If advertising alone isn’t going to support all the online journalism and content sites, and pay walls will just turn readers away, perhaps there’s another solution, a third way: Social payments. More than just simple donations, social payment systems such as Kachingle and Flattr simplify giving money to sites you visit. Both services set up a monthly payment system, with a set amount each month, and the more sites you like, the more ways your payment is split.

While Flattr is still in a closed invite-only beta test, Kachingle launched in February and works a bit differently. Here’s the basic run down for Kachingling (yes, it’s also a verb):

1. Sign up at the site to pay $5 per month through a credit card or PayPal. No more, no less.

2. Go to sites that have Kachingle enabled and become a Kachingler for them by clicking on their Kachingle medallion. Big Kachingle sites include the Daily Camera in Boulder, Colo. and Carta.info in Germany.

3. Kachingle will pay out your money to the sites each month based on which ones you visit the most. They begin making a payment when the site gets at least $3.35.

4. Kachingle takes about 7% of your $5, PayPal takes 8%, and the sites get 85%.

So far, there are less than 300 sites that take Kachingle payments, but there’s been a huge uptake in Germany. Ulrike Langer, who runs the German new media blog Medial Digital, told me that she was impressed by the new social payment services.

“I think it’s a great opportunity for bloggers like me who would never make that much in advertising,” she told me. “I realize that from the tiny amount of money I get from Google AdSense. As soon as I heard about Kachingle, I checked it out. The concept appealed to me because regular users of my site, who read the feed and come back regularly, would have a way to say ‘thank you’ that’s more than just leaving a comment or clicking the ‘Like’ button for Facebook.”

So far, Langer’s best month of income from social payments was 40 Euros from Flattr, and about $15 to $20 on Kachingle. That’s not exactly going to pay the rent, but she’s still impressed to get that much as these services are in their infancy.

I got the chance to talk in-depth to Kachingle founder Cynthia Typaldos, who told me why she started the service, what the challenges are to get publishers on board, and how it’s often more about creating a bond for users and sites rather than being all about money. The following is an edited transcript of our talk, with some video clips shot with my Flip cam.

Q&A

Tell me about social payments, explain to me what they are, and also tell me about your own background.

Cynthia Typaldos: My background is all high-tech. I have a degree in computer science, an MBA at MIT, and I’ve worked at a number of technology companies, including Sun Microsystems. I did my first startup called GolfWeb in 1995. I’m not a golfer, by the way, but it was a great place to learn about the social aspect of the Internet, because most of golf is about being social. Then I did another startup called Real Communities, which was an earlier form of Ning, but was too early. So this is my third startup.

As far as social payments, it’s the name that’s gelling now around people voluntarily paying for free content online. It sounds crazy, in a way, because you wonder why people would pay for free stuff. But we think it’s a new movement that will be successful because people want to support great digital content and services they love, to make sure they’ll be around. On Kachingle, they get credit for that and build a persona around what they’re consuming and supporting.

What was your motivation for starting Kachingle?

Typaldos: I got the idea a few years ago. What happened was that my best friend got brain cancer — it’s a sad story. Her English wasn’t very good and so she asked me to do brain cancer research on the Internet. So I did, I went around and got all this information, and at the end of the month I gave it to her. Afterwards I wanted to give $100 to all the sites that helped me out in my search, but it was all a blur. I couldn’t remember all the sites, and didn’t know how often I’d been there. It wasn’t about a contribution to cure brain cancer, it was a contribution to support great information and show that I valued it.

How have you funded it?

Typaldos: [laughs] Believe it or not, I don’t advise people to do this, but I sold my house and used the proceeds so I could work on this full-time and fund web hosting and things like that. I’ve also brought in some partners who have put in some money, and we have some angel funding.

How has your growth been so far? How many sites are using it and how many users do you have?

Typaldos: That’s a good question. We have almost 300 sites … and we have individual blogs. What’s important is that we’re getting the idea of social payments out there. The main thing that’s important is how many times our medallion is served up. The medallion is our widget that runs on publishers’ sites. And those views have peaked at more than 1 million medallion views per day.

Typaldos explains how they are trying to create a new social norm, and will be launching new Twitter and Facebook apps:

I’m curious what the excuse is from larger newspaper websites who won’t use your service. What is their excuse? It seems like a simple enough thing to try.

Typaldos: What it takes is there needs to be a person at the company who is forward-thinking, is willing to experiment, and has the authority and power to implement the medallion on their website. It only takes like five minutes. There aren’t any integration issues. When you are talking about pay walls, those systems take time to implement. [To get Kachingle on a site] takes a champion and it takes a champion with clout.

Tell me how it works. Does a publisher’s site have to have PayPal to make it work? Can they take credit card payments?

Typaldos: It’s really very simple. A publisher pulls the medallion from our site, and posts our medallion on their site — and they could even have multiple medallions for various parts of the site. Each medallion can have its own PayPal account. So they could have the money go to the newspaper’s finances or it could even go to one journalist. It’s their choice. Yes, it does go into PayPal, so they need an account to retrieve it.

What’s your cut in the equation and what’s the cost with PayPal?

Typaldos: This is an interesting question. We wanted to make it incredibly simple. We manage all the financial transactions through PayPal. So we can tell people using our system that 85 percent of the money they put in will go to the publishers’ hands. We manage all the transaction fees. We went to PayPal and did a deal with them for the pay-in when people buy the $5 subscription, and we told them we had to have a better price, and we did a deal on the pay-out too. We got those fees down to 15 percent, ours is about 7 percent and theirs is 8 percent. We got them down from 11 percent but think it should be even lower.

We’re really happy with PayPal because they were willing to do this deal with us even though we’re just a small startup. The reason they did the deal is that they really believe this will be a very big market, and they want to be part of that market. They improved their existing products for us, and they’ll be coming out with new products to make it even better.

It seems like a perfect fit between what you do and what non-profit news sites might want.

Typaldos: We do think there are lots of great non-profits in the journalism field that don’t have a regular source of revenues. So we’re really pleased we have signed up a bunch of non-profits, including the Pulitzer Center for Crisis Reporting, the Center for Investigative Reporting and the Center for Public Integrity, and many more. We’re excited about that, but we have plenty of good blog sites doing great journalism as well. It’s really up to the users to decide what to reward and what the user values.

Typaldos talks about how Kachingle is trying to build up the user base by signing up more publishers:

How did you come up with $5 per month, and why are you so strict about people putting in no less and no more than that?

Typaldos: It’s a really interesting question. Early adopters and bloggers love lots of choices, but our target audience is ordinary people and they don’t like a lot of choices. I don’t know if you’ve read The Paradox of Choice by Barry Schwartz, but it’s one of my favorite books. He talks about how you go into a store and there are 25 types of peanut butter, and it doesn’t make your life any easier. We want to send a signal to users — they don’t know how much to spend when they first sign up, they don’t know what their friends are doing.

It’s like tipping. If you didn’t know the standard 15 percent to pay for tips, each time you went out to eat, it would be a stressful experience. We wanted it to be $5, no thinking, to reduce the barrier for getting people to sign up. We’re also saying that $5 is enough, these are micropayments, and we’re not expecting people to be putting in $100 or even $30. Over time, we will start sending some signals saying that their friends are giving $10 a month, and would they like to give more. But without social signals people don’t really know what to choose … Eventually we’d like to bring people up to $10 to $12 on average per month.

What’s been your biggest compliment from people and your biggest complaint?

Typaldos: The compliments largely come from the more than 300 sites who have got more money — but it’s not always about money, it’s often more about building a stronger bond with users. We even had users write to us saying, ‘please I’d like to Kachingle a certain site but they don’t have the medallion — can you make them do it?’ We’re trying to figure out how to make that happen. The biggest compliment is from the sites and users saying they want to connect, and connect in a monetary way.

As far as the biggest complaint, the biggest difficulty, is in Germany — we’re big in Germany and the U.S. — where they require a credit card just to use PayPal for a subscription, even if the credit card isn’t being used. And credit cards aren’t big in Germany so it’s an issue for us. We’re working with PayPal to fix that. It’s been our biggest issue.

One other compliment we get is on being totally financially transparent. As a user, you can see exactly where your money goes. You can track every penny. I felt that this was incredibly important because users really want to know where their money is going. I call it ‘crowdsource auditing.’

Typaldos tries to explain why Germany is such a popular place for Kachingle:

How do you differ from the online tipping services?

Typaldos: One of those companies, TipJoy, went out of business. A lot of these companies have way too many mental transaction costs. We’re not a tipping system. A tipping system requires you to figure out how much to pay each time. For us, you just start at Kachingle and pay $5 a month, and choose the sites you want to pay once, and we do all the work in the background — figuring out which sites you went to most, and splitting the money that way. It’s a simple, fair algorithm. Most systems before required people to take action each time.

There’s a new company in the space, Flattr, and a new French company too called Rue89, so soon there will be three companies. The more, the better, because we are trying to change social norms. There’s dramatic differences between Flattr and us. They ask you to click a button like a Facebook “Like” button to give money. We’re very much different than that, because you only have to turn on the medallion once for a site to give money to them.

*****

What do you think about social payment systems? Could it help with the business model of online news and journalism? What will it take for them to break through to a wider audience? Share your thoughts in the comments below.

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