Amazon Honor System trusts surfers to pay up
Published: 06 Feb 2001 17:25 GMT
Dubbed the Amazon Honor System, the new payment method will allow Web sites to solicit small donations from visitors or charge for content on a pay-per-view basis. The system will tie into Amazon's one-click payment feature and Amazon's customer database, meaning that third-party Web sites will seemingly recognise Amazon customers and make it easy for them to donate money.
SatireWire, the SETI Institute, Chank.com and some 50 other Web sites plan to use the new payment system.
The Honor System could prove popular with smaller Web sites and merchants, many of whom don't have a way or can't afford to accept small payments on their sites, said Avivah Litan, a financial services analyst at the Gartner Group.
"This is the start of Amazon getting into payment services," Litan said. "This could turn into something bigger and better for them if they succeed."
The new system could address some of the obstacles to charging for content online, said Alan Caplan, vice president of Amazon's payment services. The system allows payments as small as $1 and capitalises on the 29m customers that have already shopped at Amazon and used its payment system, he said. And at least initially, payments through the system will be voluntary and fully refundable, meaning that customers will still be able to get content for free.
"This is a product where Amazon is taking some of its key strengths, seeing a market and filling it," Caplan said. "We believe that our customers will appreciate this service."
Success with payment services such as the Honor System could prove important for Amazon as it tries to meet a self-imposed deadline for pro-forma profitability in the fourth quarter of this year. Amazon's fourth-quarter 2000 revenues came in at the low end of analysts' expectations and the Seattle-based company warned analysts that its 2001 revenue will be 10 percent to 18 percent lower than it previously estimated.
Meanwhile, the company said in its fourth-quarter report that sales in its core books, music and video stores grew at a mere 11 percent clip in the quarter. While sales in it newer stores grew at a faster pace, those businesses, such as its electronics store, tend to have much slimmer profit margins.
In contrast, Amazon could see sizeable profits from the Honor System. The company will charge Web sites 15 cents plus 15 percent of the amount of the transaction for each payment made using its Honor System. That represents a much bigger slice of the pie than PayPal charges for its online payment services and an even bigger portion than credit card companies charge for their merchant accounts.
But those high fees could stand as an impediment to adoption of the service. And unlike other payment services, payments made through Amazon's system will be refundable up to 30 days after the transaction. For a Web site, that could mean that a customer could ask for refund after downloading its content.
Also, Amazon plans to handle the payment information through its own site and won't pass on any customer information to its Honor System partners. While that might assuage some privacy concerns, some Web sites might be reluctant to give up control of their customers.
Still, the system is better than the alternative, which is basically giving away content for free, Litan said.
"The only reason I'm so positive on this is that Web sites are starting from a zero base," she said. "If they had an alternative, this would be a lousy system because it's so expensive and people can get their money back."
Still, some Web site operators say the service will be beneficial to their sites. The SETI Institute's site, for instance, isn't currently set up to accept donations of less than a $45 membership. Greg Klerx, the institute's director of development, said that the site is
The history of Web sites and authors charging for digital content has been a checkered one at best. While Wall Street Journal Online has built a significant subscription base, many other content sites such as the San Jose Mercury News' Mercury Center were forced to drop its subscription charges.
The Honor System is patterned after the payment system that Amazon used for Stephen King's serialised online novel, "The Plant". More than 75 percent of readers paid for the first several instalments of the novel, but by the fourth instalment, than figure dropped to less than half.
King suspended writing the novel in November, but has said that he plans eventually to resume writing it.
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