Why Did Others Thrive & BitPass Inc. Die?

Bitpass is throwing in the towel and has begun notifying customers and merchants by email.

“…due to circumstances beyond our control, we are discontinuing our operations. We have partnered with Digital River to provide operational support during the period prior to shut down. As of today, January 19, 2007, all Bitpass Buyers with US dollar denominated accounts are being notified that they will have seven (7) days to spend any amounts that currently exist in their Bitpass Account.”

BitPass, Inc., was founded in 2002 by Kurt Huang and Gyuchang Jun. The service was generally available online later that year in December. Despite early success and joint ventures to sell digital content through MSN and broadcast giant Entercom the company still closed…why?

The general consensus is that Internet consumer sales and preferences changed over in the past years and just outgrew Bitpass.

Several knowledgeable sources are in agreement with me in that convenience is now playing a big factor in whether you are a successful online payment processor or a BitPass Inc.

Although the operators of Bitpass, some very smart guys, worked hard to build a client base for this specialized alternative payment system, users of this type of stored value micro payment service have been on the decline lately for several reasons.

(1) People want fewer and easier methods of online payment. As one web put it, “Complexity sizzles, and simplicity rules.”

3 or 4 years ago when micro payments evolved, the idea of taking time to load a stored value micro payment account and use it when needed was a genuine new concept and relatively accepted. However, since that time, online consumers have become rather fickle with their selection of payment processors. Paying online has to be easy, fast and should never require much thought.

With PayPal’s creation of super-easy-online almost ‘impulse buy’ tools, these days no on wants to spend too much time jumping through hoops when completing the transaction. Most would say Bitpass was just too exhausting for today’s buyers.

Well liked by a few and shunned by the masses will not make a successful Internet operation in 2007. There is too much money circulating on the Internet through payment processors and the big guns are now out carving up the market.

Niche payments need to be as convenient as the big players and should not require extra effort on the part of the consumer. This is a negative and this was a problem for Bitpass. No one found the value anymore in taking that kind of time & effort to purchase a .25 cent item, which leads me to point number two…

(2) – Free Is the New ‘Paid’– Merchants and online vendors are now offering more free content and ‘no charge’ options. Free Web 2.0 type content generates new visitors only then, after the traffic has arrived, a sale will be made. It is near impossible in today’s market to have a smaller paid content ‘destination web’ when the large web companies will offer the same or similar content for free — like music downloads or content such as articles.

Today’s consumers have moved away from paid content towards the free stuff. Large operations can now afford to give away the .25 cent items in favor of more visitors. Its a classic ‘Walmart’ situation now taking place on the Internet. The smaller players are getting nosed out by the changing market.

The Bitpass model of facilitating small or micro purchases of stored digital content seems to have been in decline for at least the past 2 years and despite a real market niche, their volume of transactions never became high enough or profitable enough to continue operations.

I love this brief explanation which further illustrates my point. It comes from the comments area of a TechCrunch post. The Vice President of iDistribution 2.0 for ClickandBuy LLC had this to say regarding the changing payments market place:

Micropayments are a profitable endeavor, provided the accompanying elements are in place -
1) alternative payment methods that provide incremental, non-cannibalized revenue for the unbanked (approx 80m US consumers)
2) multi language and currency support to globalize the business
3) localized international payment instruments, as only 30% of Europeans use credit/debit cards (as understood by the US market)
4) flexible platform that allows ease of integration to legacy systems as well as modern architecture

ClickandBuy LLC has been gaining market share and is the largest player in the European market…there are no implementation or maintenance fees with ClickandBuy’s service and when you buy from Apple iTunes in Europe you are not purchasing from Apple, but instead from ClickandBuy. I believe that the idea of a ’stored value account’ for digital assets is flawed, as the adoption of having money sitting in an account…unused…has never been appealing…except in the arena of online gambling.

If one looks closely, Intuit, Visa and others are actively recruiting personnel to develop an ‘alternative payment’ services for the ‘under served.’ PayPal is attempting to expand into Europe and Google Checkout has been unveiled.

ClickandBuy is a hugely successful global operation which grows and adapts to the Internet’s changing seasons. Just like Peppercoin, I expect ClickandBuy to thrive and survive where Bitpass may have failed.

In conclusion, sorry to see you go BitPass, it appears as the market grew around you. Lessons learned? Adapt or Die.