December 11, 2005
Microsoft Points: Micropayments' Killer App?

So, Joystiq has been commenting on good things about the Xbox 360, and the top two items on their list are the Xbox Live Arcade/Marketplace and the proprietary currency players can use there, Microsoft Points:

It's clear that [Points] have been very carefully thought out. The exchange rate itself appears to have been carefully chosen so that points don't line up against most of the major world currencies in a simple ratio. A US Dollar buys 80. A Yen buys .67. A pound buys 120. A Euro buys about 67, and so on. That's important because it distances the gamer from the financial impact of the purchase. If the conversion to dollars is simple, every transaction will be evaluated in real dollar terms. If the conversion requires math, most people will choose not to perform the conversion and will presumably spend more freely.

Second, the structure of Marketplace minimizes credit card transaction fees that Microsoft needs to pay. They're not passing those savings on to us, but the more [money] that we keep out of the pockets of middlemen-- credit card companies included in that category-- the more money goes into the pockets of the content creators. That's good for the games industry, because it means existing developers will make more money. More money flowing to developers should also increase the number of firms developing games, which will in turn increase the variety and creativity of games that make their way onto our gaming devices.

Microsoft Points may well be the first step towards a viable and widespread micropayment system, as imagined by Scott McCloud. Up until now, there have been a variety of hurdles for would-be micropayment pioneers to overcome, such as technology, user adoption, vendor adoption, credit card fees, minimum purchases, and so on. Microsoft, with Xbox Live Arcade, is in a position to sidestep most of these hurdles, especially as everyone who buys an Xbox Live Gold Pack gets a certain number of Points as a part of the deal. Microsoft Points are also attached to Microsoft's Passport service, making them portable to Hotmail and a number of other online venues. If Microsoft can't make micropayments work with this much going for it, it may be a while before the concept makes it off the ground.