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April 08, 2006

Spam economics: Private stamps vs. repudiable bond payments to recipients

After years during which everyone talked about economic incentives to better sender and receiver interests in unsolicited email, we may finally be seeing the dawn of the incentive-centered design era for email.

AOL and Yahoo! this winter announced they were adopting the Goodmail system to create a special class of incoming mail: senders that paid the Goodmail fee per message would have their mail placed directly in user inboxes, with no server-side filtering or blocking by the ESP (email service provider, AOL and Yahoo! in this case). Mail without the Goodmail stamp will receive traditional treatment, being filtered and possibly placed in the user's spam folder.

A rather loud debate immediately followed, focused primarily on one concern: AOL and Yahoo! would tighten the filtering screws on unstamped email, eventually shoving so much of it into the spam folder that everyone would be "forced" to pay for the Goodmail stamp or likely have their mail discarded, unopened by users (or users would be forced to treat their spam folder as a regular inbox, and lose the benefits of the filtering). Nonprofits in particular howled because, they claimed, their mail is valuable, but they are too poor to pay for the stamps. (If members of non-profits aren't willing to pony up $0.25 per email in member fees, just how valuable are the millions of pieces of mail that non-profits want to send?)

But rather than get into that debate right now (see "Backlash to sender-pays email incentives"), I want to discuss the economics of two different but related approaches to using financial incentives to economically filter spam: the private stamp (Goodmail) approach, and the use of recipient-repudiable bonds ("stamps" vs. "bonds" for short).

The bond approach is similar to stamps, with critical differences. The sender pays for a (digitally-signed) stamp; mail with that stamp goes directly into the reader's inbox, unfiltered. However, after opening the message, the reader can either keep the stamp (push a button in the mail client to "deposit stamp"), or relinquish it back to the sender, which can be interpreted as a message that "I valued this mail, you can send more like it in the future."

How do the differences matter? First, an implementation issue: it is relatively easy for a third-party provider like Goodmail to implement a payment deposit system; it is not nearly so easy, at least right now, for individual email users to receive a micropayment attached to every email and deposit it. Email clients aren't programmed for this, and in any case, the necessary micropayments infrastructure just doesn't exist (yet) at that level of granularity.

Assuming that technical detail can be solved in the near future, how else are the two different? One of the most important differences is the very limited role for recipient preferences in the private stamp approach. A stamp of, say, $0.01, will discourage senders from sending email that is worth less than $0.01 for the sender. But the threshold is being set by the third party (Goodmail, perhaps together with an ESP like AOL), not by individual users, and thus does not directly reflect the value to the recipient of receiving unsolicited email (or not). Arguably, competition between ESPs would push the stamp price to about the right average level over time, but it would not reflect heterogeneity in user preferences.

A bond system could with little or no cost allow each user to set their own threshold for the required size of bond, thus allowing recipients to customize their own mail preferences.

Another problem with the stamp approach is that that goes through this channel pays for a stamp. For mail that both sender and recipient agree is desirable, that incurs unnecessary expense. But perhaps more important, it will prevent some desirable mail from being sent. Suppose the stamp is $0.01, and a sender has mail to send that the sender values at only worth $0.005 if delivered, but the recipient also values at $0.02 if received. The sender won't be willing to buy the stamp, and the mail won't get sent. With a repudiable bond, however, the sender might send a trial message, and if the recipient repudiates the bond, the sender will know the recipient values the mail and will allow similar messages to arrive without a bond payment in the future.

Why won't recipients always keep the bond payment? Well, first, this would just make the system work the same as stamps (except that users get the money, not a third party), so that's not a reason why bonds are worse. However, it also doesn't make sense in the example above. If I want to receive, say, an electronic catalog, but I keep the bond, then the sender may stop sending to me, and I lose out.

This is a very quick review of the two approaches, and yes, of course the issues can be more subtle. See Loder et al. for a scholarly discussion of the two.* Vanquish Labs, a vendor of a bond system, has an online article that critiques the Goodmail stamp approach (February 2006 : CertifiedMail = Certified Disaster).

*Thede Loder, Marshall Van Alstyne, and Rick Wash. "An economic solution to unsolicited communication". Advances in Economic Analysis and Policy, 6 (1), 2006.

Posted by jmm at April 8, 2006 11:51 AM

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