When Tim Berners-Lee and his colleagues were crafting the world wide web three decades ago, they left a key component incomplete.
Alongside the familiar 404 error, encountered when a web page is “not found”, there exists a similar code 402 denoting “payment required”.
According to web browser maker Mozilla, the 402 code was intended to tell a visitor that they needed to pay to view a certain web page. However, the scheme was never built out. To this day, there is still no standardised way to send or receive payments online.
"It's kind of funny, or tragic, that so many decades into the web's history, and given the central importance of being able to generate that sort of sustaining income from the internet, that it has gone so undone and under-built," noted entrepreneur Patrick Collison at a Wired event a few years ago.
Collison's digital payments company, Stripe, has been chipping away at this problem for the past decade. Slowly but surely, Stripe has begun to make the complex, ossified payments system appear simple for millions of its customers.
As a result, Stripe is now worth $95 billion, making it the most valuable private company in Silicon Valley. It is apposite that Stripe now occupies that lofty perch, which a decade ago was home to Facebook. Stripe's ascendance comes at a time when the foundation of the internet economy is shifting from advertising to commerce.
Stripe and peers including Square, Adyen and PayPal have, along with the likes of Shopify, built a new online commerce and payments infrastructure that is solving the original 402 error.
The legacy of the web's missing payments layer has been the dominance of advertising as a business model for online services such as Google and Facebook. But the pull towards payments and commerce is simple: it is a far, far bigger market than advertising.
Spending fall
Global advertising spending fell around 4 per cent to $569 billion last year, according to media agency Magna. Digital platforms have fared better than traditional media, of course, climbing 8 per cent while offline ad sales tanked 21 per cent.
At nearly $5 trillion, the ecommerce market is already several times larger than the entire advertising business. While the margins may be thinner, eMarketer estimates that worldwide ecommerce sales rose by 28 per cent last year and now make up 18 per cent of the total retail market.
Even before the pandemic supersized ecommerce spending, Facebook chief Mark Zuckerberg was starting to steer the social network away from its reliance on advertising. Ads still made up 99 per cent of Facebook's revenues last year, but in January 2020, Zuckerberg said that the three areas which he was "most focused on for the next chapter of our company" were private messaging, virtual reality, and commerce and payments.
Since then Facebook has added shopping tabs to Instagram and its other apps, and begun testing a WhatsApp payments system in Brazil and India. Even its digital currency, Diem (formerly called Libra) is gearing up for a renewed push later this year.
It is not just Facebook that is looking for life beyond advertising. Twitter is testing "super follows", a way for users to charge for bonus content, and TikTok is pushing into ecommerce through partnerships with the likes of Shopify.
This "creator economy" concept of allowing people with an online following to make money from sales or tips was pioneered in China. Elsewhere, it has been popularised by Twitch and Patreon, mimicked by YouTube and Facebook, and expanded into new fields by Substack's newsletters and dozens more start-ups.
Stripe's technology sits behind many of these platforms (Shopify, Instagram, Cameo and Substack are among its customers). So too does the Collisons' philosophy. The company's "mission statement" to "increase the GDP of the internet", Patrick Collison has argued, does not mean fighting with rivals for the next big customer. "Zero sum games are bad," he insists. Instead, Collison hopes that by making payments easier and faster, it can stimulate new economic activity.
It will take many more years for payments and commerce to displace ads as the default form of monetisation for internet companies like Facebook and Twitter. But the infrastructure is slowly falling into place. In web standards documentation, that 30-year-old 402 code is still listed as “reserved for future use”. – Copyright The Financial Times Limited 2021
