# Pricing in Pay-It-Forward and Gift Economies

Thanks to this site lurching up a notch in traffic and visits, with a corresponding lurch-up in various revenue streams (coffee, Amazon Affiliate sales, Google AdSense), an interesting set of economics questions has been on my radar. Over the last two months, ribbonfarm.com made a few hundred dollars (mainly due to the Gervais Principle articles). That’s still pretty much a rounding error in relative terms, compared to my real job, but in absolute terms, it is actually worth thinking about. Here is the main question: what percentage of revenue should someone like me devote to contributions to all the fantastic open-source infrastructure that makes this blog possible? So far, I’ve behaved pretty randomly. Last month, I donated $20 to the guy (Ankesh Kothari) behind the “Buy me a beer” plugin (which you see on this site as “Buy me a coffee”). I also donated another$20 to Wikipedia. But I’d like to think about this more systematically, and figure out how much to contribute, how, and who gets it. Here are my opening thoughts.

Pay-It-Forward and Gift Economies

The emerging Internet is only partly driven by what Chris Anderson is calling “Freeconomics.”  We are all starting to realize that without disciplined sharing, we’ll hit a Tragedy of the Commons pretty soon. Some pieces of infrastructure, like Linux, are important enough that institutional support will probably suffice. Others, like the WordPress core, will be part of the freemium business model of a steward company (Automattic). But that still leaves out a huge deficit in stuff that needs support and doesn’t get it.

Here’s where bloggers come in. We are at the money-making edge of the new long-tail economy of content. Bloggers are among the “edge” creatives who can expect to make money directly off the content audience. You (or my Mom) are not going to dig out and pay the “buy me a beer” plugin guy.

For most of us, it is trivial amounts of money, to be sure. The Darren Rowses of the world, making six-figure blog incomes, are rather thin on the ground. The money also does not compare to traditional writing incomes. The few times I’ve written for pay in traditional ways, I made a lot more, for content that was nowhere near the quality I shoot for on this blog.

But still, the moment revenue gets to the point where sharing can  influence the survivability of other ecosystem players, the question needs to be answered. Sure, some writers of plugins and other bits and pieces of useful Web infrastructure have good consulting business models of their own (with their plugins being marketing tools). Some players are so good (like Chris Pearson, the creator of the Thesis theme that I use on this blog, $89), that they can charge and we’ll gladly pay. But for the rest, I think figuring out a rational sharing formula is important. Two concepts can help. The first is a gift economy. Donating to Wikipedia (they’ve currently raised$1.4 million out of the $7.5 million they need) fits this model. Services that are so big, broad and generally useful that they need no-strings-attached support. The other is pay-it-forward economics (voluntarily passing on value to people/organizations whose work supports yours). It is best-faith, honor-system payments down a de facto infrastructure maintenance supply chain. It is not quite a special case of a gift economy, because there may be non-binding personal expectations. I might request a new feature from a plugin writer. You might send me an article request (in fact, I’ve framed my “Coffee” link as “… if you’d like more articles like this,” a crude vote-with-money system). These abstract frameworks provide some basic guidance, but here is the issue. It doesn’t get us to practical sharing formulas. Remember, I am talking rational economics here, not charity. I have a selfish interest in wanting WordPress and the plugins I use to thrive. I have a stake in Chris Pearson’s survival. The Practical Questions The main practical questions are how much and how and who gets it? Viewing the Web’s content infrastructure as a network of economic actors, each consuming resources and adding value, who should be paying who, and how much? You cannot think of this in terms of charity, since quite often, the money will flow upstream. There might be a plugin writer who makes 10x what I do through “donations,” so me donating to him would be a case of the poorer donating to the richer. But then, he might actually deserve it, in opportunity cost and value-addition terms. Clearly, we need a better term. But I’ll let that go. How Much? I think the how much question should be framed as a percentage of revenue, not profits. For two good reasons: one, most bloggers will not make a profit if they factor in their time. Unless you are homeless and blogging for food with no other income, that’s just too convenient an excuse to not contribute. Second, contributing to infrastructure should be viewed as a cost of doing business in an honor-system, non-tragedy-of-the-commons economy. Not an “if I am locally profitable” thing. If you cannot show a profit after contributing, you are not really making a profit at all. You are free-riding. So how much, in numerical terms? The high end I think is in the 33% range. I get this calibration point from the standard overhead tacked onto federal research grant proposals in the US. If a professor wants$100,000 for a research project, he or she will need to ask an outfit like the NSF for around $150,000, based on the current value of a standard indirect costs support rate, which varies by university/discipline etc., but hovers around 50% over the base. This overhead is supposed to help pay for all the university infrastructure faculty use in doing research (classrooms, labs, libraries…). At the low end, I think it should be 10%. I have no reason for this calibration point other than religious tithes as a precedent. Here’s a challenge: find me a rational formula to pick a number within that range. Left to themselves, I (and most other actors) will not contribute enough. How? Now, for the how. I can think of a few models, some that exist, some that don’t. • Pass Through: This is the most transparent. Behind the scenes, set up a pass-through fractional contribution scheme for every piece of “free” infrastructure you use. I think this is the only honest way to do pass through. If you merely display badges or links asking your contributors to also contribute to your value sources, you are fooling yourself and avoiding responsibility. I can’t expect you to properly understand and evaluate what makes this blog possible. Unfortunately, the financial plumbing, by and large, does not exist. • Direct: pay to someone/some organization which supports your work in some way, one step removed. This can get hard to scale since there are so many contributors out there. But it has the advantage of the being almost as transparent as pass-through. The one-step heuristic helps here. I should support the WordPress ecosystem, but not the PHP ecosystem. Whether PHP or Ruby deserves more support is a question for application writers, not me. • Communal Pot: Groups of related economic actors band together in guilds (example, a collective of political bloggers or WordPress plugin writers). Since you cannot predict easily who will have a hit month to month, the band helps balance risk, the way insurance does. Many faculty departments have a system of contributing portions of successful grant proposals to the department, to support students of faculty whose proposals bomb. The guilds must police themselves and maintain standards, and throw out people who consistently fail to pull their weight. People who consistently do better than the average will obviously either move to a better guild or go solo, out of self-interest. Contributors are asked to add to the pot rather than individuals. Pot-sharing is determined by some formula that must not be too focused on valuing contributions. Something like “everybody gets an equal share” or “share weighted by number of words written” (for bloggers). Whether a guild member is pulling their weight should be determined qualitatively (there might be some guy who never posts a hit, but is a great brainstorming buddy for others). • Indirect: Pay to intermediary organizations which then figure out how to redistribute. I don’t like this model because it starts to seem seriously like charity or even taxation. Transparency and the pay-it-forward/gift character is best maintained by transactions without intermediaries. I would be personally very uncomfortable accepting money from a “blogger support foundation.” • Micropatronage Annuities: One way to lower transaction costs and reduce the volatility of all these models is to average risk over time. So I might, for instance, pay a fixed amount to a key value-chain partner. Or an annual amount. This spreads risk out over time the way communal pots spread risk out across groups of individual creatives. On my own supply side, as an “edge” creative, a couple of people have suggested I set up a micropatron scheme on this blog, but I haven’t had time to really think it through yet. It’ll need some sharing built in. Like, if I set up a$100 “Support Ribbonfarm for a year” contribution scheme, some X% of that ought to be earmarked as a direct pass-through contribution to whoever I ought to be contributing to.

That’s the “how” on the payee side. On the pure payer side (people who are not active prosumers in the Web content economy), I have no idea what might be a rational economic model.

Who Gets It?

This is where it gets seriously tricky. And also where we segue into the whole conversation on using non-traditional models to finance traditional media. I honestly think that the New York Times or some other such outfit does not really deserve any special treatment based on their higher cost structure and formal status as an organization of record. Cost-plus accounting is a terrible idea here (a big “save the newspaper” argument hinges on the argument that investigative reporting, for instance, requires a lot more backend expenditure than things like my blog). Higher costs do not justify special treatment. Higher value does. I ought to be distributing my 10-33% (whatever point I settle on) based on what actually contributes to the value-addition of my own writing.

But the big candidates are:

1. Big software and content infrastructure foundation pieces, like Linux and Wikipedia
2. Manufactured content players (beat journalism etc., where legwork matters more than creative effort)
3. Mid-sized infrastructure players (like WordPress)
4. Micro, long-tail players (plugin and theme writers)
5. Peers (people who contribute in ways similar to you)

“Who gets it” needs to be modulated by who is already thriving with a successful stand-alone business model (a function of both ecosystem position and business savvy), who is getting institutional support (Linux for instance) and some sense of whose work fundamentally is important but not monetizable directly. A last factor is to make sure you aren’t double counting people who are already getting paid through supply chains that work. For instance, I work off books a lot more than I work off other bloggers. But book writers already earn royalties, and each time I make an affiliate sale, they make money too, and get some direct PR. So they are already accounted for in part.

Some will want to add “social justice” to this, but I disagree. Choosing creative outlets for money-making is a choice. Writers, programmers and poets do not deserve the benefits of the “minimum wage” argument the way construction workers do. Yes, the line is blurred, especially when you extend the argument to basic journalism, which arguably can be a basic necessity. But if the argument for absolute social necessity can be made, so can the argument for support through taxpayer dollars. Nobody expects police or fire departments to run on “buy me a coffee” buttons.

So, those are my opening arguments. What do you guys think?

Venkat is the founder and editor-in-chief of ribbonfarm. Follow him on Twitter

1. Denis says:

I can tell you that as a reader I sometimes have a reaction “wow, this was totally worth the 15 minutes I put into it, and I would give this guy a dollar if it was easy to do”. Anything that reduces the number of clicks and makes me feel more secure would help. Paypal is kind of slow-ish.

On a related note, your site is also slow to load and probably costs you 30% of your traffic.

2. Andrea says:

I find it rather amusing that you consider a 2000+ word article an “opening argument.”

• It is a complicated topic :) At least as complex as healthcare, which took Obama’s gang 2000 pages, right?

3. Denis says:

Back to the point – let’s step back and see what is it you are trying to achieve here. You want all the contributors to the value chain get their fair share of the generated value. This would make sure all the people who are doing something useful can afford to keep doing it (monetarily and emotionally) and all the people who produce junk quickly learn about it and then stop or do something else. For the rest of my post I a going to assume that I got your motivation right.

This problem is not new, in fact this is the foundation of the whole economy and the main benefit of existence of “money” and “trade”. Your observation then is that this mechanism has stopped working for certain types of goods and services. We should examine how exactly it is broken to see how to make a better system.

First thing that comes to mind, trade relies on distribution control – it is traditional to withhold the product until the payment is received (or thereabouts). The act of denying access is costly and adds to the end-user cost. The cost is ok if we’re talking abut pearls, it gets high if talk about groceries (so they have to be pooled into large shopping cards) and it gets impossibly hard when we talk about pennies-worth of products that can not be pooled into a shopping cart for a large transaction.

Which brings me to the second point – transaction overhead. There is a fixed transaction overhead (handing over the cash or processing a visa), which puts floor on the pricing. My guess is that the biggest fixed cost factor is fraud control and audit – a one-cent transaction if something goes wrong would require a human to look at it for as long as a one-dollar transaction.

Then there is third problem – pricing. Setting uniform prices shuts out the entire long tail, including the fat part of it (as demonstrated by all the open-source based innovation). Discriminating prices motivate people to game the system (if access is restricted) and otherwise leads to discontent.

This is a rough sketch of the problem space, at least the part that I can see.

I think your solution is going in a promising direction. Rather that base trade on transactions and price points, one should base trade on “stream of value” – if wordpress have saved me $10 this year I can give them$3.33 this year and pocket the rest. Same next year. How do I know how much it saved me? Determining value is easy – look at alternatives and see how much they would cost you (in your time, someone else’s consulting time, tangible goods, energy etc). Alternatively ask yourself which of the other things you would give up in return for this – that’s the value.

Stream-of-value approach also solves the problem of external transaction overhead, however it does add overhead on the payer side – I now must track how much value I got out of your blog. One could argue this would be a good thing to do anyway, and as long as I have the right tools and training I am perfectly wiling to that. I guess that most new-economy-workers are the same way – in the stream-of-value based economy we all benefit from tracking those streams even today already (e.g. clicks, adwords, conversions etc).

So we still have one problem – how do we establish compliance? Most people don’t steal from 7-11 not for fright of cops but because they think its morally wrong and will likely lead to the store being closed. Somewhere along these lines there should be a way to build the same system for digital goods without a policeman – since we don’t have tangible goods we can actually afford the higher leakage rates. My bets are on public praises and shaming (hello facebook/linkedin). Somewhere in that direction lies a land where one wouldn’t even think about not paying for wordpress they use and if he did he his friends would be sort of embarrassed to hang out with him but eager to help him understand why it’s wrong.

• Netsp says:

Denis,

I think for the sake of simplicity we should follow the 20 year long convention of treating micro payments as something that will be solved in a year or two.

• Yes, I think it will be moral, social expectations policing. The tradition of 15-20% tips didn’t arise from nowhere, and waitstaff often make the bulk of their money from tips, which wouldn’t be the case where tipping hasn’t acquired the force of convention with quantitative norms. In India for instance, tipping is much more haphazard. Most people don’t tip in restaurants (or didn’t 13 years ago when I lived in India). Rich people of a particular kind do. Tourists do. But other sorts of tipping are common.

Transaction costs is going to be a difficult problem, the smaller the micropayment gets…

4. Netsp says:

Venkat,

I don’t know if you are approaching this from the right angle. Here are some unordered thoughts:

– Even if we establish some sort of code for settling how things should work, we have no way of graduating from theory to norms which then goes and messes with the theory because we have to account for it. We could decide that bloggers contribute to WordPress & WordPress contributes to php. Bloggers buy hosting. Hosting companies contribute to Linux & Apache. What if your hosting company doesn’t? Should you change hosts? Should you contribute to Apache yourself?

– I think you might be constructing a cargo cult of an economy. If the complex powering your blog was a normal non-free one, you wouldn’t have to think about who to pay, how much, if you are responsible for downstream (or is it up?) money flows from you, etc. All that information would boil down to price. A gift economy of this sort may look superficially like a normal economy, but it actually doesn’t have the Hayekien aspect to it at all.

– It doesn’t take into account the underlying reasons for this stuff to have become free in the first place. The underlying reason of free is (Anderson calls it the economics of free: a conspiracy of Moore’s law & digital distribution) is that we don’t need economy. Revenues may be necessary to enable & encourage production (We’ll buy you coffee if you write more about The Office) but costs are not necessary to slow down consumption. The word consumption actually does a terrible job of describing what we are doing with Worpress, blog posts, ebooks or Linux.
If the gift rules pass into convention, we are back at square one, imposing unnecessary economy with price when we don’t need to. The only difference is that you use revenue sharing & convention instead of flat prices of contracts to lower what economists might call transaction costs.

Whether this is law or convention, we are hitting the same strange problem that created this whole free thing in the first place. We want to have prices encourage production. We don’t need them to limit consumption or determine distribution.

5. Venkat,
I think this whole post is somewhat akin to a long and detailed argument of how to divide the payment of the tip amongst the diners, without any thought given to the actual food bill.

You’ve already mentioned, and let me re-iterate that the cost of the time spent by a blogger on the blog far exceeds the other costs of running a blog – for most bloggers. Another, more important aspect, is that on the earnings side, the visibility, reputation, and general brand building that a blogger gains is far more valuable than whatever little actual cash the blog makes. For most blogs, I would say the difference is an order of magnitude if not much more.

So arguing about how to split the cash component of this economy, is, in my mind, not very interesting. In fact on PuneTech, I don’t make any money at all – I haven’t put up ads or donation buttons. But it has paid me back in gobs of visibility/reputation/brand-equity.

So, the real question, and a very difficult question is, how do I pay back for the services I use in the currency that I gain. There are a bunch of tricky issues there. Should I pay in cash or pay in kind (links/visibility/posts)? What if I’m using services in the tech sector, but getting paid in the reputation/attention economy of the say, politics sector. There is no good way for me to pay in kind. Also, the services that the service provider is providing me for free is in many cases a marketing cost for him, because he is making money from consultation/customization services that he provides, and he gets visibility for those through giving away his stuff for free.

I don’t really see an easy solution to this murky area, but focusing on the cash component is certainly not it, I think.

• I think you are right that we are debating the division of the tip, but I don’t quite buy that rewards in personal brand etc. is where the real value is. I think perhaps the right problem is to continue talking about how to divide the cash, because that’s the conversation that will build trust in the fairness of the model so more value shifts from the soft economy to the hard economy. So the “tip” starts becoming more representative of the bill. Perhaps a lot of people are staying away from paying for online content with the (legitimate) rationalization that “there is so much out there, and all that stuff behind the scenes, there is no way just supporting this random guy helps anything.”

OTOH, if there is trust that the economy will distribute value rationally, more people will participate. Kinda like tax evasion is lowest when people perceive the taxation system to be fair.

There was a good take on the danger of over-valuing non-cash “soft” whuffie like currencies, When to Work for Nothing in the NYT a while back. When everybody is promising to pay everybody else in “exposure” and “personal brand equity” there is a soft currency bubble with no grounding in hard currency. Like when in Hitchhiker’s Guide they declared leaves to be currency, suddenly making everybody filthy rich. And nobody can make their rent.

Yes, in some cases, freemium models (plugin = marketing, s/w freelance work = revenue) work, because both are the same kind of work that you might love. In other cases, you are forced into what Hugh MacLeod calls the “sex and money” model, where the money-making part you sorta tolerate fuels the soft-value-only part that you love. For business writers, for instance, the “monetizable” part is selling workshops/speaking etc. Which not all want to actually do, but it is aligned enough with their main love that they put up with it. Even in the old economy, book writing alone was not enough for most writers.

But in other cases, even that limited sex-money model is not available. Poetry writers really have nowhere meaningful to go. It is poetry plus minimum wage burger flipping. Maybe that is the way it ought to be.

David Pogue had an evocative comparison: expecting everything to work on this sort of obfuscated indirect value model is like asking programmers to give away all their coding hours for free, and make money selling mousepads and other schwag.

Not that fame etc. aren’t worth something. They are. But far less than you might think, especially today when a LOT of good talent in all sorts of avenues can find an outlet. I think we are seeing a whuffie bubble. You CAN convert whuffie to dollars and the conversion rate isn’t that favorable.

We need more transactions reflected in the real cash economy I think.

At the heart of all this though, might be an income-status disparity. Our cultures value creative work enough to make creatives part of the middle/upper classes socially. But we haven’t figured out a way to make them able to afford that class membership economically.

• Netsp says:

I agree with Navin to some extent. I don’t expect gifts to ever be more then a marginal part of the “free economy.” Where I don’t agree is the implication that “Social Capital” will be a replacement for hard cash in the way that you rejecting.

I think that neither cash donations nor ‘gifts’ will grow to fill all of the revenue shaped holes in pre-existing business models. In many cases, otherwise successful writers, programmers, musicians etc. may stop producing due to low “income.”

But you can’t ignore the fact that a lot of content (eg, your blog) is essentially being produced for whuffies at the moment. I doubt that this is a temporary phenomenon. In some cases (workshops, consulting, speaking tours, etc.) whuffies will convert to cash at an attractive enough rate to continue productions. In others whuffies will have intrinsic value. In some, the value just won’t justify continued production.
n
I think that probably very few bloggers blog to get public speaking gigs even though they hate blogging.

Public speaking blogger Seth Godin has a line in a hypothetical conversation between Monks & Guttenberg press salesmen: ‘How does this help us make beautiful Calligraphy?’ It doens’t. It puts them out of business.

The fact that a new, free, whuffie economy is rising in place of parts of the older cash-for-goods (or the wuffie-like cash-for-eyeballs) economy doesn’t mean that we swap cash for social currency and move on as if nothing has happened. Businesses & complexes & maybe even industries collapse. New ones appear. Maybe less gets produced overall. Maybe more. Definitely different stuff gets produced. Eve Chris Anderson doesn’t commit to this change being a net gain, he just says that it’s not asking for permission.

• Yes, there is certainly a huge wave of creative destruction underway already.

I think the most productive question now is to guess at the top 3-4 “after the dust settles” scenarios, and for creatives to position themselves accordingly.

Venkat

• Good post and comments, to which I’d like to respond at greater length, but wanted to briefly mention Crosbie Fitch’s micropatronage project, 1p2U (One penny to you): http://www.1p2u.com/. (Unfortunately it’s down right now. It’s in an alpha alpha stage right now.)

With 1p2U, you subscribe to feeds for a penny per post. 1p2U aggregates payments to reduce transaction overhead, collecting $10 at a time, say, and paying out$10 at a time. Imagining if a large number of sites used this service, you could pick some blogs that you think are worth paying for. I wouldn’t pay a penny per post for a lot of blogs, but I would for ones like Ribbon Farm. Maybe you pick a mix of blogs to pay for such that you spend on average $50 –$150 per year? (Equal to a magazine subscription or three.)

Might not add up to much for most blogs, but this is the same as the plight of writers always. But if you can build up that big audience, maybe you can make a go of it. I think I could get buy on 30,000 paying subscribers and 250 posts per year. That’s a lot of people paying, but the writers that make a living at it in the “old system” need large audiences also. This would depend on a mechanism like 1p2U being widespread, and that people will voluntarily pay for what they can get for free. I think they will, but will it reach the scale we’d like to see to encourage “producers?”

6. There are two types of “free:” “Truly Free” and “Somewhat Free.” You are invited and encouraged to use a Truly Free service without any obligation whatsoever. In most cases, Linux is Truly Free. Debian is happy to have you using Debian, and there is no requirement or expectation of payment for normal users. (There is a gentle request for donations on their website for corporate users.)

There are many shades of Somewhat Free, where you are able to mechanically use something without payment, but where there is some other bargain in play. These come in many varieties and shades of moral obligation, including fremium (use this for free so that we can entice you with priced services), shareware/dual licensing (if you use this in a certain way, you are morally and/or legally obligated to pay), and guiltware (in many degrees of volume and strength: “won’t you support the poor developer” popups, “if you like this, buy me a coffee” pleas, “won’t you give me a good rating on the app store” requests).

Although we group all of these together under the “free” umbrella, there is a wide variety of implied (and sometime subtle) bargains in play every time we use one of these services. Looking at them in the aggregate and attempting to apply some general formula or guideline may be counter-productive and inefficient.

The question isn’t what Ankesh Kothari’s fair share of your blog revenue should be. The question is: what does Ankesh want, and what did you sign up for when you used it? Looking at his blog post, I’d guess that he wants a beer. If you’ve gotten a lot of mileage out of the plugin, you might tip him with a sixer.

• Brandon, I think there is a BIG difference between people’s formally stated pricing models (which is a function of what they think the market will bear, social acceptability etc.) and how they actually value what they do etc.

I think the formal pricing models people have put up are all placeholders. Everybody is waiting and watching to see when a more fundamentally sound one will come along. The placeholder stuff may be sustainable in some local cases, but in the macroeconomic sense, I don’t think it is.

Venkat

• Venkat, there is always a big difference between our pricing models and how much we (and society) value what we do. I think don’t think my pay reflects my value, and I don’t think that teachers’ pay reflects their value, but (while I’m generally clueless) I’m sociopathic enough to accept that money does not equal value. It is, rather, a function of what the market will bear, social acceptability, etc.

I do agree with you that there is lots of room for innovation in payment paradigms, especially in micropayments and revenue share. I also agree that some of the existing attempts at innovation will be displaced by better alternatives. Current contract and money technologies don’t support them well. That is a great opportunity for change. Even so, I don’t believe it is fruitful to ask, “What is this software provider’s fair share of my revenue.” A better question: “What is this software worth to me, given the alternatives.”

The “fair share” argument is a dead-end street.

Brandon

7. “Guiltware” is a great term, thank you Brandon.

My policy with “Sita Sings the Blues” is DON’T give if it hurts. People give because it feels good. I don’t make art with a sense of grim duty and obligation, and I don’t want the work to inspire that kind of unpleasantness in the audience either.

A gift paid for is not a gift.

Of course I want and need money. People know that. That’s why money makes a great gift. Shaming people who don’t give degrades those who do; it turns their gifts back into commodities. I have enjoyed “good” money for the first time in my life with “Sita”: money given, not coerced, money that made both the giver and the receiver feel good, money that didn’t involve anyone forcing, guilting or shaming anyone else. Don’t take the “good” out of gift money!

Creative contributors should make it as easy as possible to receive money if someone chooses to give. That is all. Otherwise, make money the old-fashioned way, by selling scarce goods (stuff) rather than infinite goods (information). No one owes anyone for giving their creative work. However, people are moved by gifts; moved to give back. Imposing a shame-based system of “not legally enforced” payments destroys that delicate sense of being touched by gifts. It converts gifts to commodities, just with less legal force.

• Nina’s response gets to the heart of one aspect of the issue, which is that your well-intentioned efforts to support “free” providers by giving them their “fair share” is likely to backfire. (See Deci’s self-determination theory and related studies.)

To me, the bigger issue is that you’re looking at the problem from the seat of the (somewhat guilt-ridden) consumer. Every transaction (whether or not face-to-face) is a negotiation; a negotiation is a conversation, and the goal is win-win. Any attempt at a systematic approach to payment for services (like “let’s all pay it forward”) cuts the conversation and will result in win-lose or lose-lost just as often.

I remember when early in my career I won a coding contest for which the prize was a shiny cool expensive tech toy. (How old I am: it was a Compaq Ipaq!) Then, they offered me the cash instead. I was disappointed. People are not rational beings, and our reward systems must respect that.

8. grunt says:

Hate to belabor the point, but you were just claiming to be a sociopath. I recommend you claim to have donated all of it and donate none of it.

Who “deserves” it is so much mental masturbation. There are so many good causes to donate to. I’ll agree that maybe Wikipedia should get your money considering how much good they do. But frankly donating to other blogging tools and such is silly. They’ll be there whether you donate or not. I say you should give your money to starving people, to education for needy people, and things like that.

9. Thanks for the thoughts everybody. There are too many themes emerging here to develop in the comments discussion, but I think we’ve managed to at least identify the tricky points here. The two angles that really jumped out for me is the “Guiltware” angle which everyone has sort of touched, and the transaction costs angle.

1. “Guiltware” — Can this work or not? I am not really thinking of “deserves” and “fair share” in a social sense (remember, I reject the minimum wage kind of argument in these cases). I am thinking of economic mechanisms that can create whatever we can technically agree is some sort of market-determined price rather than one that suffers the serious distortions we’re talking about. “Shaming” is too strong a word, but I am thinking more of stuff like tipping expectations. Somehow we’ve settled on a 10-20% norm in sit-down restaurants that gets nearly universal compliance (AFAIK). Yet, coffee shops that have tried “tip jars” have had mixed success. Part of this is the lack of settled norms and a consensus on whether Starbucks baristas deserve a tip as much as regular waitstaff, but partly this is also a problem of mechanism design. The convention is often “if you get some change, throw it in the jar” or “throw a dollar in.” I can see at least 2 design problems that have NOTHING to do with principles. One, I use a Starbucks card, since I am a regular, and there is never any change. I am also regular enough that I can’t always be throwing in a dollar (and I don’t carry change). Two, (and this is a sitcom joke) — if you tip, you’d like the barista to know that you tipped. But sometimes in busy cafes, the register person/barista have heads turned away when you drop in your tip. So you get that weird, “hey, he/she didn’t see me put money in!”

So norms and conventions matter, but so do initial conditions, information visibility, attributability, social-scrutiny enforcement etc. Mechanism design in short.

2. Transaction costs: this is a serious killer I think. The 1p2u site Scott mentioned seems like a good stab at it. Netsp is right… it’s become a running joke to think we can solve micropayments, and I think it is mainly for this reason. Some sort of aggregation to achieve “economies of payment scale” seems essential. Besides the hard transaction cost (Paypal commission etc.), there are the soft ones too (making the decision, the click-workflow etc., all rarely worth it at 1c levels). And finally, there is also the problem of enforcement if fraud is detected. $1 to enforce a$0.01, as someone said, is silly. But enforcement should always be thought of in terms of “by prosecuting x frauds, if I prevent an additional y frauds, the cost of x spread over (x+y) must be worth it.

Anyway, thanks for priming the pump. Exactly what I was looking for. Will let all this simmer for a while and post again on this topic if bright ideas occur to me. That is, unless they are so bright I want to use them :) (one of the challenges I am thinking about for some products in development that I manage at work, is including a micropayment model…).

Venkat

• Netsp says:

Venkat,

This is getting a little off topic already but..
You may be interested in the work of Elinor & Oliver Ostrom.

• I am a couple years behind on this one but just found it for the first time and feel compelled to weigh in…

Unfortunately, the tipping analogy (to a waiter) is fundamentally flawed. The social in that particular context is so strong because the tip is understood to be part of the waiter’s compensation. In other words, the waiter would not choose to work if he were not receiving tips…the wages alone would not justify his efforts. Not paying the tip at a restaurant would be like buying a car and claiming you aren’t obligated to pay the destination fee. You are obligated…it is part of the price that just so happens to be line-itemed separately (for incentive management reasons).

The context for a blogger or other creative is dramatically different. You (and I) are obviously doing this by choice without the guarantee of payment. You might have the expectation of future payment but that is quite different from expectation for current payment. The for-profit/income blogger is like the entrepreneur…both expect to get paid eventually, but it is their burden to figure out how to make that happen. This is much more analogous to the coffee shop tip jar. The tip is not part of the wage. If the barista wants more tips he should start providing service above and beyond expectations or perhaps position the tip jar more effectively.

Conveniently, I read this piece right after reading your previous post “The Crucible Effect and the Scarcity of Collective Attention” (https://www.ribbonfarm.com/2009/07/21/the-crucible-effect-and-the-scarcity-of-collective-attention/). That post casts your claim that the whuffie isn’t worth much in a different light. I agree that the whuffie as commonly conceived isn’t worth much, but finding your 12 (or 150) is worth A LOT! That is the “whuffie” that a blog like this is earning. Thinking about it in terms of goodwill from the average reader or the tangible/material benefit of the whuffie is missing the primary value you are accruing. If finding your 12 helps you dramatically accelerate your development process, then the rest can be safely ignored…

10. Also 2 more points.

1. Twitter is an obvious candidate to solve micropayments somehow, and I’ve seen some chatter about it. Anyone got any good analysis links?

2. Any other good links on this whole subject?

11. “I am thinking of economic mechanisms that can create whatever we can technically agree is some sort of market-determined price rather than one that suffers the serious distortions we’re talking about.”

Then it’s no longer a gift economy, which is seriously destructive. A friendly recommendation: the book “The Gift” by Lewis Hyde.

The economic rule of thumb for transactions of this nature is that your goal is to internalize externalities. That is to say, if you doing something(writing a plugin, say) nets me $10 extra as a side effect, I should give you$10. If you do something that harms me(polluting my water supply, say), you should pay me to compensate for that harm. That way, any actions you take you feel the full effects of, positive or negative, and as such your incentives will naturally push you to maximize the aggregate good of society.

Of course, this is a simple model – it’s hard to put numbers on a lot of this stuff, and transaction costs make a total mess of it. But I think it provides at least a rough guide. You’ve got a couple hundred bucks from the blog, and let’s say you feel the “Buy me a beer” plugin was responsible for 10% of that, by giving you a better way of asking for cash. Thus, you push that 10% off to him, so that he feels the benefits he provided to you and is properly incentivized to do it again. Transaction costs can be minimized by paying out once a year or some such – often enough to maintain incentives, but rarely enough that PayPal doesn’t eat it all.

13. Josh W says:

I think there are three parts here; avoiding the “tragedy”, the more nebulous concept of sharing compensation for value, and the problem of actually getting the money to them.

Taking tragedy avoidance first, the guy making open source stuff needs to pay his rent, as do you. Like wikipedia, people can create a progress-bar with an associated cost structure with a bar behind it and say “I need this much money to keep going”. Then people can see whether to give money or not. If people are suspicious of the cost structure underlying it (as I am with wikipedia), then they might give enough to help you do say 80% of what you asked for.

As long as some proportion of the bloggers contribute to wordpress, then they will not be massively poor, and the same is true for any other part of of the support chain.

Does that seem unsatisfying? Money filters in by desperation through the layers from easily price-able industries via people serving them. But desperation does produce a logical location for a price to appear.

Why? Because people pay for the difference between having the product/service and not having it, and the only difference between a cultural/informational service and a physical one is that it is de-localised; there is one customer, everyone else. So the point at which you consider stopping producing is the point at which the consumers don’t get thier goods. Hence many artists are always on the point of poverty or giving up through stubborn-ness, unless other systems kick in to support them.

The ransom can be analog too, with you justifying the amount of time you spend on a project based on it’s returns, with people basically paying for priority over the other jobs you have. This is more dynamic and harder to put into a progress bar, but I think it’s still important to put in that kind of feedback, partly so that people know what they are contributing to, and also so that people who don’t can consider the effects of them choosing not to contribute. In other words, showing a need honestly is guiltware to some, while being a chance for generosity to others.

• I don’t quite grasp all the things you said. Needs more thought. But the point you make about artists suggests we are pointed in the same direction. I have often thought that many economic trends are now imposing the “artist economy” model on all sorts of economic activity.

If I post more on this theme, I’ll analyze more.

14. Josh W says:

Ok I exaggerate, de-localisation/simultaneous non-exclusive use is not the only difference, but it is a big one.

15. Gregory:

This one is enough that I had to reread the piece myself to understand your comment.

I now think this whole theme needs revealing. The issues you point out about perceptions of tips are just the tip (no pun intended) of the iceberg here.

The key is to marginalized the cash component of the economy completely. But it isn’t a whuffie economy that takes it’s place… I’ll post once the idea ingots in my head.

• Apologies. I was pulling from two different posts and several of the comments above (primarily Brandon and Nina) and didn’t make my reference points entirely clear.

The main point in relation to this post and subsequent comments is that we are really discussing two different meanings of the word “tip”:
1. Variable compensation linked to performance