find that NetBanker had hit on a few of the key reasons I think this can take off:
I’m not a gamer myself, but as a parent, I understand the pull of online games and look forward to the day when I don’t have to hand over my credit card for use on some site I barely understand. Some will argue that Kwedit needlessly encourages credit use in the pre-teen set (note 1). But as long as parents stay involved, Kwedit can actually be used to teach kids the importance of paying their bills.
So, if users take this option seriously, by paying down their virtual debt with real money, Kwedit could be huge (in which case, PayPal buys it of course). And it’s relatively low risk for the gaming companies because the virtual goods have a zero marginal cost.
First, the service isn’t focused on adults, but the tween/teen set. This means the cutesy artwork and terminology works. It also means the service hits a spot that is very poorly served today. Second, the goods this service allows said tweens/teens to buy have virtually no marginal cost. Finally, it exposes young people to credit and reputation at a younger age, which will hopefully help them learn some lessons of credit early.
I think the most critical aspect of what could make this a success, and possibly a lesson for all micropayment schemes for digital content. When it comes to paying small amounts for digital content, you don’t need everyone to pay! This is a pretty significant philosophical shift. For an awful long time, we have been very concerned that everyone who says they will pay, will actually pay. And if they don’t, the merchant is out the cost of good that went out the door. For many, many years it has been a must that bad payments get recovered.
With digital content, this has changed. By loosening up on whether the goods are paid for, services like Kwedit can allow merchants to capture a smaller piece of a much, much larger pie. For Kwedit’s merchants, there may be many, many customers willing, but unable to pay for goods. The risk that some of these customers may wind up not paying is far outweighed by the broader reach to those who do wind up paying.
In some respects, this isn’t all that much different from what TipJoy was trying to do, except it provides much more reason to pay, both by making payment the default, and providing consequences for non-payment.
We’ll see how things go, but it seems like a great way for providers of digital content to extend their reach with their target audience.