This idea isn’t mine, nor is it original, but I’ve studied up on it enough to feel that the theory is heading in the proper direction: The Internet economy is based on two things: Sales and advertising. Neither of them are working to the benefit of everyone.

From the sales side, you get websites that sell things. This model has worked well, but it’s slowly coming to a close as Amazon takes over the world. Amazon has become such a beast, in fact, that I don’t credit Amazon with creating an economy but rather that it’s stealing one.

Macy’s is closing 100 stores. They won’t be the first. I know bookstores have closed. Locally, a work clothing retailer closed last year and blamed Amazon. The owner said that people walked into his store, would try on boots or a coat, take a photo of the item, and then buy it from Amazon right in his store. Now he’s out of business, fair or unfair.

A few online stores do well, but Amazon can bully them into low price models which are, in some cases, unsustainable. I know an online vendor who detests working with Amazon because they cut her margins to near zero. And she must deal with them on their terms, or Amazon will fill her space with another vendor who’s more compliant.

Beyond sales, the Internet’s other money-making model is advertising. This side definitely doesn’t work.

As an example, newspapers make their money from advertising. The rates are set based upon circulation. On the Internet, advertising rates aren’t based on views, but on clicks and purchases. So I could have 10,000 people look at an ad here on Wambooli, but I don’t get paid unless someone clicks the ad and they buy something. That model is ludicrous because it doesn’t promote what I’ve done.

Today, many newspapers give away their content free in exchange for advertising. The rates they receive are pitiful, even though I’d argue that they get far more viewers (i.e., higher circulation) than they once did. Content is worth something! The problem is how to compensate original content providers in a manner that makes economic sense.

On this blog, I’ve written hundreds of thousands of words, all original, all good stuff that you won’t see copied-and-pasted from anywhere else. My compensation is negligible. Amazon pays me when my click-through revenue reaches $100. They haven’t paid me in over two years. Google pays me the same, and I haven’t seen a Google check since last year.

One solution offered is called micropayments. It’s a paywall solution, but one where you would have an account at some central, PayPal-like location. To view content that’s now being given away, you’d pay a few cents. So reading this blog post might cost you 3 cents, which a lot people would pay. In exchange, you get the content, no ads, and I finally get paid for my efforts: 10,000 views times 3 cents isn’t bad compensation.

I don’t know if the micropayment model will ever be implemented, and I know even less whether or not it would work. But I do know that the current Internet economic model is broken and wholly unsustainable.