Pricing for the Internet: The fundamental issue that x402 is addressing

Author: Sumanth Neppalli, Nishil Jain Source: decentralised Translation: Shan Ouba, Jinse Finance

There are two completely different schools of thought in the field of cryptocurrency. As a media outlet, we are fortunate to closely observe these two viewpoints. One side believes that everything is a market, and pricing is key to achieving transparency; the other side firmly believes that cryptocurrency is a superior financial technology infrastructure. Our publishing plan flexibly adjusts between the two viewpoints, because, like all markets, there is no singular truth — we are merely integrating all possible patterns.

In this issue, Sumanth will delve into how a new payment standard is evolving online. In short, the core question is: what would happen if articles could be read on a pay-per-article basis? To find the answer, we will go back to the early 1990s to see the experiences of America Online (AOL) when it tried to price internet access by the minute; explore how Microsoft prices its SaaS subscriptions; and ultimately focus on the case of Claude pricing conversations by text volume.

In this process, we will explain the essence of the x402 protocol, its core participants, and its significance for platforms like Substack. The smart agent network is a topic that we are increasingly focusing on internally.

Disconnect Between Internet Business Models and User Behavior

In 2009, Americans visited more than 100 websites on average per month; today, users open fewer than 30 applications on average per month, but the time spent has significantly increased—from about half an hour a day to nearly 5 hours.

Winners (Amazon, Spotify, Netflix, Google, and Meta) have become aggregators, gathering consumer demand, turning occasional usage into habitual behavior, and pricing these habits through a subscription model.

The reason this model works is that human attention follows a fixed pattern: we mostly watch Netflix at night and shop on Amazon weekly. Amazon Prime membership bundles delivery, returns, and streaming services for an annual fee of $139, and the subscription model eliminates the hassle of frequent payments. Nowadays, Amazon has started pushing ads to subscribers to increase profit margins, forcing users to either watch ads or pay a higher fee. When aggregators cannot justify the subscription model, they turn to an advertising model, like Google, profiting by monetizing attention rather than user intent.

The composition of today's internet traffic has undergone a dramatic change:

• Robots and automation programs account for nearly half of internet traffic, largely due to the rapid proliferation of artificial intelligence and large language models (LLMs), which have made the creation of robots easier and scalable.
• 60% of dynamic HTTP requests processed by Cloudflare come from API calls – in other words, machine-to-machine communication accounts for the majority of the traffic.

Our current pricing model is designed for pure human use of the internet, but today's traffic is mainly between machines and is sporadic. Subscription models are based on habitual behavior (listening to Spotify on the way to work, using Slack while working, watching Netflix at night), while advertising models rely on attention economy (people scrolling, clicking, considering purchases). But machines have neither habits nor attention – they only have trigger conditions and task objectives.

Content pricing is not only constrained by the market but also depends on the underlying distribution infrastructure. The music industry has been selling albums as a unit for decades because physical media requires bundling — the cost of burning 1 song or 12 songs on the same CD is almost the same, retailers need high profit margins, and shelf space is limited. In 2003, when the distribution medium shifted to the internet, iTunes changed the pricing unit to singles: purchasing any song from iTunes for $0.99 on a computer and then syncing it to an iPod.

Single releases have improved the efficiency of music discovery, but they have also eroded revenue – most fans only purchase hit songs rather than 10 filler tracks, leading to a decrease in average income for many artists.

Then, with the advent of the iPhone, the distribution infrastructure changed again. Affordable cloud storage, 4G networks, and global Content Delivery Networks (CDNs) made accessing any song instant and seamless. Phones are always online, allowing users to instantly access an almost limitless library of songs. Streaming services have restructured all music at the access level: for just $9.99 a month, users can listen to all recorded music.

Today, music subscription revenue accounts for more than 85% of the total revenue in the music industry—this is something Taylor Swift is not satisfied with, as she was forced to return to the Spotify platform.

Enterprise software follows the same logic. Since the product is digital, vendors can charge based on the actual resources used. B2B SaaS vendors typically provide predictable service access on a “per seat” basis, billed monthly or annually, and restrict features through tiered packages (e.g., $50 per user/month, plus $0.001 per API call).

Subscription models cover predictable human usage, while metered models handle the sporadic usage demands of machines.

When AWS Lambda runs your function, you only pay for the resources actually consumed. B2B transactions often involve bulk orders or high-value procurement, resulting in larger transaction scales and the potential to generate substantial recurring revenue from a smaller but concentrated customer base. Last year, B2B SaaS revenue reached $500 billion, which is 20 times that of the music streaming industry.

If most consumption is now machine-driven and sporadic, why are we still using the pricing model from 2013? Because our current infrastructure is designed for human choices made occasionally. Subscription has become the default choice because a monthly decision is more convenient than a thousand micropayments.

It is not the cryptocurrency that has created the underlying infrastructure to support micropayments (although that is also true), but rather the internet itself has evolved into a behemoth that requires new usage-based pricing methods.

Why Micro-Payments Fail

The dream of paying a few cents for content is as old as the Internet itself. In the 1990s, Digital Equipment's Millicent protocol promised to enable sub-cent transactions; Chaum's DigiCash underwent banking pilots; Rivest's PayWord addressed cryptographic issues. Every few years, someone re-discovers this clever idea: What if we paid $0.002 per article and $0.01 per song, paying exactly for the actual value of the items?

They all failed in the same way: humans hate measuring their pleasure.

America Online paid a heavy price to realize this in 1995.

They charge dial-up internet fees by the hour. For most users, this is objectively cheaper than a fixed subscription, but customers detest it because it creates a mental burden. Every minute online feels like a timer is running, and every click comes with a tiny cost. People involuntarily perceive every tiny cost as a “loss,” even if the amount is small. Every click becomes a tiny decision: Is this link worth 0.03 dollars?

In 1996, when America Online switched to unlimited plans, usage doubled overnight.

People would rather pay more than think more. “Paying according to actual usage” sounds efficient, but for humans, it often means anxiety with a price tag.

Odlyzko summarized in his 2003 paper “Reasons Against Micropayments” that people are willing to pay more for fixed-rate packages not because of rationality, but because they crave predictability over efficiency. We would rather pay an extra $30 a month for Netflix than optimize each $0.99 rental fee. Later attempts (such as Blendle and Google One Pass) tried to charge $0.25 to $0.99 per article, but ultimately failed. Unless a large proportion of readers convert to paying users, the unit economics don't work, and the user experience creates a cognitive burden.

Subscribe to Hell

Isn't life just endless troubles? Perhaps the gods have also adopted a subscription model for human existence.

If we long for the simplicity of subscription models, why are we now complaining about the “subscription hell”? A simple pricing reasoning method is: how frequently do the problems that the product solves occur?

The demand for entertainment is infinite. The black line in the chart represents this ongoing pain point — an ideal scenario for both users and companies: a smooth, predictable pain point curve. This is also the reason why Netflix transitioned from a quirky DVD rental service to joining the elite FAANG club — it offers an endless stream of content, eliminating billing fatigue.

The simplicity of the subscription model has reshaped the entire entertainment industry. When Hollywood studios saw Netflix's stock price soar, they began to reclaim their film libraries and build their own subscription empires: Disney +, HBO Max, Paramount +, Peacock, Apple TV +, Lionsgate, etc.

The fragmentation of content libraries forces users to purchase more subscription services: to watch anime, you need to subscribe to Crunchyroll; to watch Pixar movies, you need to subscribe to Disney +. Watching content has become a “portfolio building” issue for users.

Pricing depends on two factors: whether the underlying infrastructure can accurately measure and settle usage, and who must make the decision each time value is consumed.

One-time payments are suitable for rare, sporadic events: buying a book, renting a movie, paying for a one-time consultation fee. The pain points concentrate and then disappear after a single outburst. This model applies to scenarios where tasks are infrequent and value is clear, and sometimes the pain points themselves are desirable — we look forward to the experience of going to the cinema to watch a movie or visiting a bookstore to buy a book.

Accurate measurement of usage will tie pricing to the unit of work. This is why you wouldn't pay for half a movie (its value is unclear). Figma cannot extract a fixed percentage of fees from your monthly output (the value of creation is hard to measure).

Even if it's not the most profitable way, charging monthly is easier to manage.

The calculation resources are different: the cloud can observe usage on a millisecond basis. Once AWS is able to measure execution time with such fine granularity, renting an entire server becomes unreasonable - servers are only started when needed, and you only pay for the time they are running. Twilio takes the same approach for telecom services: one API call, one text message fragment, one charge.

Ironically, even in fields where we can measure perfectly, we still bill like cable TV. Usage is measured in milliseconds, but funds flow through monthly credit card subscriptions, PDF invoices, or prepaid “credit limits.” To achieve this, each vendor makes you go through the same process: create an account, set up OAuth/SSO authentication, generate API key authorization, link a bank card, set monthly limits, and then pray not to get overcharged.

Some tools require you to preload a credit limit, while others (like Claude) restrict you to lower-tier models when you reach your quota.

Most SaaS products are in the green “predictable pain point” range: too frequent to be suitable for a one-time purchase and too stable to require precise pay-per-use measurement. Their strategy is tiered packages - you choose a plan that fits your typical monthly usage, and upgrade when your usage exceeds the limit.

Microsoft's “1TB storage per user” limit is an example—it can distinguish between light and heavy users without having to measure every file operation. The CFO restricts the number of users who need access to higher-tier plans by allocating permissions.

The Confused Middle Ground

A concise pricing model classification method is a two-dimensional chart: the X-axis represents usage frequency, and the Y-axis represents usage variance (i.e., the degree of fluctuation in usage patterns of a single user over time). For example, watching Netflix for two hours most nights falls under low variance; while an AI agent making 800 API calls in 10 seconds and then stopping would be categorized as high volatility.

• The lower-left corner is a one-time payment area: when a task is rare and predictable, a simple “buyout” pricing model is effective, as you only need to bear the cost once to continue.
• The top left corner is the chaotic “casual browsing web”: irregular news binge reading, link hopping, and low payment willingness. Subscription models are too cumbersome, while pay-per-click microtransactions collapse due to decision and transaction friction. Advertising has become a financing layer, aggregating millions of tiny, inconsistent views. Global advertising revenue has surpassed $1 trillion, with digital advertising accounting for 70%, indicating that a significant portion of the internet exists in this low-commitment range.
• The bottom right corner is the ideal area for subscription models: Slack, Netflix, and Spotify align with human daily habits. Most SaaS products are here, distinguishing heavy users from light users through tiered plans. Most products offer freemium packages to encourage users to start, then gradually shift their usage patterns from the top left corner to the bottom right through consistent daily habits. The global annual revenue from subscriptions is about $500 billion.
• The top right corner is the focal point of modern internet: LLM queries, proxy operations, serverless burst traffic, API calls, cross-chain transactions, batch processing jobs, and communication with IoT devices. Usage is both continuous and volatile. A seat-based fixed fee does not accurately reflect this reality, but lowers the psychological barrier to paid initiation — light users pay more, heavy users receive subsidies, and revenue is disconnected from actual consumption.

This is why seat-based products are gradually shifting to a metered model: retaining the foundational plans for collaboration and support while charging for heavy usage. For instance, Dune offers a limited credit allowance per month, with small simple queries being inexpensive, while larger queries that take longer consume more credits.

Cloud services have made millisecond-level billing for computing, data, and API platforms the norm, and the credit they sell scales with actual workloads — revenue is gradually becoming linked to the smallest observable units on the network. In 2018, less than 30% of software adopted usage-based pricing; today, that figure is close to 50%, while subscription models still dominate with a 40% share.

If spending is gradually shifting towards a consumption-based model, the market is telling us: pricing needs to be in sync with the pace of work. Machines are rapidly becoming the largest consumers on the internet — half of consumers are using AI-driven searches, and the content created by machines has already surpassed that created by humans.

The problem is that our infrastructure is still based on annual accounts. Once you sign a contract with the software vendor, you will gain access to their dashboard, including API keys, prepaid credit limits, and end-of-month invoices. This is fine for accustomed humans, but cumbersome for ad-hoc software usage. Theoretically, you could set up monthly auto-billing using ACH, UPI, or Venmo, but these methods require bulk processing, and their fee structures do not hold up in sub-coin and high-frequency trading scenarios.

This is the significance of cryptocurrency for the internet economy. Stablecoins provide a programmable, global, and precision payment method that can settle in seconds, operate around the clock, and can be directly held by agents rather than being trapped behind bank interfaces. If usage is event-distributed, settlements should be as well— and cryptocurrency is the first infrastructure that can truly keep up with this pace.

The Nature of the x402 Protocol

x402 is a payment standard compatible with HTTP, utilizing the 402 status code reserved for micropayments decades ago.

x402 is essentially a way for sellers to verify whether a transaction is completed. Sellers who want to accept on-chain payments with no Gas fees through x402 must integrate with service providers such as Coinbase and Thirdweb.

Imagine if Substack charged $0.50 for a paid article: when you click the “Pay to Read” button, Substack returns a 402 code, containing the price, accepted assets (like USDC), network (like Base or Solana), and relevant policies, formatted as follows:

Your Metamask wallet authorizes a payment of $0.50 by signing a message and passes it to the service provider. The service provider puts the transaction information on the blockchain and notifies Substack to unlock the article.

Stablecoins simplify the accounting process, allowing for settlement according to network speed and small denominations, without the need to set up accounts with each supplier individually. With x402, you don't need to pre-fund five credit limit accounts, switch API keys between different environments, or discover quota triggers that cause task failures at 4 AM. Human billing can continue to use the most suitable credit card methods, while all sudden machine-to-machine interactions are completed automatically and cheaply in the background.

You can feel this difference in the smart agent checkout process. Suppose you are trying a new fashion style on the AI fashion chatbot Daydream: nowadays, the shopping process redirects you to Amazon so you can pay using your saved bank card information; whereas in the world of x402, the agent is able to understand the context, retrieve the merchant's address, and pay directly from your Metamask wallet without leaving the chat interface.

The interesting thing about x402 is that it is not a single entity at present, but rather composed of layers commonly found in real infrastructure. Anyone building AI agents through the Cloudflare Agent Kit can create bots with operation-based pricing. Payment giants like Visa and PayPal are also adding x402 as supported infrastructure.

QuickNode provides a practical guide on how to add a x402 paywall for any endpoint. The direction is clear: to unify the “smart agent checkout” feature at the SDK level, making x402 a method for agent payment APIs, tools, and ultimately for retail procurement.

Integrate x402 Protocol

Once the network supports native payments, an obvious question arises: in which areas will it first become popular? The answer is in high-frequency usage scenarios with transaction values below $1 — where subscription models would charge light users excessively (with a minimum monthly subscription fee becoming a barrier). As long as blockchain fees are feasible, x402 can settle each request at machine speed, with an accuracy of up to $0.01.

Two forces make this transformation imminent:

• Supply Side: The explosive growth of “tokenization” in work - LLM tokens, API calls, vector search, Internet of Things signals. Every meaningful operation on the modern internet has been appended with a small, machine-readable unit.
• Demand Side: SaaS pricing leads to significant waste - about 40% of licenses are idle because finance teams prefer to pay per seat (which is easier to monitor and predict). We measure work on a technical level, but bill humans at the seat level.

Event native billing with limits is a way to align two worlds without scaring off buyers. We can set soft limits, ultimately settling at the optimal price: news websites or developer APIs are billed per use, and then automatically refunded to the published daily cap.

If The Economist sets “$0.02 per article, with a daily cap of $2,” curious readers can browse 180 links without doing any mental math — at midnight, the protocol will automatically settle to $2. This model also applies to developer platforms: news organizations can charge for each LLM crawl to sustain future AI browser revenue; search APIs like Algolia can charge $0.0008 per query, with a total daily usage amounting to $3.

You can already see that consumer-level AI is developing in this direction: when you reach the message limit of Claude, it does not simply display “Limit reached, come back next week,” but instead offers two options on the same screen: upgrade to a higher subscription plan or pay per message to complete the current action.

What is currently lacking is a programmable infrastructure that allows agents to automatically make a second choice - pay per request, without UI popups, bank cards, or manual upgrades.

For most B2B tools, the actual final state is

“Subscription baseline + x402 burst billing”: The team retains a basic plan linked to the number of users for collaboration, support, and daily backend usage; occasional heavy computation needs (build minutes, vector search, image generation) are billed through x402 without the need for mandatory upgrades to a higher package.

Better network services can also be accessed: Double Zero aims to provide faster and purer internet services through dedicated fiber optics — routing proxy traffic to its network allows for pricing at x402 per gigabyte, along with a clear Service Level Agreement (SLA) and caps. Proxies that require low latency for trading, rendering, or model jumps can temporarily switch to the fast lane, paying for specific burst needs before switching back to the normal lane.

The SaaS industry will accelerate its transformation towards a usage-based pricing model, but will establish protective mechanisms:

1. Lower customer acquisition and activation costs: Revenue can be generated upon the first call, and temporary developers who have not completed the OAuth or card binding process can still pay $0.03 to use the service; agents are more inclined to choose vendors that offer immediate payment.
2. Revenue grows in sync with actual usage, rather than relying on seat expansion: This will address the issue of 30%-50% of seats being idle in most enterprises, with the core billing shifting towards capped on-demand usage scenarios.
3. Pricing becomes a competitive advantage at the product level: “Each request pays an additional $0.002 to use the fast lane” “Half price for bulk mode” - Startups can increase revenue through such flexible pricing experiments.
4. Diminished lock-in effect: Vendors can be trialed without complex integration and time investment, reducing switching costs.

A World Without Ads

Micro-payments will not completely eliminate advertising, but will narrow the scope of advertising as the only viable model. Advertising will still perform well in “casual intention” scenarios, while x402 will price scenarios that advertising cannot cover—occasionally, users may be willing to pay for a high-quality article without needing to subscribe to a monthly package.

x402 has reduced payment friction and may change the industry landscape after reaching a certain scale:

Substack has 50 million users, with a conversion rate of 10%, which means 5 million subscribers paying about $7 per month. When the number of paid subscribers doubles to 10 million, Substack could potentially earn more revenue from micropayments - lower friction will lead more casual readers to switch to pay-per-article, accelerating the revenue growth curve.

This logic applies to all sellers of “high variance, low frequency” sales: when people use a product occasionally rather than forming a habit, pay-per-use is more natural than long-term subscriptions.

This is somewhat like my experience playing badminton at local courts: I play two to three times a week, usually going to different venues with different friends. Most courts offer monthly memberships, but I prefer not to be tied to a specific venue — I like the freedom to choose which court to go to, how often to go, and to skip when I'm tired.

Of course, I know this varies from person to person: some people prefer to go to the nearest court regularly, some enjoy the routine encouragement that a subscription brings, and others may want to share a membership with friends.

I cannot comment on offline payments, but through x402, this personalized demand can be reflected in the digital world. Users can set their payment preferences through policies, while companies can offer flexible pricing models to accommodate everyone's habits and choices.

x402 The truly shining scene is the workflow of intelligent agents. If the past decade was about transforming humans into logged-in users, then the next decade will be about transforming agents into paying customers.

We are already halfway there: AI routers like Huggingface allow you to choose among multiple LLMs; OpenAI's Atlas is an AI browser that uses LLMs to perform tasks for you; x402 integrates as the missing payment infrastructure in this ecosystem - it enables software to settle small bills with other software at the moment the work is completed.

However, mere infrastructure is not sufficient to constitute a market. Web2 has built a complete supporting system around the bank card network: banks' KYC verification, merchants' PCI compliance, PayPal's dispute resolution, card freezing for fraudulent transactions, and refund mechanisms when issues arise. Smart contract commerce currently lacks these safeguards. Stablecoins + HTTP 402 allow agents to make payments, but also remove the built-in recourse that people are accustomed to.

What should you do to recover funds when your shopping agent buys the wrong flight, or your research bot exceeds the data budget?

This is exactly the issue we are going to delve into next: how developers can use x402 without worrying about potential failures in the future.