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Environmental
Scan of Pricing Models for Online Content
Report II
Business Models for Object Repositories
Prepared by Albert W. Darimont
http://www.darimont.ca
OnDisC Project
April 2002© OnDisC 2002
0. Executive
Summary
1. Background
2. Learning
Object Repositories
3.
Business Models - Value chain
4. Funding
Models
5. Discussion
6. Conclusions
7. Bibliography
8. Web
Site References (Webliography)
5
Discussion
The Phase I report dealt with an environmental scan
of pricing models for distributing online content
to academic institutions. Pricing schedules for
four online repositories of digital content - JSTOR,
AMICO, SCRAN and ECO were examined and discussed
in context with theory about product differentiation.
Phase I dealt with the delivery of online content
to academic in a general case and did not examine
in detail how or why the content would be of value
to those academic institutions. This issue is addressed
in this report by considering possible uses of digital
content by the users within academic institutions.
The digital content that the OnDisC Alliance members
will be offering to academic institutions can be
described as having a fine granularity, similar
to say the offerings of AMICO - individual images
with some text description for context, but not
much beyond that. The objects will have of course
rich metadata that will allow enhance access but
OnDisC objects will be qualitatively different from
those that are described as Learning Objects. Learning
Objects by definition include features such as peer
review by educators, rating (for age level and curriculum)
and pedagogical organization intended to impart
a learning response on the part of a user. They
can be described as coarse-grained objects and will
have within themselves finer grained objects, such
as those offered by OnDisC, which may be called
media objects. Learning Objects in turn are organized
into larger structures such as courses, or lessons.
A physical analogy that one could use is that media
objects are like yarn that is woven into cloth (learning
objects) that is cut and sewn into clothing (courses,
lessons).
OnDisC, as an aggregator and distributor of media
objects can occupy a level in a value chain between
the content authors (or owners) and those that will
use the media objects to construct larger grained
information entities. In such a chain, OnDisC would
add value to the fine-grained media by providing
a many to one to many relationship making it easier
for the content of many authors to find its way
to many users. The users of media objects need not
be only those that use them in the production of
learning objects; media objects will be useful to
all manners of higher level information including
books, papers, theses, reports, essays, web pages,
projects, presentations, documentaries etc. OnDisC
then can be useful beyond the value chain of courses
and training in academic institutions. Different
institutions, such as K-8, 9-12, government organizations
or corporations may each find a service like OnDisC
useful, but since each of them represents fundamentally
different markets, OnDisC would have to tailor a
business and revenue model to reflect that.It would
be beneficial to undertake some investigative research
of what the various types of potential customer
organizations want and need in relation to the value
added content and services that OnDisC is
planning to provide.
A recent Harvard Business Review article[4]discussed
how a business model, syndication, commonly used
in the entertainment industry is now seeing great
application by Internet based e-commerce companies.
Syndication involves the sale of the same good to
many different customers who then integrate it with
other offerings and then redistribute it. A classic
example is the local television station that purchases
the rights to broadcast a number of different shows
produced by different studios. On the internet an
example is the online brokerage house E*Trade which
purchases a lot of content such as stock quotes,
financial news, charts etc. from providers and repackages
it with some of its own services such as trade execution.
Both the television station and the online brokerage
are in the business of aggregating syndicated content
and redistributing it. Syndication is well suited
for the Internet and the distribution of digital
content because it allows for the easy duplication
and transmission of modular content that can be
aggregated and repackaged and sent to many distribution
points. There are many parallels between a syndicate
business model and the circumstances of OnDisC;
it may be worthwhile to investigate syndicate business
models more deeply.
The emerging online educational content brokerage
organization UNIVERSAL appears to be one that is
catering to suppliers of different levels of granularity
of content, in effect acting as a marketplace for
the developers of educational content in addition
to the buyers and sellers of coarsely aggregated
units (i.e. courses) which are a feature of most
of the others such as Fathom or AEShareNet. OnDisC
could offer its digital content collection as an
aggregating supplier in a marketplace like UNIVERSAL
or Lydia (or BELLE/POOL if they develop along similar
lines). Alternatively, OnDisC could act as a syndicate
and sell the rights to the entire (or substantial
parts) collection to private or public content developing
institutions.
A key factor in a business plan involving the distribution
of digital content is the cost of digitizing content
that was created and stored by traditional non-digital
methods. In some cases, this cost can be very large,
as was the case with JSTOR who undertook the digitization
of many thousands of pages of paper journal articles
to create a digital journal archive. As was discussed
in the Phase I report, JSTOR charges users of their
system an initial one time sign up fee to help cover
these costs. OnDisC may have to follow a similar
model to help members cover their digitization costs.
A large-scale digitization project carries a certain
amount of financial risk - that the users of the
content may be unwilling to pay a price that is
sufficient to cover the cost of digitization. One
could argue that such a financial risk entitles
the digitizing organization to a greater share of
the revenue generated by the system as a whole.
Such a formula of greater risk equals greater reward
is common in the marketplace. One possibility of
reducing such a risk would be to offer a just-in-time
digitization of content in a manner analogous to
the service offered by Document Delivery Services.
The digitizing organization would require staff
and equipment to respond to content “orders”
and the ongoing provision of this service may in
fact turn out to be more costly than digitizing
the entire library of content at the outset. It
is an approach worth investigating however. It should
be noted that the JSTOR service is appealing to
libraries because it competes effectively with a
service libraries already pay for – namely the
provision of timely access to back issues of journals
held by the library. In the case of OnDisC there
is no current comparable service that libraries
subscribe to; OnDisC will have to compete in the
arena of electronic collection development and it’s
pricing should reflect the nature of that marketplace.
The major Learning Resource Gateways (LRGs), such
as GEM, SchoolNet, and SMETE were all created and
initially maintained by outside funding from government
departments or non-profit non governmental agencies.
Membership in GEM is free, but their website implies
that this may not be a permanent privilege and membership
fees may be charged in subsequent years. The GEM
database includes pointers to non-free materials
so charging a listing or referral fee could be a
source of revenue for them. Both SchoolNet and SMETE
have government and corporate sponsors who contribute
resources be they people, in-kind services or financial.
Although all of the LRGs acknowledge that plans
for long-term sustainability are necessary, there
is no indication that they are considering a revenue
model that would charge end users, either individuals
or institutions for access to the network. On the
other hand, SMETE does include an end user charging
scheme in its list of hypothetical funding models
based which would take the form of an annual membership
fee, or charging for access to different degrees
of service.
One thing that all of the LRGs have in common is
that they include access to “public” goods which
are non-depletable and non-excludable. Once a digital
“good” is produced there is no marginal cost
for providing another copy of it for an additional
user, and it can be given away at no cost. Paying
for the first copy of a public good requires an
asymmetrical pricing scheme in which the cost paid
by the user takes the form of a formal or informal
economic tax. In the case of a person viewing a
television program, he or she pays a marginal surcharge
when an advertised good is purchased. Hallgren and
McAdams[5] discuss the application of a public good
business model that was used by Cornell University
during the development of GateDaemon, a key enabling
software product for the growth of the Internet.
Cornell created a consortium of organizations that
valued the development of GateD and were willing
to contribute the economic "taxes" to
fund it. The venture has proven to be successful,
and has vast spillover benefits invaluable to the
growth of the Internet and the subsequent Internet
"economy". Public Learning Object Repositories,
such as MERLOT appear to be following a similar
kind of asymmetrical revenue/funding model.
Commercial Learning Object organizations, such as
Netg, SmartForce and LeadingWay sell their learning
resources as private goods and therefore make them
excludable (although their digital nature makes
them non-depletable). Their use of Learning Objects
in a private aggregation is to improve their internal
efficiency at developing new "large-grained"
learning content. Given their role as large grained
content creators, OnDisC may be able to act as a
supplier to them of finer grained content that they
could use in building up their learning objects.
The pros and cons of various revenue models discussed
in the previous section reveal which may be suitable
for an organization such as OnDisC. Since OnDisC
will have elements of both a public and private
distributor of digital content it may be necessary
to consider having multiple sources of revenue which
are suitable for each type of business. For example,
since OnDisC will be a provider of much content
that is not-for-profit and copyright free, a revenue
model similar to that of a "public"goods
institution is appropriate. In such a model, funds
for digitizing, cataloguing, and distributing content
will come from sponsorships from a variety of sources
such as government, academia and business. An important
advantage of this kind of revenue model is that
it will provide dependable support during the initial
start up phase of the service.
Since OnDisC will also be a distributor of "private"
copyrighted material there could be a separate business
model that covers the unique aspects of the relationships
between OnDisC and the providers of the content.
In such a circumstance OnDisC may use a revenue
model that is similar to that used by AEShareNet,
in which OnDisC receives compensation from the vendors
of content in lieu of the value added provided by
OnDisC to that content, such as marketing, meta-tagging,
rights management etc. Revenue from the "public"
stream of the operation will have to be distributed
amongst both the public and private content providers
but probably a greater amount should be directed
towards the not-for-profit providers. It should
be expected that the private, for-profit content
providers bear the cost of digitizing their content
themselves, if they expect to be able to benefit
from additional future revenue from such material.
OnDisC may also need to consider different revenue
models for different kinds of markets, such as higher
education academic, K-12 and professional education
content developers. For example faculty
at a university may be charged less by OnDisC for
copy-righted material that is developed for limited
use within a single institution than if the same
material was to be used by a education content developer
that is planning on using the content in a product
that will be offered for sale nationally. This is
the case with AEShareNet, which uses two different
kinds of contracts for matching sellers and buyers.
They use three standard contracts for easy and quick
sales agreements and a second kind of open-ended
contract that allows the two parties to negotiate
terms. AEShareNet receives a revenue premium for
mediating the latter kind of contract. Similarly,
OnDisC may have a separate kind of contract for
institutions in the K-12 market segment that reflects
the different nature of use and available funds
that they will have compared with a higher education
academic market.
It should be noted that OnDisC will offer
access to a collection of digital content that may
or may not be used by customers. Regardless of actual
usage, the "potential" use of the collection
is in itself a commodity of value and this should
be reflected in the revenue model that OnDisC employs.
Finally, it should also be noted that
in a broad sense OnDisC will have to compete with
the free, co-operative Learning Object Repositories
such as MERLOT and with the commercial suppliers
of online educational content. In the case of competing
with free content, OnDisC may successfully compete
on the basis of the added values of scope of content
and convenience, namely ease of location and use
which includes minimal digital rights negotiation).
In the case of commercial educational suppliers,
OnDisC can compete by offering academic content
developers the means to build their own custom designed
Learning Objects and subsequent lessons, units and
courses at significant cost savings.
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