A little flattery can go a long way

Swedish start-up Flattr’s mission is noble: to help content creators make money from the internet. But is it too late to change social behaviours, asks Rayhan Rafiq Omar.

You know all that free stuff that the web is great for? The music, the videos, the news and blogs? Flattr, a start-up from Malmö, Sweden, would like you to start paying for it.

Flattr, created by the founders of The Pirate Bay, enables website users to make micropayments for the content that they have consumed and enjoyed.

How does it work? Content creators embed a Flattr button on their websites, which Flattr users can click if they’ve enjoyed the content. At the end of the month, Flattr makes a flat-rate payment to all of the content providers on behalf of Flattr users, using prepaid funds. It can be compared to a Facebook Like button, but with money attached.

The idea is that content creators are incentivised to post more, while users can feel good about supporting their favourite websites. It’s a win-win situation. (The big joke is that Peter Sunde actually built Flattr to pay off the fine levied by the Swedish Courts against The Pirate Bay, however.)

Market

The micropayment market is still in its infancy. More established players, such as PayPal, are not prominent in the space. While PayPal defines micropayments as anything less than $12, the average Flattr micropayment is €0.70, which could go some way to explaining why PayPal does not dominate the market. It just doesn’t get it.

Flattr is targeted at content creators who, to use the service, must embed a Flattr button on their site. This can be done by anyone doing anything on the web; from comics to indie bands, blog posts to vlog posts. Rightly or wrongly, Flattr is not targeting a specific niche; instead trying a shot gun approach. It hasn’t yet worked out what its key market is.

There is already a lot of competition in the micropayments space: Minutebox, Kachingle, TipTheWeb, YouTipIt… Flattr is not alone. But the company has gained stronger traction than many of its competitors by having well-known founders and securing plenty of media coverage.

Competition in the “fund a creator” space is also strong. Kickstarter, which specialises in helping creative projects get off the ground, is one successful example. The difference between Flattr and Kickstarter is that Flattr’s focus is more about supporting content creators on an ongoing basis, rather than a one-off donation.

However, Kickstarter has the benefit of allowing users to choose how much to donate for each project. Users can pre-pay small amounts to help get a project off the ground, but they can also donate larger amounts should they want to. Could Flattr be missing a trick by going “micro”? The company has mitigated this by recently bolting on a special “donation” feature, which allows one-off payments to individual websites.

The general perception is that Flattr is primarily for bloggers, but Siim Teller, who is responsible for building the Flattr community, says this is wrong. “Blogs are more of a recognition thing; there are only a handful of readers who are willing to get their wallet out.”

Tech

The enabling technology behind Flattr is a JavaScript REST API that feeds XML back to Flattr’s PHP backend. If a user’s website doesn’t support JavaScript or if they would like to embed Flattr in an RSS feed, they have a “shorter version”, which is essentially a direct payment link. Five developers maintain the codebase. Flattr’s latest API was released six months ago, resulting in the phasing out of all old versions last month.

Following PayPal’s shameful treatment of Wikileaks last year, Flattr stopped using its services for a period. Instead, users paid their money into Flattr using Moneybookers, though PayPal is now available as payment option once again.

Logging in to Flattr for the first time is via the OAUTH2 standard (fairly common these days) through either Twitter or Facebook, or users can also sign up directly. Content providers can embed the Flattr button next to their content, allowing fans to make instant micropayments.

Flattr has experimented with other ways to encourage micropayments – such as (gasp!) QR codes or automatic payments through after visitors listen to half a podcast through Instacast – but these are not widely used yet.

Team

Flattr was founded by two cult figures, Peter Sunde of The Pirate Bay fame and Linus Olsson from Demoscener, in 2010 in Malmö, Sweden. Having Sunde as one of the founders is a major asset to the company, says Teller: “He knows everybody in the industry, so can open any door.”

The Flattr team is now made up of eight people, including Teller, who joined after Passion Capital invested in the business (more on this below).

Traction

Flattr’s founders humbly admit that the beta was released three years late due to “typical geeky laziness”. But Flattr is now in the fast lane: in February this year, Flattr abandoned its bootstrapping plans, taking €1.6m of investment from Passion Capital and Federico Pirzio-Biroli. This capital will be used to grow the team and develop the product more quickly.

Growing the product’s reach will help address one of Flattr’s main problems, that the Flattr button is far from being ubiquitous. Indeed, the most common complaint from users is that “my favourite author isn’t on Flattr”.

The company is taking steps to fix this. After a recent API overhaul, Flattr held a Developer Challenge event to see if people were willing to build anything on it. A third of the apps were built around music and podcasting, with others creating soft paywalls. The most interesting implementation was fundd.de, however, which rewarded good answers on Q&A sites.

While the Flattr button is shown ten million times per day, Teller would not release details of how many micro payments are made as a result. Flattr’s biggest market is Germany, where news magazines uses the service for an additional revenue stream.

While Flattr has not yet made any millionaires, Teller says there are some people that live off their Flattr income. “It really boils down to how valuable is your content to fans and how good is your marketing,” he explains.

The company encourages users to communicate to their audience why they are looking for income from Flattr, whether it’s to cover server costs or to live an independent lifestyle. Engagement is key to successfully using Flattr, adds Teller: “There are users who plug in the button and not tell their audience about it, and then two months later moan that they haven’t made any money.”

When asked what Flattr would have done differently if given the chance, Teller says it would be trying to figure out what the user niches are much earlier on. “We would also have tested more stuff, which we haven’t been good at but are improving now,” Teller adds.

One way that Flattr could gain more traction would be to partner with an established social media platform. If Flattr could integrate with Facebook’s Like button or Twitter retweets, it would instantly remove Flattr’s biggest barrier to success, namely consumer behaviour.

Internet users believe there is value in content, but the majority are still a long way away from paying for content which has always been free. The real question, then, is whether Flattr can break out of the activist, single-issue blogs and become a way for content creators to make a good income from it.