New Deals from SG 🔥
Friday 19th March, 2021
A weekly selection of early-stage MediaTech deals, news and analysis.
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New deals 🔥
*We are not raising money for any of these companies.
About: Platform to share content and socialise while earning rewards/crypto for competing and buying gaming products.
Raise: £2m at unknown valuation.
About: Esports league and community platform.
Raise: $1-1.5m at unknown valuation.
About: Avatar-based virtual world to meet new friends and learn.
Raise: $500k at unknown valuation.
About: Platform that allows musicians to monetise and build relationships with their fans.
Raise: $500k AUD at unknown valuation.
About: A no-code game platform that facilities world-build via AI-led procedural generation (a bit like No Man’s Sky).
Raise: $550k at unknown valuation.
About: A tab-less internet browser - optimised for productivity.
Raise: $2.5m at unknown valuation.
About: App to help you learning languages through side by side comparisons, using enjoyable content (e.g. books you would normally read).
Raise: $850k at unknown valuation.
About: Platform for creating and sharing music.
Raise: £1.5m at unknown valuation.
Black Snow
About: Platform to create large scale AR.
Raise: $1.5m at $8m Pre-money.
Thought for the week 💭
The case for media micro-payments
[5-minute read]
“With SMS, at $0.20 each, people might send a few messages a day. Peak SMS globally was 20B messages a day. Then WhatsApp, email, and many other messaging apps drove the cost per message down to zero, and we saw a true explosion in messaging. Hundreds of billions of messages are now sent every day, and it's not uncommon for someone to send 40 messages in an hour….
What will happen when the cost of a payment falls to SMS levels? What about free? What will happen when all payments are inherently global? Just like messaging, we will see several orders of magnitude more payments (it won't be uncommon for someone to do 40 transactions in an hour, instead of in a month), but we'll also see many types of new transactions that would seem strange to us today....”
– Brian Armstrong, CEO and Founder, CoinDesk
Last week I wrote about the end of user-level identification on the internet. I concluded that in isolation, this would lead to consolidation in digital media revenues. The reason for this is that the ‘walled gardens’ with a first-party data advantage will scoop up the majority of the industry’s ad revenue.
This will result in a shift away from ad-sponsored models in favour of alternative monetisation - such as subscriptions, bundling and micropayments.
In my view micropayments are the most interesting of these models - offering the greatest potential for innovation and new value creation.
What are micro-payments?
A micropayment is a financial transaction involving a very small sum of money. For the purposes of this post, I define this as a payment under $1. I believe that most of the interesting benefits emerge at a cost far below this - in the range of $0.001-0.1.
Why would we want micro-payments?
1: Monetising the occasional user.
Subscriptions are all or nothing. They only monetise users who are willing to pay for the full catalogue. They ignore users who are only willing to pay for a single unit of content (or even a fractional unit of content). This represents a substantial proportion of the audience. According to Digiday, only 5% of a publisher’s digital readership will convert to pay for a full subscription.
Advertisements enable the monetisation of the remaining 95% of users. However, advertising is not an optimal solution. Firstly, as discussed already, generating meaningful ad revenue will become harder as we move away from user-level tracking. Secondly, advertising creates negative externalities. In the race to capture eyeballs, it has led to the proliferation of ‘click-bait’ content and misinformation.
Micropayments offer an elegant middle ground. They enable casual fans and occasional users to be monetised in a variety of innovative ways. This could be a-la-carte, usage-based or even ‘micro-subscriptions’ that last for 1 day. Due to their flexibility, micropayments can combine the reach and low friction of advertising, with the quality requirements that are borne by subscription businesses. For example, imagine paying as low as $0.01 per paragraph read of an article. This would enable content creators to reach a vast audience, while still incentivising them to create content that is continuously high value.
2: Facilitating new types of (micro)content
IRL, there are several activities that require ‘small money’. For example, arcade games, slot machines, sweets and donation boxes.
There are likely digital equivalents that do not (or cannot) exist without micropayments. While each unit may have low value - the combination of many low-value items consumed by billions of people leads to vast value creation.
3: Facilitating new business models
Micro-payments create a potentially infinite range of payment amounts (in increments of $0.0001). In turn, this creates a considerable number of new payments structures. Imagine being able to pay per second of consumption? Or being able to pay for 1 page of a book? How much more likely would you be to donate daily to multiple content creators if each unit of the donation was worth only $0.01?
Micro-payments enable new business models. New business models enable new types of business to emerge.
4: Supporting niche content (the long-tail)
The internet and the concept of ‘infinite shelf-space’ enabled niche media content to flourish like never before. This is the phenomenon known as the long-tail.
In the physical world, niche content struggled to find an audience. The key reason for this was the lack of distribution. Given their limited shelf-space, it didn’t make sense for a local Blockbuster or HMV to stock masses of non-mainstream content that would only reach 1 or 2 users in the local catchment area.
However, Netflix and Spotify changed this. These platforms have negligible marginal costs of content due to their infinite shelf space. Since their distribution is global, niche content can now reach a much larger potential audience. This has allowed traditionally non-mainstream media to flourish.
Micropayments provide the long tail with even more tools by enabling innovative new business models - maximising the number of ways that they can capture value from audiences. I would expect this to lead to further growth in non-traditional content.
Problems and solutions
People have attempted to introduce micropayments since the earliest days of the internet. The term itself was coined by Ted Nelson - the creator of hypertext - one of the foundational pillars of the web. The World Wide Web Consortium (W3C) went as far as developing preliminary HTML standards that included tags such as price, type, duration, expiration and many more. An HTTP status code was even created “402 Payment Required”. After almost three decades, this 402 code is unused and still “reserved for future use”.
Since then, several companies have tried to commercialise micropayments - including IBM and Compaq. All ultimately failed. Many of the reasons micro-payments never took off in the 1990s are the same reasons micro-payments are struggling to take off today.
Problem: High transaction costs
Traditional payments have processing costs that consist of handling costs and the costs of an intermediary taking on counterparty and fraud risk. These costs often make up 3-5% of the overall payment. Additionally, they will often have a minimum fixed rate. This makes it unfeasible to handle micro-payments since doing so would entail paying a fixed fee higher than the actual cost of the payment.
Cryptocurrency can solve the problem of high transaction costs. Off-chain solutions like Lightning for Bitcoin and Raiden for Ethereum already allow near-instant payments with incredibly low transaction fees by removing the need for intermediaries. By removing the risk of delegating custody of funds to trusted third parties, they enable instant micropayments as low as 0.00000001 Bitcoin (currently £0.00042) without custodial risk. Other promising blockchain-based solutions include NANO and Randpay.
These solutions are not perfect. For example, who wants to transact in a base currency that can appreciate or depreciate by >800% in a few months.
Nonetheless, these are solvable problems. As cryptocurrencies mature, a few are likely to become the currencies of choice for the micro-transactions of the future.
Problem: Interoperability
A micro-payment solution must be able to scale across multiple publishers. If each publisher had its own currency and payment system, this would require users to register and pay high upfront amounts to each publisher (which would then be fractionally divided into micro-payments). However, this defeats the purpose of micro-payments. Micro-payments are intended to be instant and fractional with no up-front commitments on the users’ part.
Interoperability will require the combined agreement of a large part of the publishing industry on one currency or one set of standards. This is far more challenging.
Coil - set up by the former CTO of Ripple is a potential contender. Coil’s goal is to disrupt the advertising and individual site subscription model using the Interledger Protocol - an open protocol suite for sending payments across different ledgers. However, it would be premature to declare Coil the winner in this space. It only supports a handful of sites currently. It is also restricted to time-based micro-payments (it pays publishers $0.36 for every hour a user spends on their site). As such, it is currently limited in the kind of functionality that it can provide.
Problem: UX
Going through a traditional checkout flow creates cognitive or decision-making costs. In many cases, these psychological costs can be greater than the cost of the actual micro-transaction. As such, the speed at which payments are made must be near-instant. It cannot take multiple stages and the 10-30 seconds that credit card transactions take to close.
Whichever technology becomes the micro-payment currency of choice - it will need to solve the consumer-facing UX before it can see any kind of widespread adoption.
Concluding thoughts
There are still major technical challenges that need to be solved in order for micro-payments to flourish. Additionally, adoption will require consensus from a wide range of stakeholders.
However, the rate of innovation is encouraging. The death of third-party tracking and user-cookies offers a potential catalyst for the industry to explore new monetisation methods.
Similar to the adoption of now-ubiquitous technologies like TCP/IP - the adoption of micro-payments is likely to start with a single use-case in a single vertical. However, as the ‘plumbing’ surrounding the underlying technology improves - so to will its breadth and adoption.
It is hard to understate the potential of micro-payments on content production and consumption. This is certainly a trend to watch closely.
News from this week 🗞
Gaming 🎮
Overwolf raises $52.5M for its platform to build, distribute and monetize in-game, user-generated content. The company’s platform has c30,000 creators, 90,000 mods and add-ons and 18 million monthly users across thousands of games, including Fortnite, World of Warcraft and Minecraft. Alongside the funding, Overwolf is introducing a new service called CurseForge Core, an SDK that can be integrated directly into a game itself to make it easier for gaming enthusiasts and developers to build user-generated content for it. Link
Audio 🎧
Epidemic Sound raises $450M at a $1.4B valuation to ‘soundtrack the internet’. Epidemic currently features some 32,000 music tracks and 60,000 sound effects, and the plan will be to continue building out the technology on its platform to provide better tools to creators for matching music to media, to expand that catalogue, to grow its customer base, and to take the service global with more localized offerings. Link
Video 📹
Whereby, which allows more collaboration over video calls, raises $12M. Whereby’s platform allows users to embed tools like Google Docs, Trello and Miro directly in their meetings, unlike other video platforms. The company claims it saw a 450% increase in users across 150 countries last year. Link
Livescale - a platform allowing consumer brands to host live shopping events - has raised $2.5 million CAD as the startup looks to become the video backbone of e-commerce. Livescale launched in 2016, initially offering a live video platform allowing its customers to broadcast events on multiple social networks and websites simultaneously. The startup currently operates in the experiential commerce market. This form of retail provides customers with non-traditional shopping experiences, such as events that use virtual reality or video streaming. Link
Other 🤷♂️
Gather, a virtual HQ platform raises a $26m Series A led by Sequoia. Gather helps people… gather in virtual spaces for any reason, whether it be for weddings, magic conventions, or, just a regular day at work. Over the past few months, as remote workers look for better ways to interact with each other, the startup has quietly amassed more than 4 million users. Link
Copy.ai, a startup building GPT-3powered copywriting tools for business customers, announced a $2.9 million round. Link
3DLook - a company that makes mobile body scanning software to ensure correct clothing fit - has raised $6.5 million in Series A funding. Link
Interesting data from this week 📈
Weekly podcast listeners (% of adult US population)
