Turbocharging Social Development, One Penny Gap at a Time

My interest lies at the intersection of business strategies, web applications and social impact. Last week I read about a new startup called Flattr that is attempting to finally solve the problem of micropayments (@flattrme). That is, payments involving a very small amount of money (defined as under $12 by PayPal). The key sticking point is known as the penny gap--referring to the drastic difference between someone who is getting a service for free versus some one who has to pay even a penny for the same. The "mental transaction cost" created in a consumer's head of whether the purchase is worth it or not in some cases represents a greater cost than the payment itself.

The initial pivot for micropayment startups was to go for clearer and simple design, but was not enough to generate critical mass. Flattr's innovation is that upon registering, users agree to pay a monthly fee of their choice into the system. During the month, as they go through the web and click on "Like" buttons made by flattr around the internet, their monthly spend will simply get divided into fractions based on how many buttons they pressed. That means that somebody who pressed 100 "likes" has their monthly fee split into 100 chunks that get sent to the different pages. This also means that you will never spend more than your pre-decided amount.

Flattr's founder (Peter Sunde of Pirate Bay fame) sees his platform as a fantastic way to enable everybody on the internet to become a "creator" and earn micropayments by having a Flattr button on their site (especially relevant to long tail producers and consumers).

I see ramifications and applications for social development that extend far beyond Sunde's initial vision.

If I understand the core concept of Flattr, it allows users to spend a set monthly dolar input and then choose the distribution of that amount in fractions. Here is what else we can do with it:

1. Persistent Kiva Flattr can be used to connect microentrepreneurs directly with investors in a monthly payment system instead of just a one-off. Investors can support monthly operational costs instead of just a one time payment up front. If both parties have a flattr account, the role of an MFI becomes increasingly about due diligence and promotion of entrepreneurs rather than fulfillment.

2. Govt 2.0 Imagine if every US Citizen was given a Flattr account with $20 of their tax dollars each month. Users could split up that $20 towards any item on an independently curated list of issues. The money could go towards a charitable cause, a social venture fund, or maybe even a political campaign? The government, after all, trusts citizens to donate appropriately (with tax breaks for charity), why not the same for investment in positive change?

How dramatically would America's tax expense profile change if the power was put DIRECTLY in the hands of its citizens through a moderated process? How many people would use their Flattr accounts to support the war, to support government investment in renewables?

As Thomas Jefferson said, "an enlightened citizenry is indispensable for the proper functioning of a republic." We're getting closer to the point where all the relevant information around issues are available for the public online (thanks Wikileaks!), the next logical step would be to allow citizens to do something with this information instead of just spending all political energy in a war of emotional attrition every four years.

Are there any other applications you can think of for Flattr?