People have been talking about "micropayments" since the early days of the world-wide-web, so I'm always skeptical of micropayment systems. Flattr is an interesting variation on the idea though. It's a voluntary system, without the overhead or chilling effects associated with "pay walls" and it puts donors in control of how much they spend, allowing them to split their donations among beneficiaries based on a monthly "pie" model. The greatest asset of Flattr is its simplicity of use -- similar in many ways to the various social networking services that abound on the web today. Flattr may well succeed, and it may fill a niche of financing small projects from free software to online videos.

I found out about Flattr a short while back, got an invite to beta-test the site, and have had a little time to play with the interface. I've not yet put any money into it, though I will likely try it out soon.

How it Works

The idea is pretty simple. Flattr functions very nearly like a social networking or social bookmarking site -- but with money. Sites that support Flattr provide a button that members of Flattr can push to signal their appreciation. When they do, the Flattr site gets a notification.

Flattr functions very nearly like a social networking or social bookmarking site -- but with money

At the end of each month, each member's clicks are added up. Their monthly balance is then divided up equally among all of the clicked "things". These are paid out, micro-payment style, to the recipients. The total amount spent by the donor, though, is constant -- they set this choice from their Flattr account. So the amount they spend is totally predictable, no matter how many times they click.

From the recipient's point of view, the system accumulates all of the clicks from all the members who clicked on your Flattr button. Each of these results in a micro-payment based on their monthly donation and how many buttons they clicked on. These are tallied up, and the resulting money goes to you. So for recipients, it's not too different from advertising systems like Google's "Ad Sense" which many of them are already using.

From the donor's point of view, Flattr is structured as a flat rate monthly pay-out, but it does not charge automatically to your bank account. Instead, in order to minimize transaction fees, you can simply transfer money into your Flattr account when it is available in chunks as large or small as you want (with the understanding that the transaction providers -- Moneybookers and PayPal -- charge per-transaction and percentage fees).

Actually the video on the front page explains it pretty well, so here it is

Fundraiser Benefits

These are obvious: you can put a button on your page so people can give you money. It's a bit like the PayPal "tip bucket" some sites have used, but it's "one click", with no decision making. Donors simply click on things they like -- not unlike the social networking "like" buttons that are now ubiquitous on the web.

Except that now, the "like" carries some money with it. So being popular on the Flattr network translates directly into income.

Being popular on the Flattr network translates directly into income

This is obviously a terrific benefit to projects which do not naturally make money in other ways. Free software projects, free hardware projects, and free culture projects -- especially small innovative ones backed by individuals -- often do not have significant direct earnings.

Flattr could be a really useful way to monetize such projects -- but only if donors will (literally) buy into it.

Reason to Buy?

The formula for making money from free content, according to TechDirt's Mike Masnick is to combine "Connecting with Fans" with a "Reason to Buy."

Social networks provide the connection with fans, and Flattr, in emulating that pattern has clearly got the first part of this formula correct.

By making the individual donations so low impact (a single click with no decisions to make and no impact on outgo -- because the monthly subscription is fixed), Flattr has clearly made buying easy.

But have they really provided a "reason to buy"? Of this, I'm less sure. It seems to me that there need to be benefits for paying members only -- benefits which don't have to be "worth" the whole subscription amount, but rather will give potential donors a "reason to buy" into the Flattr system.

But have they really provided a "reason to buy"?

At the moment, most of the visible benefits of Flattr are available to anyone regardless of whether they pay or not (this is mostly desirable, since it's important to remain open so that people can see what Flattr is about).

This may make adoption very slow, since I think -- to get over the hurdle of filling out the forms, opening up one's financial accounts, and planning an extra monthly expense -- the potential donor needs to perceive a clear personal advantage to buying into the system.

Of course the real benefit is the psychic value of feeling good about paying projects you support -- the same reason you put money in the basket at church or pitch in money to a public project. This is the big selling point of Flattr, and members will always think of this as their primary reason to join the system. But I think the challenge will be to give donors sufficient reason to buy so that they will sign up.

Donor Benefits

So what do you get for your money? Your home page on Flattr (Figure 1), contains a "dashboard" that shows you what you've donated to, other things you might donate to, and so on. One obvious attraction is simply listing projects that need your support.

Of course, you get that much for free, but, to start supporting a project you like, you need to spend a little money and create a pool of funds which will be split among your various interests. So this is going to create some interest in joining -- not to abstractly support "artists using Flattr", but because some artist you support has a Flattr button and you want to use it.

You also need to be a donor before you can use Flattr to finance your own projects, which is an interesting start-up tactic for Flattr, since its appeal to fundraisers is much more obvious than its appeal to donors.

You also need to be a donor before you can use Flattr to finance your own projects

At first that might seem like a bit of a scam (what if the only people on the system are other producers trying to make income from it?). But then if you start to think about the potential of using Flattr to trade resources (e.g. software for art), this turns out not to be so bad after all. Even if most of the people you get money from via Flattr are other producers, there are still things worth supporting.

Will It Work?

This project is brand new, and there are many open questions. I'm not willing to commit to a guess as to whether Flattr will be here in five years, but I am willing to give a try myself, and I'm looking forward to when it comes out of beta and goes fully public. It's a good idea, and I hope that any remaining kinks will get sorted out.