The Rise of the Micro Transaction: Small Pricing forms Big Profits
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In recent years, we’ve seen a shift from large ticket items for what we could call “micro transactions”; small, but valuable, sales that, on the whole, make a very large chunk of profit for those businesses employing this method of monetary generation.
In affiliate marketing, it’s very common to see products and services reaching astronomical levels such as a $1997 course or tens of thousands for personal coaching. The mindset behind these big ticket items has been that they provide a greater attraction to gaining affiliates as their work is highly rewarded versus multiple, low-scale commissions.
However, since the Web is packed with free information, a growing community of free software developers, and the ability to outsource for pennies on the dollar – smaller transactions have become very integral as it creates a very low resistance in the sales process.
In this article, I’ll share how micro transactions are changing the sales landscape and how you can embrace the smaller earnings for bigger wealth.
The What and Why of Micro Transactions
Why have we seen a sudden rise in small transactions?
A question worthy of its asking; we’ve seen a surge in micro transactions across the Web due to many factors which may include:
- High competition forcing competitors to sell assets at lower prices
- A consumer backlash aimed at high ticket items that failed to deliver
- New platforms meant for niche communities
- Many products and services already bundle most of the ‘main’ options
As a consumer, you feel overwhelmed by the sheer amount of products and services’ littering the Web and it’s because of this mass of items that you become overloaded with options. Additionally, consumers have access to the larger segments of a product or service, usually free, through online means.
In short, micro transactions have seen a rise because they give developers the ability to sell off portions of their products or services to consumers that only need those specific portions.
Here’s an example:
John needs a video editing program to work on his YouTube videos but doesn’t want to pony up the hundreds of dollars for professional software. A small, online company offers a SAAS (software as a service) product for a very low subscription rate of just $10 a month for its usage. Along with the subscription, John can purchase templates for the editor for just $1 – $2 a pop. John is a happy camper because he can save money and complete his projects; the company gains a profit not only through the subscription but through the micro transactions.
Understand how micro transactions become part of the business environment?
Micro Transactions in Practice
The idea of a “micro transaction” isn’t a revolutionary idea as it has been pioneered many years prior through such means as a subscription model, upgrades, and add-ons, but it’s the delivery method and the use of the Web that has given this model of income generation such a dramatic rise especially with the widespread adoption of social media, smartphones, tablets, and other “Always On” products.
Here are a few different industries which currently use micro transactions as a major method of income generation; see if you ever noticed the impact:
Social Video Games
What does Farmville, Sims Social, and Words with Friends have in common?
The answer: A free front-end (the game) with a monetized back-end (micro transactions).
There are thousands of free apps on the marketplace which take advantage of micro transactions through the clever usage of virtual malls and marketplaces.
For example, it’s common to find a social game with additional “skins” for the player avatar which can be purchased for a very low rate but, by in large, this amasses a great fortune for the developer if their game has reached millions of individuals.
Social video games on iOS & Android devices, social networking sites like Facebook, and many other free platforms go with the traditional “push the free line” approach to marketing their product and then earn on the back-end as users get more involved with their offer.
Remember all those stories of stay-at-home moms spending hundreds of real dollars on Farmville?
Following the same premise as social games – most applications take these premium virtual assets into account for their profits.
The example covered in the “what and why” section pretty much sums up what goes on for many applications on the iOS, Android, and Blackberry marketplace.
An app is introduced, quickly gains favor and a large user base, then the developer releases additional micro transaction options to the platform in place of advertising revenue which, as you know, often drives people away from using the product or service.
Next time you’re using a premium business app – take a look to see if there are additional items to be purchased. You may be surprised to find many developers operating under this guise.
Indie Music Scene
By in large, micro transactions has become the backbone for many developers. Businesses launch on a free platform, rapidly grow, and begin rolling out micro transactions which has far lower resistance than forcing members into a subscription service or purchasing a full-fledge product (one which they may only need certain elements).
One great example of how micro transaction has started a complete disrupt is within the music industry which has allowed artists to directly sell their music, art, and live footage to their fan base rather than traditional channels such as through big box retailers or through record labels.
In this case example, artists see higher gains for their work. Likewise, consumers can buy single tracks from the artists rather than spending $10 – $20 for the full album.
Though the previous examples show industries implementing micro transactions – it’s the indie music scene which has shown the greatest potential of a case study.
Now imagine you’re a content producer ready to ship a $197 e-product. What if, instead, you broke the entire product into ‘modules’ and sold each for just $5. Sure, you won’t gain the big “win” during the initial sales launch but these smaller transactions add up, over time, and gives your customers the ability to do an ‘a la carte’ approach to your information (which may aid in their ability to process and implement your teachings versus being overwhelmed by too much information and never return because they feel “burnt” on the purchase).
Everyone wins in this scenario with the exception of the music labels which, since their inception, have reaped the majority of the rewards. Now the power is in the hands of the artist and consumer; there’s no more middle man.
A Three Point Strategy for Your Business
Okay, that’s good and all, but how do I implement something like this in MY business?
There are plenty of opportunities for utilizing micro transactions; many can go into play without causing internal competition with your existing products or services.
For example, here are a few ideas to run with:
- An exclusive email list that costs just $5 – $10 a month
- Selling individual chapters of your existing work for $1
- Adding extra documents, worksheets, and checklists for a few bucks
- Using multi-media, like video, as a side offering
So, rather than selling your full product for $197 – you could also introduce multiple price options through the fragmentation of your work. The full product could become a wealth of individual products if you create an ecosystem for the work, at large. Each product must be able to stand alone but should also work in your favor for gaining additional sales when buyers explore the other assets.
Your three point strategy:
1. Have a business associate examine and give their opinion about each chapter, video, or segment of your product could be its own product or service. (Use this outside perspective as you may not see all the available options since you’re so familiar with your work).
2. Look at the niche competition in your industry and figure out if your existing product or service covers the same offerings. (This will let you move in on them without needing to reinvent the wheel).
3. Implement additional website structure, shopping cart software, and marketing strategy to promote and tout these new micro products/services. (Note: Do not splinter your marketing, as a whole, but rather see it as a whole slew of new products released under your brand – each in need of promotion).
Perhaps the best way to explain this is through an example:
Jane has a freelance writing book that sells for $97; it’s a massive piece of work covering over a dozen chapters and hundreds of pages. Jane wants to introduce micro transactions so she breaks each of the chapters into their own, self-sustained products by adding introductions and conclusions to each. Likewise, she creates email templates, checklists, worksheets, and additional resources for each of the chapters in which she can sell at a premium (but aren’t required for the buyer to gain the full value). Jane finds that many of her visitors enjoy this fragmented approach as they only need certain sections of her work but wasn’t ready to spend the full amount; they’re happy because they get the information and Jane is happy because she made additional sales on the individuals that would not have purchased her full product.
Now, think of how micro transactions can be implemented in your business.
Final Thoughts and Moving Forward
Micro transactions aren’t going to be the end-all, be-all of online commerce but it’s certainly not something to turn away from; selling parts of your product does not create a “thinner” brand – it simply gives options to individuals that aren’t ready to make the full commitment to your products or services.
On the affiliate end, especially if you’re operating an affiliate program, you’ll find these additional products and services to be a great way to increase the brand; additional products/services means new marketing promotions, long-tail keyword building, and a greater chance to land reviews. As an affiliate marketer, you open new opportunities to get more out of your affiliate promotions because it’s additional offers along with new price points that gives you access to different income brackets within your community.
Keep an open mind about micro transactions as they may become a vital option for your business especially if all that it takes to get up and running with this model is to break up your current offers (something you could easily tackled on your own).
What are your thoughts about micro transactions in online business? How do you plan to utilize this income model in your affiliate marketing business? Share a comment below.