To begin the discussion at each session, the attached outline of cost categories (identifying every sector in the value chain’s primary value-added activities) was displayed for comment.
Kelly Frey, Copyright Clearance Center, General Counsel. He is employed in new business development and is now working with commercial vendors to support digital commerce.
Dick Kaser, NFAIS, Executive Director. The organization is a consortia of 60 database producers, online vendors, and CD-ROM manufacturers of secondary information (in the classical sense).
Andrea Keyhani, OCLC, Electronic Journals and Product Development for Reference Services (including FirstSearch).
Bruce Kingma, SUNY Albany, Assistant Professor, School of Economics and School of Information Science and Policy. He has just completed a cost/benefit study of interlibrary loan. (RUA received copy of report.)
Richard McDaniel, Cornell University Campus Store, Director of Business Services. He is involved in a co-development project with Xerox. It is a customization of course materials project and several others involving desk-top services.
James Michalko, RLG, President. He is involved in a variety of institution-based collaborative projects and RLInformation Network (a bibliographic network used mostly by librarians). Also offers services for end users (mostly citation-based).
Lizann Payne, WRLC, Executive Director (Washington Research Libraries Consortium–seven universities near Washington, DC). The organization operates a shared electronic library system, online catalog, several locally mounted article citation databases, a full-article and image-document delivery system (UMI-based product) and provide networked gateway access to other internet resources. They are also collaborating with OCLC on a networked, image system allowing libraries to create scanned digital image collections and make them available through the network.
Bill Savage, UMI, Director of University and Publisher Relations; former director of Dissertations Publishing.
Martha Wittaker, Uncover Company. The organization is a periodical indexing and document delivery service company (partially owned by CARL). One of the first commercial for-profit companies to collect money over the Internet.
The best way to describe the usefulness of this section of the report is, at the end of the project, if someone asked what do intermediaries add to the author-reader relationship–this section should provide the answer (see the outline at the end of this section for the cost categories identified by intermediaries for their major value-added activities).
What are the significant things that intermediaries do in the information chain?
Preparing “surrogates”–defined as drafting abstracts or items similar to abstracts. Preparing “surrogates” does not apply to all intermediaries and does not fully describe the process.
Selecting and acquisition–an editorial process that is large and very expensive.
Data processing (for both print and electronic products)–contains large overheads to maintain state-of-the-art technology.
Preparing course materials for use in teaching. In an academic environment, it is an important intermediary function.
Marketing sales and promotion.
Data processing might also be considered manufacturing. However, the complete manufacturing process includes stamping a disk or some other product and most data processing functions end with the production of a page-proof. Data processing can be considered a “conversion for distribution”–and in some cases, it is ancillary to the editorial process because the computer performs verification, some indexing, and stores items that contribute to making the whole entity work.
Many intermediaries separate data processing into “production,” “distribution,” and “data processing” in order to more accurately represent the process they undertake. All agreed these become separate line items when costs are identified under production, distribution, and data processing.
General and administrative (G&A) costs and financing are included as “value-added activities” since publishers claim these are hidden costs which are not often revealed. Publishers wish to track these costs against changes in the networked environment as compared with traditional methods.
For example, consider salaries. Do they go up or down? Do you add more people or do you require less staff? And what about space? Do you need more or less? And legal expenses, do they go up or down? Several intermediaries offered that those costs affect intermediaries more than publishers. In the end, they agreed to add G&A overheads to the cost picture as a separate item. G&A might also encompass general accounting functions normally associated with billing and fulfillment.
We learned from our earlier publishers group that they believe they bear a major burden in the value chain for raising funds to move materials into the pipeline. Publishers consider it a very complicated (and under-appreciated) added value. It is not the cost of running their business, rather, it is an essential fund-raising task which enables the overall system to run. Publishers also feel that editors (and other staff members) need to be strictly accounted. Such staff often are not allocated to a single title and are not covered by general and administrative overheads.
Financing is a separate item. The processes of raising money for performing their businesses (capital and interest expenses) is separate. For example, non-profit agencies hold benefits (or entice federal agencies) to gain monetary support for publications. Interest payments to banks and other financial areas should be covered here.
Customer service and support is a central cost for intermediaries, along with their research and development (R&D) expenses.
Software and interface design and integration are two areas that are very costly for intermediaries and should be included in a list of key activities. Integration is the process of consolidating systems. It requires technical infrastructure, product development and editorial support systems. Some intermediaries consider integration part of production (but most feel that an oversimplification and integration should be pulled out as an entire area and explored separately). Integration is almost an R&D activity, preliminary to production. If you don’t have it, you don’t have production.
R&D costs deserve a separate line item. Intermediaries incur some costs which allow their products to be uniquely distinguished from others in the marketplace.
Data preparation covers the cost of generating the data itself, not the cost of the software.
Production/Distribution is the largest cost category in an intermediary’s cost budgeting structure.
Key elements in the production and distribution of print products include: printing, binding, paper, freight, receiving, ticketing, and shelving (shipping or inventory). Reformatting is also an important cost center for intermediaries–as they regularly take an original print product, archive it (on microfilm) and duplicate it on-demand.
If distribution is defined as “distribution to the ultimate customer” (a student or faculty member) then there is also the cost of the sale (or the transfer of receipts)–packaging, postage, fulfillment, and order processing are also important aspects of the intermediary cost center.
Should distribution include traditional textbook materials and materials where a retailer performs the distributing? The retailer orders discrete packages called books, receives them, tickets them, puts them on the shelf, engages the customer face-to-face and transfers money. This process (in some areas) is called order-processing (or requisition-processing). Most consider it separate from the receiving process (which includes receiving what was ordered, processing it and then selling it).
Printing, postage, and distribution are identified as separate line items for most intermediaries.
Warehousing/inventory and capital costs are also noted as important cost centers.
Royalties are a major cost category for most intermediaries, with royalties to publishers very important for online vendors especially. In a traditional product (a textbook for example), the royalty portion is embedded in the cost of the product that is purchased. Therefore, it is not seen as a line item at the retail distribution level. If it is a custom product, then royalties are a major portion of the costs. Royalties can be embedded, in some circumstances, under the cost of production and in other instances, they become a separate line item.
What activities are considered by intermediaries to be “editorial?” Editorial costs are the second largest cost item, after production/distribution.
Intellectual organization is an “editorial” function. Most intermediaries feel comfortable identifying intellectual organization costs as “editorial.” Many of these activities are cost centers, but, often cannot necessarily be found in traditional budgets as financial “line items.”
Staff is one of the primary editorial costs. Secondary publishers have rather large editorial staffs (abstracters, indexers, and those working on directories), performing “surrogate” preparation. In addition, there is a significant training curve for staff. To be efficient, such staff must attain a certain level of proficiency.
Some intermediaries view “selection” and “acquisition” as part of the editorial function, others see them as separate. Those who separate them indicate they have separate costs from editorial activities (with different staff, departments, and separate expertise requirements).
Intermediaries placed quality control costs (double-keying, etc.) under editorial activities. The view is that in an online environment it becomes part of editorial costs–although in a print model, it might not be (as most print publishers view this activity as occurring prior to press checks). One’s view of where such costs are allocated indicates one’s location on the evolutionary scale of print technology.
When intermediaries are engaged in desktop publishing, such costs may shift to another area. Quality control may lie in a different part of that publishing process.
In this marketplace, it is very difficult for highly automated intermediaries to separate editorial production systems from products. One reason is that the methods provided by their staff (acquiring, customizing, and tuning information to be harnessed) become inherent in the product. Most intermediaries have highly automated routines that support the work they do–and technological support is costly. The capital investments alone (associated with the desktop instruments they employ) do not capture the costs associated with the products they develop. These instruments are only the infrastructure technology needed to support all the processes intermediaries undertake.
Currently, there is less demand for the development of unique software to assist intermediaries in their work. Intermediaries do not invent the software tools they now employ regularly (as they once did). There are software routines available that perform some of the information gathering and grouping automatically, or will verify some of the information collected. At least there are a few opportunities to cut some costs that are usually absorbed.
In the cost of the product, there is a large piece that is called overhead/equipment and other capital costs (expenditures on computers, equipment, software and other support materials). Overheads would not only include preparation of surrogates, but also indexing (and other enhancements prior to distribution).
Intermediaries indicated that they have similar costs as publishers do when it comes to marketing products, hiring agents to assist in sales, and performing promotional activities to market their products. Direct mail (for example) is used by many intermediaries to sell products. Costs for advertising, sales commissions, customer service, technical support, distributer and public relations, exhibits, travel and entertainment, and other promotional materials are all involved as well as distributer costs and commissions.
In many cases products developed by intermediaries are unique. While they may be based on other information provided by primary publishers or other sources, intermediaries specialize in creating a niche markets (coursepacks, for example) for their products. There is a cost related to the creation of a market that is not related to producing a product.
An example is Federal Express. In that model, first they created the marketplace for overnight services, and then they took advantage of it. The process of market-making is more than marketing–since marketing is selling new or existing products to new or existing marketplaces. In many ways it is similar to establishing a trademark or brand and in others market-making is product development and research and development.
Intermediaries observed during the session that the costs associated with all the activities they perform are very different (as well as their cost emphasis and cost behavior patterns). This is because each intermediary is vastly different from others–more so than any other group in the information chain. For example, retail distribution intermediaries (those providing customized course materials to end users) and a database firm have very different ways of doing things and spending money–although they are both a type of intermediary. One has a stronger focus on manufacturing and selling at arms length (database provider), while the other is involved in the face-to-face interaction with users purchasing products. It is significant that intermediaries are a much more heterogenous population than the other groups in the value chain (authors or publishers, for example).
What follows is a list of both print and online services handled by intermediaries:
- Retail distribution (college store agencies)
- Subscription agent (Faxon, Ebsco, for example)
- Copyright, rights and permissions activities
- Document delivery services–or more broadly–electronic information delivery services/gateways/site licensor
- Library consortia (providing front-ends on a variety of different systems–giving a seamless and identifiable look and feel)
- Consumer online (America Online, for example)
- Database producers (abstractors and other tool makers)
- Online vendors (traditional mainframe-based computing organizations offering time-based access to online services over the internet–OCLC or Dialog, for example).
Some intermediaries mentioned that after 20 years in the electronic information marketplace, they still do not generate more than 50 percent of their revenues from electronic resources. Others concurred and indicated they are dependant on print sources for just about half of their revenues.
The infrastructure distinction between print materials and electronic information has changed considerably. Printing (especially customized printing from electronic sources) is now an intermediate step that will continue to have a substantial role in the future (Docutech, for example).
Many intermediaries indicated that their businesses will be strongly influenced by the direction of primary publishers. The impact of primary publishers on our production chain is enormous. Intermediaries now acquire journal information, select from it, abstract it, and index it (among other things). Intermediaries recognize that a growing number of primary publishers would like to perform these activities themselves (produce their own abstracts, for example).
Some publishers are now demanding compensation from intermediaries for their journals. And (on a more fundamental level) authors now seek compensation for mounting their publications electronically. This practice will have wide ramifications for all intermediaries. Journal publishers will need to secure and manage electronic publishing rights in addition to print rights which will have a ripple effect throughout the entire industry–as publishers compensate authors for electronic rights will effect pricing for those who redistribute publications electronically. These trends will no doubt increase costs all along the value chain.
For scholarly journals, when an author submits his or her contribution for publication, compensation is having the work published. Scholarly authors (or organizations that represent them; universities for example) are now getting into the act, claiming that because they pay scholars for their work that produces the clinical literature, they are entitled to compensation.
Under the current system, publishers provide intermediaries with subscriptions to its journals at no cost (which becomes a “cost” to the publisher). Now, publishers would like to shift those costs to intermediaries. By doing so, publishers could profit from intermediary transactions, as well as having charged for information they previously provided for free. The rational many publishers employ is that they cannot continue to raise their prices to libraries, so instead publishers increase costs to intermediaries, who inturn, escalate prices to libraries.
One scenario: Primary publishers vanish because authors are able to orchestrate the peer-review process and electronically produce papers without the need for publishers. In this instance the role of secondary services will not be to index primary publications–and some are already starting to index materials on the Internet. Many publishers feel that costs would increase because labor costs would increase greatly–and few intermediaries have confidence that they could control the marketplace.
Another scenario: Should the relationship between publisher and intermediary erode, then costs (especially intermediary costs) will increase sharply. One example of this erosion would be publishers requesting payment for abstracting their publications. These costs will eventually be passed along to libraries (or end users). In fact, intermediaries have detected a number of publishers adopting this policy. If successful, other publishers may follow and the practice of charging for “review” copies of journals (and the rights to reuse an author abstract, for example) will be in play. Under this model, intermediaries would essentially be paying royalties they never paid before.
Intermediaries are constantly re-defining their products and services. One example in dissertation publishing (where the majority of information is submitted in paper form) shows what many intermediaries face. In this publishing arena, paper submissions will eventually evolve to electronic submissions. However, as authors and students increase their electronic submissions (either on-disk or over a network) costs will increase before they decline. Most intermediaries foresee a slow turnover to electronic media submissions in all disciplines. In fact, several have already requested that schools send papers in electronic formats and they have met strong resistance.
In dissertation publishing, there is resistance to electronic files because the product is still viewed as a paper-based (usually formed of several software packages and employing a copy machine for an appendix or two). When the shift to electronic-based products does occur, intermediaries will convert paper-based materials to microfilm (or other microform)–adding steps and adding costs. When a critical mass of like materials is achieved, then investment in new technologies can be made. Currently, no standards (for archives stored electronically) have been developed and accepted–so we cannot begin to look for cost savings through electronic means.
Intermediaries claim that a “permanent” archive medium has not been developed (for example, an 8-inch floppy disk cannot be used anymore). Intermediaries are forced to continue using microform and make electronic copies for use with current technologies.
Illustrators and other visual artists pose a similar dilemma to publishers and intermediaries as authors pose in the scholarly communication marketplace with regard to their position on wishing additional compensation for electronic use of print works. Costs increase exponentially for journals where authors retain text rights, photographers retain their rights, etc. For this reason, many intermediaries are working with the Authors Guild and the National Writers Union to develop a position regarding intermediaries’ use of portions of works found in other publications. Writers now are happy to be in an intermediary database–but also wish to be further compensated. As mechanisms for paying authors directly become more accepted, we are going to see more interest in this area–and not just for electronic information for the more traditional (bit-mapped) images as well. This practice opens a very important opportunity for intermediaries. Some organizations, (further along on the value chain toward the individual user), will not wish to be involved in the complexity of managing all rights and instead will prefer a gateway where royalties are paid and rights management is taken care of as part of the product price (for Uncover or UMI products, for example).
Changes in the networked environment will also influence certain relationship changes among publishers, authors, institutions, etc. Technology changes will also necessitate some changes and we have identified several elements already identified as potential cost increase areas:
- Royalties to authors and others;
- Fees to publishers and institutions for abstracting their material;
- Navigation and indexing costs in the more archaic system of the Internet;
- Technology and infrastructure costs of archiving;
- The cost of maintaining technology.
The cost of new technology could become an area of increased expense–but the future is still uncertain. Will new technology costs become part of another cost area (as we saw with production and distribution starting to come together) or economies could emerge in areas we have not anticipated–the future is still unknown.
Royalties for custom published materials (course materials, for example) is a $4 billion-per-year marketplace. Cost-per-page indicators have increased from 4.6 to 6.8 cents per page over the last two years. While a dramatic increase, some intermediaries feel it is a short term trend–having observed that users stop using information that reaches a certain price point. In addition, the number of no royalty pages (cost-free or gratis permissions) has declined from 33% to 18% of the total number of permissions provided for use of course materials.
There is an opportunity over the next few years–once consumers are loyal to a certain context (an interface or front-end) the potential for related transactions is unlimited. This opportunity (on the World Wide Web and other new gateways) exists because users cannot know how to navigate all available sources of information. Should a universal front-end (an easy, user interface that delivers information to the campus desktop) be developed, it can be the window to the world of intellectual property. Provided, however that it can access everything available (and not just a single publisher’s materials–as McGraw Hill tried with its unsuccessful Primus). It would become the new campus bookstore and there is strong demand for an on-campus bookstore to play a strategic role as “information broker.” Currently, most companies (or services) tend to be investing with only one area in the value chain (archiving or publishing, for example).
Publishers are unsure as to the directions they will take. They remain unsure of the costs of branding and trademarking electronic information as well as their relationship to the individual and the library. In addition, there is still debate among intermediaries as to whether or not these costs will prove necessary or worthwhile (as many intermediaries cite Automatic Teller Machines as an example of the individual user losing brand identity within a system–in this case to a particular bank.
Intellectual property is by definition a monopoly right. Intermediaries wonder what will happen across that monopoly as people peruse multiple articles and sources along the same subject matter. They fear that it will not be as “market driven” as it was in the past. In the view of many intermediaries, the cost of distribution will decrease and, likely, regional production centers (and other “Cupid”-like programs) will be employed across high-volume, coded-text and image libraries. In this scenario, distribution and production costs would decline–however, a versatile (and cost effective) interface is needed.
Several lessons from the past should be noted–especially considering cost increases. Historically, intermediaries almost continuously remake systems as emerging new technologies are investigated. For example, there are no guarantees that the World Wide Web will be the search system of the future, yet intermediaries have been investing money and developing WWW products. When another promising technology or system comes along, they will do it again. Unlike the past, Research and development costs are continuous.
The usage-ratio of course materials (the percentage of an individual book used for a particular class) has been declining for the last three years–often because subjects change so rapidly. As the usage ratio declines, we have seen an increased amount of customization–since customization provides cost savings (by including only the portions of the work required). However, this practice also has a double edge. Intermediaries will evaluate their sources costly when deciding what to make available for coursepacks. This will also lead to a decrease in inventory and vast changes to ordering, shipping, receiving, and warehousing patterns.
This is especially significant since the coursepack marketplace may be changing in the near future. Currently, coursepacks are restricted to include between 10 and 20 percent of any one original book. This generally yields between 20 and 30 small parts or many books in each coursepack. Should publishers allow up to 40 percent (as has been proposed) of any original work to be included in a coursepack–and the marketplace accepts the shift, a new paradigm will emerge. Publishers will have the opportunity to sacrifice the sale of the whole work in order to sell more units (of parts) of the work.
Information is now being stored locally by buyers on their customized systems. Intermediaries are now scanning and creating image libraries (which they have found is not very cost effective). In the long term, intermediaries feel that as networks develop, their costs should decline as information will be centrally stored and easily accessed remotely.
It all comes back to the technical infrastructure of archiving. Many intermediaries see a potential savings when the marketplace no longer creates files again and again (as is now done with print materials). Most intermediaries agree that archiving costs will decline over the long run–however, in the short term they are increasing because intermediaries can only create working copies of the original (and each time they work with the material another working document must be created from the original).
The long term implications of the transition of full-text materials online (for a company like OCLC, for example) is that the cost of storage is declining (in 1995) as intermediaries move from mainframe technology to distributed technology (smaller machines). However, their infrastructure costs are not declining since just-purchased equipment becomes obsolete in very short time periods (often less than one year).
As desktop infrastructure increases, many intermediaries believe, costs associated with the storage and archiving of information will decline over time (which has been the trend over the past several years for any data stored–unit costs decline). However, as more and more data is stored, it may even-out. The number of organizations that store information will have an impact on costs. For example, central archiving will decrease costs. However, should the archive be distributed across multiple locations (what now exists with duplicate archives where publishers have different versions of the same information located in several places and stored separately, and in different formats), then cost declines are less likely. Another factor that affects some organizations more than others is telecommunications bandwidth (Dialog, for example, would be greatly affected by this). Dialog, for example, charges by the hour, rather than by the record. Using existing technology, the access speeds have increased to the point that you can access many more records in an hour than was possible in the past. The entire price structure of companies are changing as a result. Costs are still increasing since greater access means higher CPU costs. For example, in the past, users could process 100 records in an hour of connect time. The current technology allows users to process 10 times as many in the same amount of time. Although technology usually decreases costs, it is not always realized immediately.
The costs associated with data preparation and data entry may increase because publishers may seek greater fees in the future to compensate for increases in rights fees. There are two sides to this issue (and mostly it depends on where in the information chain of the future that data preparation and data entry will take place).
Intermediaries feel the marketplace has not yet adjusted from the era of higher paid staff members–those specializing in the conversion to an electronic environment. The two types of intermediaries (platform/mechanism owners and content owners) have had to add technical expertise at the beginning of the conversion process to produce initial products and found overheads went up proportionally. While costs may not have doubled, they did increase substantially (25-35%). These new costs are passed along as price increases. One intermediary indicated they increased their staff by one-half. Both content owner and platform provider intermediaries agree they will employ a higher paid, but smaller staff.
Many intermediaries agree that they have held costs equal to previous budgets. However there were a significant number of participants who indicated cost changes. One platform provider indicated they have a greater number of higher paid staff (and are therefore experiencing extensive cost increases)–especially true with younger (or rapidly growing) companies. On the other hand, the library consortia at SUNY employs fewer and lower-paid staff (as graduate students have been hired to provide document delivery services between the SUNY sites).
One area of electronic publishing that has shown a definite cost increase is user support. When providing user support for connectivity issues, networked information has dramatically increased intermediary costs (all intermediaries indicated this to be true). The more users online, the greater the need for comprehensive user support–as the sophistication level of the user normally declines.
Intermediaries not providing content feel they will be providing content in the future. In fact, many are now involved in test projects where they allow librarians to create their own content–taking existing content out of special collections and turning it into electronic databases. Many intermediaries feel this is the direction that the markets are headed (starting with a home-page, special archive, or collection) and eventually users may be willing to spend dollars to access or purchase products associated with that content. There are a number of electronic archiving projects just now under way. Unfortunately, the process of becoming a “publisher” will add additional costs that are not currently in place.
Historically, platform providers provide platforms for other people’s content for a group of buyers who want access. Now this has expanded to include providing an enabling service for users–allowing users to mount individual content (initially for their own use) but with the ultimate goal of use by other end users. For example, intermediaries (Dialog, OCLC, etc.) provide users with the tools to create databases for a local purpose. However, the union of several databases could be a saleable product, application, or interest. For this reason, platform providers generally pay much more for research and development, selection and acquisition, and the integration of data sources.
At the content provider level (a university, for example), prepackaging (bringing to the desktop prepackaged products– Books in print or Ulrich’s journals), and folding in major wholesalers (those with 250,000+ titles) are attempts by intermediaries to open new market areas. A second marketplace they are entering is custom repackaging. This pre-packaging and re-packaging would target the user desktop and not the library desktop.
Integration brings products and systems together–integrating bibliographic databases with full-text and document delivery, for example.
“Systems integration” to most intermediaries, represents the greatest skill set of value. It is not a one-time cost, as it moves through the entire process. It starts as an intellectual concept and proceeds through research and development, management, product development, marketing. This is the future of most intermediaries. What is the front end of the product delivered, since it changes all the time. Today, it may be the World Wide Web, but it will change soon again, and we must plan for that change. Our research and development costs (for example) will be borne all over again. Creating and maintaining an integrated package that will always be in place is a task that may never be finished.
Intermediaries are searching for a product where every time a user turns his or her computer to this area, a pointer says “this is your window to intellectual products.” This pointer will always be present and, when used anything that is available can be easily found and customized. It could be a “local” window (the Cornell page on the WWW, for example) and uniquely reflects the needs, priorities, and requirements of the institution and crosses all organizational boundaries (supplying all types of information from multiple sources).
Systems integration is a very broad issue. First and foremost an integrator must have the mechanics in place (there must be a platform and content to integrate). Secondly, intermediaries must sell content owners and have them agree to make data available in new and different ways (often in formats they are not accustomed to). Often it is simply taking a product to the first step–making it available electronically and, at other times it is making it available in new ways (a subscription, or convincing an owner to forgo subscriptions and offer the information for document delivery). Often, intermediaries must convince the owner that users only want a piece of the information, not the whole thing.
This approach is a new and different way of thinking to intermediaries. The first step in putting together a package is obtaining rights and permissions (which can be both costly and time consuming). This process is more than just acquisitions, it is resource management and eventually becomes a rights management tool–not only with respect to costs incurred when determining royalties (and how much to pay) but also in managing owned content for optimum economic value. Some intermediaries feel so strongly that “the future of all intermediaries is system integration. This includes creation, simplification, and maintenance of the user interface.”
There are two types of content information integration: one which is pulled together from multiple sources, and where there is a selection process and rules as to how to combine it (so that it has the greatest value). When it comes to content or systems integration, intermediaries feel that costs associated with combining data are going to decline, while costs connected with selection will increase (mostly due to the proliferation of information sources).
Intermediaries feel there may also be a form of “backwards” content integration system as well. Everyone has databases and resources that are structured for particular types of resources which must be altered, taking those assets and making them yield value is the difficult part.
An intermediaries desire for information is different from the way information was originally structured (and intended). Keeping assets that have been created useful, and necessary, as the desires of the community using them changes is critical. Most intermediaries feel that this process will continue to be more and more expensive (to access both information or information platforms). Platform integration will become more and more difficult–mostly because intermediaries as a group are so diverse and respond to pressures external to their organizations. Because their interests are so different, systems integration across an entire group is impractical. Intermediaries are now seeking a method where copyright can be cleared interactively (which would speed interactions). Users want comprehensiveness, but the successes are only for very narrow targets of information and the only way to get things done is to demonstrate success.
For example, if an intermediary could put out a window that accesses 250,000 titles from a major wholesaler that has them and provides 24-hour delivery with a basic systems integration function–that would be a hot product. The process of linking information, marketing the process of linking, obtaining rights and permissions, source management, customized interfaces, keeping database platforms current, platform integration and automation of the copyright process in the short term will cost more. And even in the long term (once systems are in place), intermediaries do not see costs declining since systems and platforms will change and new infrastructure will be built. At the current pace, no information can remain on a platform for more than a few years, and by constantly changing platforms, costs increase. For this reason alone many intermediaries are pessimistic about long-term pricing models (those showing cost decreases through integration). In the last 20 years (they reason), we have not seen prices decline.
While many were not enthusiastic about identifying cost-decreases, it remains difficult to bill and invoice for products and services. One product intermediaries desire is a centralized billing and invoicing system (designed for the broader-net environment). Many now must keep a costly, elaborate system for rebilling document supply. Some intermediaries feel that organizations will emerge to perform those services. This is an area (billing and invoicing) where broad commonality among intermediaries exists (as well as economies of scale).
Several intermediaries suspect that costs, as a percentage of revenues, will decline. Those that successfully make this transition will then begin to gather market share formerly occupied by others. However it is still uncertain how profit margins will be affected.
One intermediary offered that while some organizations may experience unit-cost decreases through a reduction in personnel, others experience increases and will increase revenue to offset rising costs.
Library operating costs are only 3.5 percent of the annual operating costs of an institution, yet are often among the first to be cut–even though librarians and libraries are very active in showing advances in new technologies. The reasons is that libraries account for a large portion of an institution’s discretionary funding. New funds (made available by the legislature, for example) are being commanded by the library at much greater rates and the funding agents find that much of the discretionary funding they receive must go directly to the library just to keep pace with costs. While the absolute dollars may not seem significant when compared to the overall institution, administrators focus on the library’s demand for new dollars–particularly in the area of capital funding.
One intermediary mentioned that at the recent American Library Association exhibition, he noticed that the majority of PC products were employing a “Windows” interface. Some intermediaries felt that “Windows” shifted costs to others in the value chain–achieving a cost reduction for themselves (intermediaries). The “Windows” interface allows developers to narrow the scope of design (a module rather than an entire user interface) thus reducing costs. Often the same pattern emerges with rights management or billing (to the extent that a company can employ another company that specializes in that activity). While the absolute costs (in dollars) may stay the same, the degree of active involvement by intermediary staff is reduced (achieving a net increase in profit). One intermediary who had just finished creating a graphical user interface based on “Windows,” experienced significant cost and time savings. It was more economical to use “Windows” than to build a new interface.
Another example is in development of a site for the World Wide Web. Some look at the WWW as a method of saving costs by not having to develop multiple versions of a product. Before the World Wide Web, many intermediaries assumed electronic journals required several interfaces (Windows, MAC, and UNIX, for example). With WWW browsers working with all interfaces it is not necessary to produce many interfaces–and eventually, intermediaries hope to integrate all the interfaces and reduce the number that must be designed from scratch.
It is true that in one or two years, something else will supplant the WWW, but it will take time for a new product to gather market penetration. A WWW browser now commands a significant installed base and can be reached by a wide number of users. Intermediaries hope that they will not need to rebuild entire databases when platforms change again–and only need to invest in reformatting programs for SGML or HTML files.
There is so much information coming through networks that it is impossible to keep track of it all. Some intermediaries are positioning themselves to manage that information surplus (OCLC, for example). One way is the development of a database of WWW and Internet resources that libraries and users can use to find the sources they want–a task that is very difficult at present. Several intermediaries have taken active roles in assisting users to navigate available information–providing paths to information and supplementing a librarian’s resources.
Intermediaries are now gathering all available resources that point to various databases, journals, and everything else on the WWW–and keeping it up-to-date. Intermediaries then present it to libraries (and others) rather than wait to have that information provided. Intermediaries are not waiting for anyone else to provide links or pointers (or any other navigation tools). If they do not exist, we will create them ourselves.
Many intermediaries have been discussing the development of an integrated, common front-end (not necessarily a single front-end) but a customizable one that is compatible with others and can serve the many information needs of all types of users. The corporate world is now experimenting with this and many intermediaries feel it may be on the horizon in the academic world.
An intermediary’s role in a corporate setting is to package information for researchers (or business people) and distribute it to their desktop–circumventing the traditional role of the corporate librarian. Many intermediaries feel it will happen in the academic field as well–but with greater price sensitivity and increased control of individual transactions.
Many intermediaries could vertically integrate–carrying-out roles that traditionally have been performed by others in the value-chain. Some intermediaries will work directly with authors to publish papers (as well as abstracts and indexes to those papers). Many intermediaries (library consortia, for example) are now selling documents, and could eventually publish them. The current technology lends itself easily to vertical integration. Collectively, there is a great deal of competition for what traditional intermediaries have done–competing for small pieces of each area and specialty which limits the growth of all intermediaries.
Technology has now made it possible for collections of institutions (who traditionally were thought of as providers to a single community) to combine their holdings so they may cover gaps in subject coverage. Collection costs are beginning to decline and access to navigation tools is more widespread. Coordination is the key obstacle now. An intermediary (working closely with the British Library) indicated they are attempting to complete its collection by creating links for the (estimated) twenty percent of coverage it lacks.
On university campuses, intermediaries anticipate taking over many of the coordination functions now forced on librarians. While developing custom published databases for libraries (and other types of vertical integration) intermediaries plan an entire systems integration–linking, for example, RR Bowker’s Books in Print, Ulrich‘s journals, the Copyright Clearance Center and other available information through a gateway. In this way, intermediaries will become a conduit for the library to access a wide range of information.
It is only natural that, eventually, intermediaries can provide marketing functions for other players in the information value-chain. This entire concept is still evolving databases and journal database have just been identified. In addition, some intermediaries are developing “stockless contracts” where they do not own the product–only provide access through to the product. When the user opens the window, it is actually someone else’s product.
The interfaces will be campus specific, and each campus will be different with respect to the companies and databases they link to. Intermediaries have found there is value to the user in being campus specific. For example, one kind of purchaser is the university professor (or staff member) buying on account–this method provides the ability to charge using department funds electronically (or a personal account). Working back from the customer makes the most sense in this environment. Customers are not willing to purchase entire textbooks (and other materials) when they are only using parts of the work.
Some intermediaries argue they are using a system, or rendering a service on a system, that was originally designed for information products and resources. The system is now diversifying horizontally to manage other kinds of transactions (and possibly become a marketing technique as well). The networked economy is one where each individual agent is much smaller (but exists in a much larger web of relationships). Market share is increased not by vertically integrating and growing larger–but by horizontally integrating and growing broader.
In the past, publishers negotiated rights with thoughts toward exclusivity. That trend has effectively been reversed. Most publishers now attempt to stock as many pipelines as they can. Intermediaries have designed products to fit as many systems as possible–rather than a dedicated or devoted system.
Distributed technologies have put intermediaries in the “server” business and the functions and applications that were necessary when systems were centralized, are no longer functional. Much of what intermediaries performed in the past has been integrated into customer/client software systems. Intermediaries anticipate losing more applications development staff and other costs associated with applications development–and increase the number of staff dedicated to network development.
Centralized applications development, where data is being manipulated on another’s behalf is also gone forever. Those applications are available at an individual’s desktop computer. The nature of software development (from a secondary provider’s perspective) is different now. Microsoft “Windows” development kits are employed instead of requiring the programming of centralized applications.
Some of the infrastructure costs will eventually leave as well. For example, company’s do not need dedicated telecommunication systems as new networked systems allow end-users to perform many of those applications. Staff support for some products will also be removed which may decrease staffing needs. In the commercial marketplace, we see consortia developing more often than vertical integration. These commercial consortia are developing within their own core confidence and, as a group they affect the horizontal marketplace. For example, Novell now works with ATT and IBM is now working with other companies to create networks.
As the marketplace develops (in place of the current hierarchy where the products are standardized) and companies can find situations where they have access to specialized services (billing agencies that are adept and effective at less cost, specialized rights management companies that perform that value added function well, and specialized production activities, for example, “Windows” toolkits), more robust horizontal integration will take place.
When a large content house purchases a distribution center (Disney buys Ameritech, for example), that is vertical integration. Vertical integration, under certain economic conditions, will and under others, will not become a dominant trend. There may be multiple reasons for the purchase of various things–vertical and horizontal. Many intermediaries feel they are seeing both vertical and horizontal integration occur concurrently.
Networked information developments have already fostered an increase in communication between authors and readers over the Internet. There are many electronic journals (many are homegrown at universities) that skip-over publishers, intermediaries, and libraries and connect author and reader directly. Quite a number of faculty are basing their careers on being the editor for a electronic journal. For example, there is an electronic system in Los Alamos where an editor produces pre-prints in high-energy physics. Some intermediaries feel, however, that it is too early to determine if the concept is valid. At a recent conference, both publishers and intermediaries projected that pre-prints will either become a commercial venture or will be discontinued.
Most intermediaries agree that the current model is one that is optimized for maintaining communication in research and is sub-optimized for cross-disciplinary work (and for newcomers, i.e. students).
Where intermediaries can obtain collaboration from multiple publishers (which remains very challenging)–a group of medical publishers, for example, allow all of their journals to be mounted on a system in such a way that they can be cross-searched–then the model can work as expected.
Except for those publishers performing product development already, most will not participate in a commercial electronic venture (where they share access to electronic products and services with their competitors). The direct model is a very tricky one. It usually begins through an online discussion group and participants (after a few months) may decide they have something which may become a journal–so they turn it into one. The journal grows out of a garage and at some point–should it get into OCLC (or another service) then there is a connection to it. However, at first, it must grow large enough (or have a density of quality material) to make it into an “online service.”
There are considerable costs associated with this direct publishing process. Some editors are not teaching, or are stopping their research and, instead, devote time to this electronic journal. Students pay for the fact that they are not pulling their teaching load, or fulfilling other responsibilities. The cost issue gets buried at times since many start under a grant, or under funding. Eventually it comes time to contribute to the return on investment (ROI).
This is not a new model, but it is how scholarly journals have always been created. Only from economic necessity did they go to publishers (because authors were required to teach and perform research). It was a clear division of labor, since editorial work is time-consuming (no matter the product, print or electronic). It is not a new model only a new medium.
Direct publishing may be a new model in disciplines which change rapidly (particle physics, for example). The real value of the journal (other than its archival value) is the increased communication between authors and the immediate interaction that takes place. Additionally, the ability to leapfrog the disadvantages of print (time delays while it is being printed). In the print world, many researchers were not going to be invited to become journal editors. However, in the electronic publishing environment, there are fewer barriers in place. Most faculty have a strong value attached to being an editor of a journal–although the danger (some intermediaries argue) is that electronic journals make the editor an editor, distributer, marketer, and publisher. It almost becomes an electronic “vanity press.”
A few electronic journals are very well done, but others are poor. Some intermediaries believe that electronic journals must experience a “maturation process” in order to reach some determined level of quality. To many intermediaries, there is value to having the process of back-and-forth and the development of the product visible.
Currently there is a perception that things published on the net carry value that seems higher than they possibly should. In the print environment, for example, readers know instantly if printing and editing standards are not upheld. However, in the electronic environment, it can be difficult to tell the level of quality of the information.
In the aggregate, is it a more costly or a less costly world we are going into? Will adding the values that intermediaries add cost more or less money in the future than they cost now?
Development costs, first copy costs, research and development costs, and costs associated with differentiating our products and product lines will always be present in the marketplace. Technology costs (hardware and software) are now declining–but intermediaries are constantly developing ways to increase market share, raise productivity and lower costs through new technologies. Many intermediaries feel that distribution and certain editorial costs will decline (although several felt the more cost/less cost comparison is an oversimplification). With the number of changes they endure, it is very difficult to determine how costs have increased or decreased in many instances.
Several participants chose another perspective. Instead of looking at cost, they feel that profit margins will remain, costs will raise slightly, and revenue will increase. They reason that it is a finite marketplace and costs cannot escalate simply because the market cannot support them. Many intermediaries believe there will be new market segments and divisions (but the same market environment overall). Distribution patterns will also change and with it gross-margin dollars will increase for those who are in touch with the changes. Those who are not in touch with market shifts, will lose market share.
A minority of intermediaries feel that the industry will never develop a more cost-effective technology than print. Electronic products and services will always cost more to deliver (for the things that print materials do). They also believe that production and research and development costs will increase (both short term and long term). Distribution costs will decline and pricing will also decline because of competition and the perception of the marketplace.
A few intermediaries wish to receive information that accounts for the values that intermediaries provide, targeted to the university presidents and other funding agents. Others felt that providing insight into the behavior of other intermediaries was not as interesting as looking at how the other groups (publishers, in particular) answered the cost question.
Most, however, felt that each group’s responses will be very interesting and look forward to investigating each for their perspectives. Surprisingly, many felt the need to collect data on costs. Economic data is very important to many participants. It would be beneficial to all sectors of the value chain to have a measure as to the true costs of features, functions, data, etc.
Information that fosters insight into where there could be synergy across the different parts of the value chain would be the ultimate goal. And if this research leads to experimentation on new and different models, that would be very beneficial to the industry as a whole.