ELECTRONIC PUBLISHING: EMPIRICAL STUDIES
Convenience is a key word in the library lexicon. As service organizations, libraries give high priority to enhancing the convenience of their operations. Readers themselves regularly use the word to describe what they value. By contrast, when NEXIS-LEXIS describes itself as a sponsor of public radio, it emphasizes not convenience but productivity for professionals. Does NEXIS-LEXIS know something that we are missing?
I think so. Talk about productivity is unambiguously grounded in the discourse of economics, whereas talk about convenience rarely is. Quite notably, The Andrew W. Mellon Foundation has self-consciously insisted that its programs in scholarly communication operate within the realm of economics. Foundation president William G. Bowen explains this focus, in speaking of the Foundation's JSTOR project, by observing that "when new technologies evolve, they offer benefits that can be enjoyed either in the form of more output (including opportunities for scholars to do new things or to do existing tasks better) or in the form of cost savings.... In universities electronic technologies have almost always led to greater output and rarely to reduced costs.... This proclivity for enjoying the fruits of technological change mainly in the form of 'more and better' cannot persist. Technological gains must generate at least some cost savings." In its JSTOR project and the other scholarly communication projects it supports, the Foundation calls for attention "to economic realities and to the cost-effectiveness" of different ways of meeting reader needs. The Foundation wishes to promote change that will endure because the changes embody "more effective and less costly ways of doing [the] business" of both libraries and publishers.
ã 1999 by Scott Bennett. Readers of this article may copy it without the copyright owner's permission if the author and publisher are acknowledged in the copy and the copy is used for educational, not-for-profit purposes.
Productivity is the underlying measure of such effectiveness, so I want briefly to recall what economists mean by the word and to reflect on the problematic application of productivity measures to higher education. I will then describe a modest project recently undertaken to support one of the most famous of Yale's undergraduate courses. I will conclude with some observations about why the productivity of libraries and of higher education must command our attention.
Productivity is one of the most basic measures of economic activity. Comparative productivity figures are used to judge the degree to which resources are efficiently used, standards of living are changed, and wealth is created. Productivity is the ratio of what is produced to the resources required to produce it, or the ratio of economic outputs to economic inputs:
Productivity = Outputs/Inputs
Outputs can be any goods, services, or financial outcomes; inputs are the labor, services, materials, and capital costs incurred in creating the output. If outputs increase faster than inputs, productivity increases. Conversely, if inputs increase faster than outputs, productivity falls. Technological innovation has historically been one of the chief engines of productivity gain.
Useful indicators of productivity require that both inputs and outputs be clearly defined and measured with little ambiguity. Moreover, the process for turning inputs into outputs must be clearly understood. And those processes must be susceptible to management if productivity increases are to be secured. Finally, meaningful quality changes in outputs need to be conceptually neutralized in measuring changes in productivity.
One need only list these conditions for measuring and managing productivity to understand how problematic they are as applied to higher education. To be sure, some of the least meaningful outputs of higher education can be measured, such as the number of credit hours taught or degrees granted. But the outputs that actively prompt people to pursue education-enhanced knowledge, aesthetic cultivation, leadership ability, economic advantage, and the like-are decidedly difficult to measure. And while we know a great deal about effective teaching, the best of classroom inputs remains more an art in the hands of master teachers than a process readily duplicated from person to person. Not surprisingly, we commonly believe that few teaching practices can be consciously managed to increase productivity and are deeply suspicious of calls to do so.
Outside the classroom and seminar, ideas of productivity have greater acceptance. Productive research programs are a condition of promotion and tenure at research universities; and while scholars express uneasiness about counting research productivity, it certainly happens. The ability to generate research dollars and the number of articles and books written undeniably count, along with the in-
tellectual merit of the work. There is little dispute that many other higher education activities are appropriately judged by productivity standards. Some support services, such as the financial management of endowment resources, are subject to systematic and intense productivity analysis. Other academic support activities, including the provision of library services, are expected to be efficient and productive, even where few actual measures of their productivity are taken.
In many cases, discussion of productivity in higher education touches highly sensitive nerves. Faculty, for instance, commonly complain that administration is bloated and unproductive. Concern for the productivity of higher education informs a significant range of the community's journalistic writing and its scholarship. This sensitivity reflects both the truly problematic application of productivity measures to much that happens in education and the tension between concerns about productivity and quality. But it also reflects the fact that we are "unable and, on many campuses, unwilling to answer the hard questions about student learning and educational costs" that a mature teaching enterprise is inescapably responsible for answering.
The Scully Project
A modest digital project undertaken in 1996 at Yale offers an opportunity to explore productivity matters. The project aimed at improving the quality of library support and of student learning in one of the most heavily enrolled undergraduate courses at Yale. We wished to do the project as cost-effectively as possible, but initially we gave no other thought to productivity matters. To echo Bowen's words, we wanted to take the fruits of digital technology in the form of more output, as "more and better." But the project provided an opportunity to explore possibilities for cost savings, for reduced inputs. The project, in spite of its modest objectives and scale (or perhaps exactly for those reasons!), became an instructive "natural experiment" in scholarly communication very much like those supported by the Mellon Foundation.
For decades, now Emeritus Professor Vincent Scully has been teaching his renowned Introduction to the History of Art, from Prehistory to the Renaissance. The course commonly enrolls 500 students, or about 10% of the entire undergraduate student body at Yale. Working with Professor Mary E. Miller, head of the History of Art department, and with Elizabeth Owen and Brian Allen, head Teaching Fellows with substantial experience in Professor Scully's course, Max Marmor, the head of Yale's Arts Library, and his colleague Christine de Vallet undertook to provide improved library support for this course. Their Scully Project was part of a joint program between the University Library and Information Technology Services at Yale designed to offer targeted support to faculty as they employ digital technologies for teaching, research, and administration. The Scully Project was also our first effort to demonstrate what it could mean to move from film-based to digital-based systems to support teaching in art history.
The digital material created for Professor Scully's students included:
• An extensive and detailed course syllabus, including general information about the course and requirements for completing it.
• A schedule of section meetings and a roster of the 25 Teaching Fellows who help conduct the course, complete with their e-mail addresses.
• A list of the four required texts and the six journal articles provided in a course pack.
• A comprehensive list of the works of art discussed in the course, along with detailed information about the artists, dates of creation, media and size, and references to texts that discuss the works.
Useful as this textual material is, it would not meet the course's key information need for images. The Scully Project therefore includes 1,250 images of sculptures, paintings, buildings, vases, and other objects. These images are presented in a Web image browser that is both handsome and easily used and contains a written guide advising students on study strategies to make the best use of the Web site.
How did the Scully project change student learning? To answer that question, I must first describe how the library used to meet the course's need for study images. The library traditionally selected mounted photographs closely related to, but not necessarily identical to, the images used in Professor Scully's lectures. We hung the photographs in about 480 square feet of study gallery space in the History of Art department. Approximately 200 photographs were available to students for four weeks before the midterm exam and 400 photographs for four weeks before the final exam. In those exams, students are asked to identify images and to comment on them. With 500 students enrolled and with the photos available in a relatively small space for just over half of the semester, the result was extreme crowding of students primarily engaged in visual memorization. To deal with the obvious imperfections of this arrangement, some of Professor Scully's more entrepreneurial students made videotapes of the mounted photos and sold them for study in the residential colleges. Less resourceful students simply stole the photos from the walls.
The Scully Project employed information technology to do more and better.
• Students can study the slide images that Professor Scully actually uses in class rather than frequently different photographs, often in black-and-white and sometimes carrying outdated identifying labels.
• The 1,250 digital images on the Web site include not only those that Professor Scully uses in class, but also other views of the same object and still other images that the Teaching Fellows refer to in discussion sessions. Students now have easy access to three times the number of images they could see in the study gallery space. For instance, where before students viewed one picture of Stonehenge, they now can view eight, including a diagram of the site and drawings showing construction methods and details.
• Digital images are available for study throughout the semester, not just before term exams. They are also available at all hours of day and night, consistent with student study habits.
• The digital images are available as a Web site anywhere there is a networked computer at Yale. This includes the residential colleges, where probably three-fourths of undergraduates have their own computers, as well as computing clusters at various locations on campus.
• The images are usually of much better quality than the photographs mounted on the wall; they read to the screen quickly in three different magnifications; and they are particularly effective on 17" and larger monitors.
• The digital images cannot be stolen or defaced. They are always available in exactly the form intended by Professor Scully and his Teaching Fellows.
Student comments on the Scully Project emphasized the convenience of the Web site. Comments like "convenient, comfortable, detailed all at the push of a button," and "fantastic for studying for exams" were common, as were grateful comments on the 24-hour-a-day availability of the images and the need not to fight for viewing space in the study gallery. One student told us, "it was wonderful. It made my life so much easier." Another student said, "it was very, very convenient to have the images available on-line. That way I could study in my own room in small chunks of time instead of having to go to the photo study. I mainly just used the Web site to memorize the pictures like a photo study in my room."
Visual memory training is a key element in the study of art history, and the Scully Web site was used primarily for memorization. Reports from Teaching Fellows on whether the digital images enhanced student learning varied, and only two of the Fellows had taught the course before and could make comparisons between the photo study space and the Web site. The following statements represent the range of opinion:
• Students "did think it was 'cool' to have a web site but [I] can't say they wrote better or learned more due to it."
• "I don't think they learned more, but I do think it [the Web site] helped them learn more easily."
• The head Teaching Fellow for the course reported that student test performance on visual recognition was "greatly enhanced" over her previous experience in the course. Another Teaching Fellow reported that students grasped the course content much earlier in the semester because of the earlier availability of the Web site images.
• One Teaching Fellow expressed an unqualified view that students learned more, wrote better papers, participated in class more effectively, and enjoyed the course more because of the Scully Project.
• Another Teaching Fellow commented, I "wish we had such a thing in my survey days!"
The Web site apparently contributed significantly to at least one key part of Professor Scully's course-that part concerned with visual memory training. We accomplished this improvement at reasonable cost. The initial creation of digital images cost about $2.25 an image, while the total cash outlay for creating the Web site was $10,500. We did not track computing costs or the time spent on the project by permanent university staff, but including these costs might well drive the total to about $17,200 and the per image cost to around $14. Using this higher cost figure, one might say we invested $34 for every student enrolled in the course, or $11 per student if one assumes that the database remains useful for six years and the course is offered every other year.
This glow of good feeling about reasonable costs, quality products, improved learning, and convenience for readers is often as much as one has to guide decisions on investing in information technology. Last year, however, Yale Professor of Cardiology Carl Jaffe took me up short by describing a criterion by which he judges his noteworthy work in instructional media. For Professor Jaffe, improved products must help solve the cost problem of good education. One must therefore ask whether the Scully Project passes not only the test of educational utility and convenience set by Professor Scully's Teaching Fellows, but also the productivity test set by Professor Jaffe. Does the Scully Project help solve cost problems in higher education? Does it allow us to use university resources more productively?
Achieving Information-Based Productivity Gains
For more than a generation, libraries have been notably successful in improving the productivity of their own operations with digital technology. It is inconceivable that existing staffing levels could handle today's circulation workload if we were using McBee punch cards or-worse yet-typewriter-written circulation cards kept in book pockets and marked with date stamps attached to the tops of pencils. While libraries have an admirable record of deploying information technology to increase the productivity of their own operations, and while there is more of this to be done, the most important productivity gains in the future will lie elsewhere. The emergence of massive amounts of textual, numeric, spatial, and image information in digital formats, and the delivery of that information through networks, is decisively shifting the question to one of teacher and reader productivity.
What does the Scully Project tell us about library, teacher, and reader productivity? To answer that question, I will comment first on a set of operational issues that includes the use of library staff and Teaching Fellows to select and prepare images for class use; the preservation of the images over time; and the use of space. I will assess the Scully Project both as it was actually deployed, with little impact on the conduct of classroom instruction, and as one might imagine it being deployed, as the primary source of images in the classroom. The operations I will
describe are more or less under the university's administrative control, and savings achieved in any of them can at least theoretically be pushed to the bottom line or redirected elsewhere. I will also comment on student productivity. This is a much more problematic topic because we can barely imagine controlling or redirecting for productivity purposes any gains readers might achieve.
Productivity Gains Subject to Administrative Control
The comparative costs of selecting images and preparing them for instructional use in both the photographic and digital environments are set out in the four tables that follow. These tables are built from a cost model of more than three dozen facts, estimates, and assumptions about Professor Scully's course and the library support it requires. The appendix presents the model, with some information obscured to protect confidentiality. I do not explain the details of the cost model here but focus instead on what it tells us. One cautionary word is in order. The cost model generates the numbers given in the tables (rounded to the nearest dollar, producing minor summing errors), but these numbers are probably meaningful only to the nearest $500. In the discussion that follows, I round the numbers accordingly.
Table 4.1 compares the cost of library support for Professor Scully's course in its former dependence on photos exhibited in the study gallery and in its present dependence on digital images delivered in a Web site.
Before the Scully Project, the university incurred about $7,000 in academic support costs for Professor Scully's course in the year it was taught. These costs over a six-year period, during which the course would be taught three times, are estimated at $22,000. As deployed in the fall of 1996, Web-site support for Professor Scully's course cost an estimated $21,000, or $34,000 over a six-year period. The result is a $12,500 balance arguing against digital provision of images in Professor Scully's course, or a 36% productivity loss in the use of university resources. However, a longer amortization period clearly works in favor of digital provision. The cost model suggests that the break-even point on the productive use of university resources comes in about 16 rather than 6 years. This gradual improvement happens for the following reasons:
• The higher absolute cost of the digital images results from one-time staff and vendor cost of converting analog images to digital format. While there is some incremental growth in these costs over six years, staff costs for providing analog images grows linearly. The long-term structure of these costs favors digital provision.
• The cost of the "real" space of bricks and mortar needed to house the photo collection is substantial and grows every year. Similarly, the operation and maintenance of physical space carries the relative high increases of costs for staff and energy. By contrast, the "virtual" space of digital media is relatively inexpensive to begin with, and its unit cost is falling rapidly. Again, the longterm structure of costs favors digital provision.
Along with the amortization period, the number of images digitized is another major variable that can be used to lower the total cost of digital provision and so move toward a productive use of resources. For years, it has been possible to mount no more than 400 photos in the study gallery. As Table 4.2 shows, if the Scully Web site had contained 400 digital images rather than 1,250 images, conversion costs
(italicized to isolate the changes from Table 4.1) would drop significantly, and the six-year cost of digital provision ($20,500) would be just under the cost of analog provision ($22,000). There is a 6% productivity gain over six years favoring digital provision.
The choice between 400 and 1,250 images has a dramatic impact on costs and productivity. That being so, one must ask what motivates the choice and what impact it has on student learning. Further consideration of this "what if" case is best deferred to the discussion of student productivity.
Speculation about another "what if" case is worthwhile. Professor Scully and his Teaching Fellows made no use of the Web site in the lecture hall or discussion sessions. What if they had been able to depend on the Web site instead of traditional slides for their face-to-face teaching? There is of course a warm debate on whether digital images can match film images in quality or ease of classroom use. The question posed here speculatively assumes no technological reason to favor either analog or digital media and focuses solely on what happens to costs when classroom teaching is factored in.
Two changes are identified (in italics) in Table 4.3. They are (I) the cost savings when Teaching Fellows no longer need to assemble slides for the three classroom discussion sessions that each conducts during the term and (2) the added cost of equipping a classroom for digital instruction.
This "what if" modeling of the Scully Project shows an $11,000 negative balance, or a 34% loss in productivity. While digital provision in this scenario is not productive within six years, the significant comparison is with the 36% loss in productivity without using digital images in the classroom (Table 4.1). The conclusion is that substituting digital technology for the labor of selecting slides is itself productive and moves the overall results of digital provision modestly toward a productive use of university resources. This conclusion is strongly reinforced if one considers a variant "what if" condition in which the Teaching Fellows teach not just 3 of these discussion sessions in a classroom but all 14 of them, and in which each Fellow selects his or her own slides instead of depending in considerable measure on slides selected by the head Teaching Fellow. This scenario is modeled in Table 4.4. As a comparison of Tables 4.3 and 4.4 indicates, the weekly cost of selecting slides in this new scenario increases 12-fold, while the use of the electronic classroom increases fivefold. That the classroom costs are absolutely the lower number to begin with also helps drive this scenario to the highly favorable result of a 44% increase in productivity.
It is important to emphasize that these scenarios all assume that funds for Teaching Fellows are fungible in the same way that the library's operating and capital budgets are assumed to be fungible. Faculty and graduate students are most unlikely to make that assumption. Graduate education is one of the core products of a research university. The funds that support it will not be traded about in the way one imagines trades between the operating and capital funds being made for a unit, like the library, that supports education but does not constitute its core product.
Productivity Gains Subject to Reader Control
Having accounted for the costs and potential productivity gains that are substantially under the university's administrative control, I will look briefly at potential productivity gains that lie beyond such control-the productivity of readers. In doing this we must consider the value of the qualitative differences between film and digital technologies for supporting Professor Scully's course. The availability of the images throughout the semester at all times of day and night, rather than just before exams, and the large increase in the number of images available for study constitute improvements in quality that make any discussion of increased productivity difficult-but interesting and important as well.
Students were enthusiastic about the convenience of the Web site. They could examine the images more closely, without competing for limited viewing space, at any time they wished. Without question this availability made their study time more efficient and possibly-though the evidence is inconclusive-more effective.
Let us focus first on the possibility that, as one of the Teaching Fellows observed, students learned more easily but did not learn more. Let us imagine, arbitrarily, that on average students were able to spend two hours less on memory training over the course of the semester because of easy and effective access to digital images. What is the value of this productivity gain for each of Professor Scully's 500 students? It would probably be possible to develop a dollar value for it, related to the direct cost and the short-term opportunity cost of attending Yale. Otherwise, there is no obvious way to answer the question, because each student will appropriately treat the time as a trivial consideration and use it with no regard for the resources needed to provide it. Whether the time is used for having coffee with friends, for sleeping, for volunteer community work, for additional study and a better term paper, or in some other way, the student alone will decide about the productive use of this time. And because there is no administrative means to cumulate the time saved or bring the student's increased productivity to bear on the creation of the information systems that enable the increase, there is no way to use the values created for the student in the calculation of how productive it was to spend library resources on creating the Scully Project.
The possibility that students would use the time they gain to prepare better for tests or to write a better paper raises the issue of quality improvements. How are we to think about the possibility that the teaching and learning that libraries support with digital information might become not only more efficient and productive, but also just better? What are the measures of better, and how were better educational results actually achieved? Was it, for instance, better to have 1,250 images for study rather than 400? The head Teaching Fellow answered with an unequivocal yes, affirming that she saw richer, more thoughtful comparisons
among objects being made in student papers. But some student responses suggested they wanted to have on the Web site only those images they were directly responsible for memorizing-many fewer than 1,250. Do more images create new burdens or new opportunities for learning? Which objectives and what standards should guide decisions about enhancing instructional support? In the absence of some economically viable way to support additional costs, how does one decide on quality enhancements?
Such questions about quality traditionally mark the boundary of productivity studies. Considerations of quality drive us to acknowledge that, for education, we generally do not have the two essential features needed to measure productivity: clear measures of outputs and a well-understood production technology that allows one to convert inputs into outputs. In such an environment, we have generally avoided talking about productivity for fear that doing so would distort goals-as when competency-based evaluation produces students who only take tests well. Moreover, the rhetoric of productivity can undermine socially rather than empirically validated beliefs among students, parents, and the public about how higher education achieves its purposes. All institutions of higher education depend fundamentally on the maintenance of such socially validated beliefs.
So I end this account of the Scully Project by observing that what we actually did was not productive, but could be made so by extending the amortization period for the project or by reducing the number of images provided to students. It also appears that the project made study much more convenient for students and may well have enhanced their learning. Such quality improvement, even without measurable productivity gain, is one of the fundamental objectives of the library.
These are conditionally positive findings about the economic productivity and educational value of a shift from photographs to digital images to support instruction in the history of art. Such findings should be tested in other courses and, if confirmed, should guide further investment in digital imaging. The soft finding that the use of digital images in the classroom may be productive is heartening, given that digital images may support improvements in the quality of teaching by simplifying the probing of image details and by enabling much more spontaneity in classroom instruction.
All of my arguments about the Scully Project posit that new investment in digital technology would be supported by reduced spending elsewhere. However, such reductions would be difficult, forcing us to regard capital and operating budgets-especially the funds that support both "real" and "virtual" space-as fungible. Other possible cost shifts involve even more fundamental difficulties. It is, for instance, a degree requirement at Yale that graduate students in the History of Art participate in undergraduate instruction. Teaching discussion sections in Professor Scully's course are often the first opportunity graduate students take for meeting this academic requirement. For this reason and others, none of the shifts imagined
in the scenarios described above would be easily achieved, and some would challenge us to revisit strongly embedded administrative practices and academic values. Funds rarely flow across such organizational boundaries. Failing to make at least some of these shifts would, however, imperil our ability to improve the quality and productivity of higher education.
Productivity as an Urgent Concern of Higher Education
For a long time, higher education has behaved as if compelling opportunities for improving student learning should be pursued without much attention to productivity issues. Our community has focused on desirable results, on the outputs of the productivity formula, without disciplined attention to the inputs part of the equation. One result has been that expenditures per student at public universities in the United States grew between 1979 and 1989 at an average annual rate of 1.82% above inflation. The annual growth rate for private universities was a much higher 3.36%.
It is hard to believe that such patterns of cost increase can be sustained much longer or that we can continue simply to increase the price of higher education as the principal means for improving it and especially for meeting apparently insatiable demands for information technology. We must seriously engage with issues of productivity. Otherwise, there will be little to determine the pace of technology innovation except the squeaky wheel of student or faculty demand or, less commonly, an institutional vision for technology-enhanced education. In neither case is there economically cogent guidance for the right level of investment in information technology. We are left to invest as much as we can, with nothing but socially validated political and educational ideas about what the phrase "as much as we can" actually means. Because we so rarely close the economic loop between the productivity value we create for users and our investment in technology, the language for decision making almost never reaches beyond that of improving convenience and enhancing quality. I believe it is vitally important for managers of information technology to understand the fundamental economic disconnect in the language of convenience and service we primarily use and to add the language of productivity to our deliberations about investing in information technology.
In connecting productivity gains with technology investment, we may find-as analysis of the Scully Project suggests-that some improvements can be justified while others cannot. Productivity measures should not be the sole guide to investment in information technology. But by insisting on securing productivity gains where we can, we will at least identify appropriate if sometimes only partial sources for funding new investments and thereby lower the rate at which overall costs rise in higher education above those in the rest of the economy.
The stakes for higher education in acting on the productivity problems con-
fronting it are immense. Today, it is regularly asserted that administrative activities are wasteful and should be made more productive. But turning to core academic activities, especially teaching, we feel that no productivity gains can be made without compromising quality. Teaching is rather like playing in a string quartet. A string quartet required four musicians in Mozart's day, and it still does. To talk about making the performance of a string quartet more productive is to talk patent nonsense. To talk about making classroom teaching more productive seems to many almost as objectionable. The observable result is that higher education has had to live off the productivity gains of other sectors of the economy. The extreme pressure on all of higher education's income sources suggests that we are coming to the end of the time when people are willing uncritically to transfer wealth to higher education. Socially validated beliefs about the effectiveness of higher education are in serious jeopardy. If our community continues to stare blindly at these facts, if we refuse to engage seriously with productivity issues on an institutional and community-wide basis, we will bring disaster upon the enterprise of teaching and learning to which we have devoted our professional lives.
If this seems alarmist, consider the work of 10 governors in the western United States intent on creating a high-tech, virtual university, the Western Governors' University. Faced with growing populations and burgeoning demand for higher education, but strong taxpayer resistance to meeting that demand through the traditional cost structures of higher education, state officials are determined to create a much more productive regional system of higher education. That productivity is the key issue is evident in the statement of Alvin Meiklejohn, the chairman of the State Senate Education Committee in Colorado. "Many students in Colorado," he said, "are now taking six years to get an A.B. degree. If we could reduce that by just one year ... it would reduce the cost to the student by one-sixth and also free up some seats in the classrooms for the tidal wave we see coming our way."
Senator Meiklejohn is looking for a 17% increase in productivity. I think library and information technology managers know where some of that gain may be found. If, however, we scoff at the idea of increasing student productivity through the use of information technologies, if we insist that the job of measuring and redirecting the productivity gains we create with information technology is impossible, if we trap ourselves in the language of convenience and fail to engage with issues of productivity, then the consequences-at least in the West-are clear. Major new investment in higher education will be directed not to established institutions but to new organizations that can meet the productivity standards insisted on by Senator Meiklejohn and the taxpayers he represents.
A second and larger groundswell in American life is also instructive on the question of productivity. Health care reform and managed care are both driven by the idea that the high cost and poor delivery of health care must change, that
costs must be controlled-that health care services must become much more productive. Arguments about the incompatibility of higher productivity and the maintenance of quality care resonate strongly with parallel arguments about the impossibility of making higher education more productive without compromising quality. What makes the health care debate so instructive is that we already know which side will prevail. Everywhere we turn, medical institutions and the practitioners who lead them are scrambling to find ways to survive within a managed care environment. Survival means the preservation of quality care, to be sure, but the ineluctable reality is that quality will now be defined within terms set by managed care. We are beginning to find ways to talk about increased productivity and quality as complementary rather than as antithetical ideas.
Given the current state of public opinion about higher education, it is impossible for me to believe we will not soon follow health care. We will almost certainly find ourselves embroiled in divisive, rancorous debates about higher education reform. I hope we will avail ourselves in these debates of a language about information technology that continues to embrace ideas of convenience but reaches strongly beyond them. We will need to talk meaningfully about productivity and link our ability to create productivity gains with investment in information technology. And I hope we will follow the medical community in working to make productivity and quality regularly cognate rather than always antagonistic ideas.
For the past 150 years or so, libraries have been the guardians in the Western world of socially equitable access to information. Libraries have become public institutions instead of institutions serving powerful elites, as they once were. This is a noble heritage and a worthy ongoing mission for our profession. And information technology will play a key role in advancing it. As Richard Lanham argues in a landmark essay, "if our business is general literacy, as some of us think, then electronic instructional systems offer the only hope for the radically leveraged mass instruction the problems of general literacy pose." But unless information technologies are employed productively, they will not offer the leverage on information access and literacy for which Lanham and others of us hope. Indeed, unless those who manage libraries and other instruments of scholarly discourse are prepared to embrace the language of productivity, we will find our ability to provide socially equitable access to information weakened as decisions are made about where investments for democratic education will be directed. I look at managed health care and the Western Governors' University and fear that traditional universities and their libraries will lose ground, not because we have failed to embrace information technology, but because we have failed to embrace it productively. I fear that outcome most because it imperils the wonderful accomplishment of libraries and because it could significantly weaken the public good that free libraries have been creating for the past 150 years.
Cost Model for the Scully Project
The cost model uses the following facts, estimates, and assumptions:
Introduction to the History of Art, 112a
-Course offered once every two years; three times in six years
-Number of students enrolled in Scully course = 500/term
-Number of weeks Scully photos available in study space = 9 weeks per term
-Length of term = 14 weeks
-Number of Teaching Fellows for Scully course = 25
-Approximate value/hour of Teaching Fellow time = $20
-Hourly wage for library student staff = $6.46
Staff costs for selection, maintenance, and display of slide and photo images
-1 FTE permanent staff devoted to photo collection = $xx,xxx for salary and benefits
-% of permanent library staff effort devoted to Scully course = x%
-Library student staff devoted to photo collection = 40% of $11,500 = $4,600 at $6.46/hr = 712hrs
-Library student staff devoted to exhibiting Scully photos = 48 hrs/year
-Time spent by Teaching Fellows assembling photo study = 3.5 hr/wk ³ 14 wks = 49 hrs
-Time spent by Teaching Fellows assembling slides for review classes = 56 hrs
Cost to prepare digital images for instructional use
-Number of images in Scully Project = 1,250
-Digitization of images (outsourced) = $2,800
-Change in Scully Project Web site content over 6 years = 20%
-Selection and creation of images (by 2 Teaching Fellows) = $6,200
-Web site design = $1,500
Preservation and access costs for slide, photo, and digital images
-Library student staff hours spent on mending and maintenance of photos = 7 hrs/year
-Disk space required for Scully Project = .855 GB
-Disk space required per volume for Project Open Book = .015 GB
-Scully Project images = 57 Open Book vols
-Digital Storage costs = $2.58/year/Open Book vol
-Digital access costs = $5.67/year/Open Book vol
-Storage and access cost inflation = -13%/year
Study and other space costs
-Number of items in photo collection = 182,432
-Number of Scully photos mounted in study space = 200 for midterm; 400 for final
-NSF of photo collection in Street Hall = 1,733
-NSF collection shelving for Scully photos = 400/182,432 ³ (1,733 - 500) = 2.7
-NSF of photo study space = 2,019 + .25 ³ 1500 = 2,394
-% of photo study space devoted to Scully photos per term = 20%
-NSF of photo study space available for Scully photos = 2,394 ³ .2 ³ (9/28) = 154
-NSF of photo study space utilized during term = 154 ³ 75% = 116
-Annual cost of space maintenance = $7 NSF
-Cost of new construction = $300 NSF
-Amortization of capital costs at 8% over 35 yrs = $85.81 per $1,000
-Capital cost of converting existing classroom for digital display = $50,000 depreciated over 6 years
-Maintenance of digital classroom hardware and software = 10% of capital cost/year = $5,000/year
-Availability of digital classroom = 8 class hours ³ 5 days/wk ³ 28 wks ³ .8 efficiency factor = 896 sessions/yr
-Need by Scully grad assistants for digital classroom sessions = 25 ³ 3 = 75 sessions/yr = 8.3% of available sessions
-Annual cost of maintaining a network connection = $300
-% use of network connection for study of Scully Web site = 2%
Comparing Electronic Journals to Print Journals
Are There Savings?
Janet H. Fisher
Three years ago the rhetoric of academics and librarians alike urged publishers to get on with it-to move their publications from print to electronic formats. The relentless pressure on library budgets from annual increases of 10 to 20% in serials prices made many academics and librarians look to electronic publication as the savior that would allow librarians to retain their role in the scholarly communication chain. Academics and university administrators were urged to start their own publications and take back ownership of their own research. The future role of the publisher was questioned: What did they do after all? Since so many scholars were now creating their own works on computer, why couldn't they just put them up on the Net? Who needs proofreading, copyediting, and design anymore? And since technology has made it possible for everyone to become a publisher, surely electronic publication would be cheaper than print.
Quite a few experiments in the last three years have tried to answer some of the questions posed by the emergence of the Internet, but few have yielded hard numbers to date. Most experiments have been focused on developing electronic versions of print products. MIT Press took a piece of the puzzle that we saw as important in the long run and within the capabilities of a university-based journal publisher with space and staff constraints. Many of our authors had been using e-mail, mailing lists, discussion groups, and so on, for 10 years or more, and we wanted to be visible on the Internet early.
We decided it was easier, cheaper, and less of a financial risk to try publishing a purely electronic journal rather than reengineering our production and delivery process for our print journals when we had so little feedback about what authors and customers really wanted. Starting with Chicago Journal of Theoretical Computer Science (CJTCS), which was announced in late 1994 and which began publication in June of 1995, we began publishing our first purely electronic journals. CJTCS, as well as Journal of Functional and Logic Programming (JFLP) and Journal of Contem-
porary Neurology (JCN), are published article-by-article. We ask subscribers to pay an annual subscription fee, but we have not yet installed elaborate mechanisms to ensure that only those who pay have access to the full text. Studies in Nonlinear Dynamics and Econometrics (SNDE), begun in 1996, is published quarterly in issues with the full text password protected. Another issue-based electronic journal-Videre: Journal of Computer Vision Research -began publishing in the fall of 1997. You can view these publications at our Web site (http://mitpress.mit.edu/ ).
The lack of one format for all material available in electronic format has been a problem for these electronic journals and our production staff. The publication format varies from journal to journal based on several criteria:
• the format most often received from authors
• the content of the material (particularly math, tables, special characters)
• the cost to implement
• the availability of appropriate browser technology
CJTCS and JFLP are published in LaTeX and PostScript in addition to PDF (Adobe's Portable Document Format), which was added in 1997. JCN is published in PDF and HTML (Hypertext Markup Language, the language of the World Wide Web) because the PostScript files were too large to be practical. SNDE is published in PostScript and PDF. Videre is published in PDF.
Here I will present our preliminary results on the costs of electronic-only journals and compare them to the costs of traditional print journals. I will use Chicago Journal of Theoretical Computer Science as the model but will include relevant information from our experience with our other electronic journals.
Background on the Project
CJTCS was announced in fall of 1994 and began publication in June of 1995. Material is forwarded to us from the journal editor once the review process and revisions have been completed. Four articles were published from June through December of 1995, and six articles were published in 1996. The Web site is hosted at the University of Chicago, with entry from the MIT Press Web site. The production process includes the following steps:
1. manuscript is copyedited
2. copyedited manuscript is returned to author
3. author's response goes back to copyeditor
4. final copyedited article goes to "typesetter"
5. typesetter enters edits/tagging/formatting
6. article is proofread
7. author sees formatted version
8. typesetter makes final corrections
9. article is published (i.e., posted on the site)
Tagging and "typesetting" has been done by Michael J. O'Donnell, managing editor of CJTCS, who is a professor at University of Chicago.
The subscription price is $30 per year for individuals and $125 per year for institutions. When an article is published, subscribers receive an e-mail message announcing its publication. Included is the title, the author, the abstract, the location of the file, and the articles published to date in the volume. Articles are numbered sequentially in the volume (e.g., 1996-1, 1996-2). Individuals and institutions are allowed to use the content liberally, with permission to do the following:
• read articles directly from the official journal servers or from any other server that grants them access
• copy articles to their own file space for temporary use
• form a permanent archive of articles, which they may keep even after their subscription lapses
• display articles in the ways they find most convenient (on computer, printed on paper, converted to spoken form, etc.)
• apply agreeable typographical styles from any source to lay out and display articles
• apply any information retrieval, information processing, and browsing software from any source to aid their study of articles
• convert articles to other formats from the LaTeX and PostScript forms on the official servers
• share copies of articles with other subscribers
• share copies of articles with nonsubscribing collaborators as a direct part of their collaborative study or research
Library subscribers may also
• print individual articles and other items for inclusion in their periodical collection or for placing on reserve at the request of a faculty member
• place articles on their campus network for access by local users, or post article listings and notices on the network
• share print or electronic copy of articles with other libraries under standard interlibrary loan procedures
In February 1996, Michael O'Donnell installed a HyperNews feature to accompany each article, which allows readers to give feedback on articles. Forward pointers, which were planned to update the articles with appropriate citations to other material published later, have not yet been instituted.
Archiving arrangements were made with (1) the MIT Libraries, which is creating archival microfiche and archiving the PostScript form of the files; (2) MIT Information Systems, which is storing the LaTeX source on magnetic tape and refreshing it periodically; and (3) the Virginia Polytechnic Institute Scholarly Communications Project, which is mirroring the site (http://scholar.lib.vt.edu ).
Direct Costs of Publication
To date, CJTCS has published ten articles with a total of 244 pages. I have chosen to compare the direct costs we have incurred in publishing those 244 pages with the direct costs we incurred for a 244-page issue (Volume 8, Number 5, July 1996) of one of our print journals, Neural Computation (NC). NC has a print run of approximately 2,000 copies, and typesetting is done from LaTeX files supplied by the authors (as is the case for CJTCS) (Table 5.1). Several important differences in production processes affect these costs:
1. The number of articles published is different (10 in CJTCS, 12 in NC).
2. The copyeditor handles author queries for NC and bills us hourly. This contributed $100 to its copyediting bill.
3. Composition for CJTCS is done on a flat fee basis of $200 per article. Tagging and formatting has been done by Michael O'Donnell, the journal's managing editor at University of Chicago, because we were unable to find a traditional vendor willing to tag on the basis of content rather than format. The $200 figure was developed in conjunction with a LaTeX coding house that we planned to use initially but that was unable to meet the journal's schedule requirements. In comparison, the typesetting cost per article for NC is approximately $326, which includes a $58 per article charge for producing repro pages to send to the printer and a $21 per article charge for author alteration charges. These items are not included on the CJTCS composition bills.
For comparison, Table 5.2 shows the direct costs associated with three other electronic journals to date: Journal of Contemporary Neurology (JCN), Journal of Functional and Logic Programming (JFLP), and Studies in Nonlinear Dynamics and Econometrics (SNDE). JCN's cost per page is much higher than the other e-journals because the typesetter produces PDF and HTML formats and deals with complex images.
The issue-based electronic journal Studies in Nonlinear Dynamics and Econometrics (SNDE) is comparable in direct costs with a standard print journal, with the only difference being the lack of printing and binding costs. Table 5.3 is a comparison of the direct costs incurred for SNDE, Volume 1, Number 1, April 1996 (76 pages) and an 80-page issue (Volume 8, Number 4, Fall 1995) of one of our print journals, Computing Systems (COSY), that follows a similar production path.
Composition cost per page is comparable in these journals, but the total pro-
duction cost per page of SNDE is only 24% of that of COSY, which includes the printing and binding costs associated with a 6,000-copy print run.
The overhead costs associated with CJTCS and the comparable issue of NC vary greatly. Overhead for our print journals is allocated on the following basis:
• Production-charged to each journal based on the number of issues published
• Circulation-charged to each journal based on the number of subscribers, the number of issues published, whether the journal has staggered or nonstaggered renewals, and whether copies are sold to bookstores and news-stands
• Marketing/General and Administrative-divided evenly among all journals
For CJTCS, MIT Press incurs additional overhead costs associated with the Digital Projects Lab (DPL). These include the cost of staff, and the cost of hardware and software associated with the Press's World Wide Web server. These costs are allocated to each electronic publication on the following basis:
• Costs of hardware and software for the file server, network drops, staff time spent maintaining the server, and so on, are allocated to each e-journal based on the percentage of disk space that the journal files occupy as a function of all Web-related files on our server
• Amount of time per issue or article that DPL staff work on the journal is multiplied by the rate per hour of staff
Table 5.4 shows a comparison of overhead costs associated with CJTCS and the comparable issue of NC. CJTCS's production overhead is much higher than NC's because it is almost the same amount of work to traffic individual articles as it is an entire issue. Even though each batch of material was much smaller in terms of pages than an issue of NC would have been, it still required virtually the same tracking and oversight. Correspondingly, the general and administrative overhead from the journals division for CJTCS is dramatically higher than NC because of the small amount of content published in CJTCS. The overhead costs associated with publishing CJTCS for 11/2 years had to be allocated to only 244 pages published, whereas NC published 2,320 pages in the same period of time.
JCN takes additional time from our DPL staff because of the HTML coding and linking of illustrations, which adds an additional $7 per page to its costs. The total of direct and indirect costs per page for JCN is, therefore, in line with our print journals even though there is no printing and binding expense. SNDE incurs an additional $1,400 per issue in indirect costs for the staff, hardware, and software in the DPL.
The other side of the picture is whether the market reacts similarly to electroniconly products. Since this question is outside the scope of this paper, I will only generalize here from our experience to date. For the four electronic journals we have started, the average paid circulation to date is approximately 100, with 20 to 40 of those being institutional subscriptions. For the two print journals we started in 1996 (both in the social sciences), the average circulation at the end of their first volumes (1996) was 550, with an average of 475 individuals and 75 institutions.
There appears to be a substantial difference in the readiness of the market to accept electronic-only journals at this point as well as reluctance on the part of the author community to submit material. It is, therefore, more difficult for the publisher to reach break even with only one-fifth of the market willing to purchase, unless subscription prices are increased substantially. Doing this would likely dampen the paid subscriptions even more.
From the comparison between CJTCS and NC, it seems that the direct costs of publishing an electronic journal are substantially below that of a print journal with comparable pages. The overhead costs, however, are much higher-1,240% higher in this case-but that figure is adversely affected by the small amount of content published in CJTCS over the course of 18 months of overhead costs compared with NC which published 12 issues over the same period of time. The disparity in the markets for electronic products and print products is, at this point in time, a very big obstacle to their financial viability, as is also the conservatism of the author community.
Electronic Publishing in Academia
An Economic Perspective
The Library at Washington University reports 150,000 hits per year on its electronic, networked Encyclopedia Britannica at a cost to the library of $.04 per hit. This use rate seems to be an order of magnitude larger than the use rate of the print version of the document in the library. At the same time, the volunteer Project Gutenberg, whose goal was to build an electronic file of 10,000 classic, public domain texts on the Internet, has failed to sustain itself. The University of Illinois decided it could no longer afford to provide the electronic storage space and no other entity stepped forward to sustain the venture.
A first lesson here is that production values, the quality of indexing and presentation, the packaging and marketing of the work, matter. Those ventures that take the approach of unrestricted free access don't necessarily dominate ventures that collect revenues. When a shopper asks, "What does it cost?" we can naturally respond, "What is it worth to you?" Electronic communication among academics is growing when it is valuable. In contemplating investments in electronic publishing, the publishers', and indeed academia's, goal is to create the most value for the funds invested. Generally, the freebie culture that launched the Internet represents only a subset of a much wider range of possible uses. Many quality information products that flow through the Net will be generating revenue flows sufficient to sustain them.
The Encyclopedia gives a second lesson, namely, that the costs of electronic distribution may be significanly less than print. Serviceable home encyclopedias on CD now cost about $50 and Britannica CD '98 Multimedia Edition is $125, a small fraction of the $1,500 price for the 32-volume print edition of the same Encyclopedia. Britannica also offers a World Wide Web subscription at $85 per year or $8.50 per month with a discount to purchasers of the print or CD product. The World Wide Web service is updated thrice annually and offers more articles than the print edition. Of course, the price charged for a given format may reflect differ-
ences in the price elasticities of demand. Nevertheless, the lower price for the electronic product is consistent with a considerable cost advantage.
Indeed, the latest word processing software includes tools that will allow anyone who uses word processing to create documents tagged for posting on the World Wide Web. Essentially, anyone who owns a current vintage computer with sufficient network connection can make formatted text with tables and graphics available instantly to everyone on the Net. The cost of such communication is a small fraction of the cost of photocopying and mailing documents.
An important consequence of the dramatic decline in the cost of sharing documents is the likelihood of a dramatic increase in the quantity of material available. Everyone who writes may post the whole history of their work on the Web at little incremental cost. Availability is then hardly an issue.
The challenge to academia is to invest in services that will turn the ocean of data into sound, useful, compelling information products. The process of filtering, labeling, refining, and packaging, that is, the process of editing and publishing, takes resources and will be shaped by the electronic world in significant ways. This essay is concerned with this process.
Begin with first principles. Academia may become more useful to our society at large by communicating electronically. When electronic scholarship is more valuable, our institutions will invest more.
Scholarship plays three roles in our society. First, academia educates the next generation of professionals, managers, and leaders. Second, it makes formal knowledge available to society at large, stimulating the development of new products, informing debates on public policy, and improving understanding of our culture. Third, it develops new knowledge. Digital communication ought ultimately to be judged by how well it serves these three activities, teaching, service, and research. Consider each in turn.
Access to networked, digital information is already enhancing education. More students at more institutions have access to more information because of the World Wide Web. About 60% of high school graduates now pursue some college, and President Clinton has called for universal access to two years of college. The importance of the educational mission is growing. Of course, today networked information is sporadic and poorly organized relative to what it might someday become. Still, the available search services, rapid access, and the wide availability of the network are sufficient to demonstrate the power of the tool. Contrast the service with a conventional two-year college library whose size depends on the budget of the institution, when access often depends on personal interaction with a librarian, and where a student must plan a visit and sometimes even queue for service. Access to well-designed and supported Web-based information gives promise of promoting a more active style of education. Students may have greater
success with more open-ended assignments, may participate in on-line discussion with others pursuing similar topics, and may get faster feedback from more colorful, more interactive materials. Integrating academic information into the wider universe of Web information seems likely to have important benefits for students when it is done well.
Similarly, many audiences for academic information outside the walls of the academy already use the World Wide Web. Engineering Information, Inc. (EI), for example, maintains a subscription Web site for both academic and nonacademic engineers. A core feature of the service is access to the premier index to the academic engineering literature with a fulfillment service. But EI's Village offers on line access to professional advisers, conversations with authors, and services for practicing engineers. Higher quality, more immediate access to academic information seems likely to play an increasing role in the information sectors of our society, including nearly every career in which some college is a common prerequisite. Higher education seems likely to find wider audiences by moving its best materials to the networked, digital arena.
In the business of generating new knowledge, the use of networked information is already accelerating the pace. Working papers in physics, for example, are more rapidly and widely accessible from the automated posting service at Los Alamos than could possibly be achieved by print. In text-oriented fields, scholars are able to build concordances and find patterns in ways impossible with print. Duke University's digital papyrus, for example, offers images of papyri with rich, searchable descriptive information in text. In economics, the Web gives the possibility of mounting data sets and algorithmic information and so allows scholars to interact with the work of others at a deeper level than is possible in print. For example, Ray Fair maintains his 130-equation model of the U.S. economy on the Web with data sets and a solution method. Any scholar who wants to experiment with alternative estimations and forecasting assumptions in a fully developed simulation model may do so with modest effort. In biology, the Human Genome Project is only feasible because of the ease of electronic communication, the sharing of databases, and the availability of other on-line tools. In visually oriented fields, digital communication offers substantial benefits, as video and sound may be embedded in digital documents. Animated graphics with sound may have significant value in simulation models in science. In art and drama, digital files may allow comparative studies previously unimaginable. Digital communication, then, may have its most significant consequence in accelerating the development of new knowledge.
The pace of investment in digital communication within academia may well be led by its value in education, service broadly defined, and research. In each case, institutional revenues and success may depend on effective deployment of appropriate digital communication. Of course, individual scholars face a significant challenge in mastering the new tools and employing them in appropriate ways. It
is also worth emphasizing that not all things digital are valuable. However, when digital tools are well used, they are often significantly more valuable than print.
The evolution of the digital arena will be strongly influenced by cost and by pricing policies. Cost is always a two-way street, a reflection, on the one hand, of the choices of authors and publishers who commit resources to publication and, on the other, of the choices of readers and libraries who perceive value. Publishers are challenged to harvest raw materials from the digital ocean and fashion valuable information products. Universities and their libraries must evaluate the possible ways of using digital materials and restructure budgets to deploy their limited resources to best advantage. Between publisher and library stands the electronic agent who may broker the exchange in new ways. Consider first the publisher.
The opportunity to distribute journals electronically has implications for the publishers' costs and revenues. On the cost side, the digital documents can be distributed at lower cost than paper. The network may also reduce some editorial costs. However, sustaining high production values will continue to involve considerable cost because quality editing and presentation are costly. On the revenue side, sale of individual subscriptions may, to some degree, yield to licenses for access via campus intranets and to pay-per-look services.
The central fact of the publishing business is the presence of substantial fixed cost with modest variable cost. The cost of gathering, filtering, refining, and packaging shapes the quality of the publication but does not relate to distribution. The cost of copying and distributing the publication is a modest share of the total expense. A publication with high production values will have high fixed costs. Of course, with larger sale, the fixed costs are spread more widely. Thus, popular publications have lower cost per copy because each copy need carry only a bit of the fixed cost. In thinking about a digital product, the publisher is concerned to invest sufficiently in fixed costs to generate a readership that will pay prices that cover the total cost.
There is a continuum of publications, from widely distributed products with high fixed costs but lower prices to narrowly distributed products with low fixed costs but higher prices. We might expect an even wider range of products in the digital arena.
To understand one end of the publishing spectrum, consider a publisher who reports full financial accounts and is willing to share internal financial records, namely, the American Economic Association (AEA). The AEA is headquartered in Nashville but maintains editorial offices for each of its three major journals in other locations. The AEA has 21,000 members plus 5,500 additional journal subscribers. Membership costs between $52 and $73 per year (students $26), and
members get all three journals. The library rate is $140 per year for the bundle of three journals. The association had revenues and expenditures of $3.7 million in 1995.
The AEA prints and distributes nearly 29,000 copies of the American Economic Review (AER), the premier journal in economics. The AER receives nearly 900 manuscripts per year and publishes about 90 of them in quarterly issues. A Papers and Proceedings issue adds another 80 or so papers from the association's annual meeting. The second journal, the Journal of Economic Perspectives (JEP), invites authors to contribute essays and publishes more topical, less technical essays, with 56 essays in four issues in 1995. The third journal, the Journal of Economic Literature (JEL), contains an index to the literature in economics that indexes and abstracts several hundred journals, lists all new English-language books in economics, and reviews nearly 200 books per year. The JEL publishes more than 20 review essays each year in four quarterly issues. The three journals together yield about 5,000 pages, about 10 inches of linear shelf space, per year. The index to the economic literature published in JEL is cumulated and published as an Index of Economic Articles in Journals in 34 volumes back to 1886 and is distributed electronically as EconLit with coverage from 1969. The Index and EconLit are sold separately from the journals.
This publisher's costs are summarized in Figure 6.1. Some costs seem unlikely to be affected by the digital medium, while others may change significantly. The headquarters function accounts for 27% of the AEA's budget. The headquarters maintains the mailing lists, handles the receipts, and does the accounting and legal work. It conducts an annual mail ballot to elect new officers and organizes an annual meeting that typically draws 8,000 persons. The headquarters function seems likely to continue in about its current size as long as the AEA continues as a membership organization, a successful publisher, and a coordinator of an annual meeting. Declining membership or new modes of serving members might lead to reduction in headquarters costs. In the short run, headquarters costs are not closely tied to the number of members or sale of journals.
The AEA's second function is editing, the second block in Figure 6.1. Thirty-six percent of the AEA's annual expenditures goes to the editorial function of its three journals. Eighty-eight percent of the editorial cost is for salaries. The editorial function is essential to maintaining the high production values that are necessary for successful information products.
Operating digitally may provide some cost saving in the editorial function for the American Economic Review. The editors could allow manuscripts to be posted on the Internet, and referees could access network copies and dispatch their comments via the network. The flow of some 1,600 referee reports that the AER manages each year might occur faster and at lower cost to both the journals and the referees if the network were used in an effective way. However, the editorial cost
will continue to be a significant and essential cost of bringing successful intellectual products to market. Top quality products are likely to have higher editorial costs than are lower quality products.
The top two blocks shown in Figure 6.1 describe the 38% of the AEA's total budget that goes to printing and mailing. These functions are contracted out and have recently gone through a competitive bid process. The costs are likely to be near industry lows. The total printing and mailing costs split into two parts. One part doesn't vary with the size of the print run and is labeled as fixed cost. It includes design and typesetting and thus will remain, to a significant degree, as a necessary function in bringing high quality products to market. The variable-cost part of printing and mailing reflects the extra cost of paper, printing, and mailing individual paper issues. This 23% of total association expenditures, $800,000 out of $3.7 million total, might be reduced considerably by using distribution by network. However, as long as some part of the journal is distributed in print, the association will continue to incur significant fixed costs in printing.
In short, distribution of the journals electronically by network might lower the AEA's expenditures by as much as 23%.
Figure 6.2 summarizes the American Economic Association's revenues in six categories. Thirty-eight percent of revenue comes from individual memberships. Another 5% comes from the sale of advertising that appears in the journals. Nineteen percent comes from the sale of subscriptions, primarily to libraries. Another 19% comes from royalties on licenses of the EconLit database; most of these royalties come from SilverPlatter, a distributor of electronic databases. Less than half of one percent of revenues comes from selling rights to reprint journal articles. Finally, 18% of revenues come from other sources, primarily income from the cumulated reserves as well as net earnings from the annual meeting.
Distributing the journals electronically by network seems likely to change the revenue streams. What product pricing and packaging strategies might allow the AEA to sustain the journals? If the journals are to continue to play an important role in the advance of the discipline, then the association must be assured that revenue streams are sufficient to carry the necessary costs.
If the library subscription includes a license for making the journals available by network to all persons within a campus, then a primary reason for membership in the association may be lost. With print, the main distinction between the library subscription and the membership subscription is that the member's copy can be kept at hand while the library copy is at a distance and may be in use or lost. With electronic delivery, access may be the same everywhere on the campus network. The license for electronic network distribution may then undercut revenues from memberships, a core 38% of AEA revenues.
The demand for advertising in the journals is probably motivated by distribution of journals to individual members. If individual subscriptions lag, then advertising revenue may fall as well. Indeed, one may ask the deeper question of whether ads associated with electronic journals will be salient when the journals are distributed electronically? The potential for advertising may be particularly limited if the electronic journals are distributed through intermediaries. If a database intermediary provides an index to hundreds of journals and provides links to individual articles on demand, advertising revenue may accrue to the database vendor rather than to the publisher of the individual journal.
The AEA might see 43% of its revenues (the 38% from member fees plus the 5% from advertising) as vulnerable to being cannibalized by network licensure of its journals. With only a potential 23% saving in cost, the association will be concerned to increase revenues from other sources so as to sustain its journals. The 20% shortfall is about $750,000 for the AEA. Here are three strategies: (I) charge libraries more for campus-use licenses, (2) increase revenues from pay-per-look services, (3) enhance services for members so as to sustain member revenues. Each
of these strategies may provide new ways of generating revenue from existing readers, but importantly, may attract new readers.
The Campus License The association could charge a higher price to libraries for the right to distribute the electronic journals on campus networks. There are about four memberships for each library or other subscription. If membership went to zero because the subscriptions all became campus intranet licenses, then the AEA would need to recoup the revenues from four memberships from each campus license to sustain current revenues. If network distribution lowered AEA costs by 20%, then the campus intranet license need only recoup the equivalent of two memberships. Libraries currently pay double the rate of memberships, so the campus intranet license need be only double the current library subscription rate. That is, the current library rate of $140 would need to go to about $280 for a campus-wide intranet license for the three journals. Of course, many campuses have more than one library subscription, say one each in the social science, management, law, and agriculture libraries. The association might then set a sliding scale of rates from $280 for a small (one library print subscription) campus to
$1,400 for a large (five library print subscription) campus. These rates would be the total revenue required by the association for campus subscriptions, assuming that the library's print subscriptions are abandoned. A database distributor would add some markup.
The campus intranet rate for electronic access is easily differentiated from the print library subscription because it provides a license for anyone on the campus intranet to use the journals in full electronic format. This rate could be established as a price for a new product, allowing the print subscriptions to continue at library rates. Transition from print to electronic distribution could occur gradually with the pace of change set by libraries. Libraries would be free to make separate decisions about adding the campus intranet service and, later, dropping the print subscription.
Individual association members could continue their print subscriptions as long as they wish, reflecting their own tastes for the print product and the quality of service of the electronic one as delivered. Indeed, individual members might get passwords for direct access to the on-line journals. Some members may not be affiliated with institutions that subscribe to network licenses.
It is possible that the campus intranet license will be purchased by campuses that have not previously subscribed to the AEA's journals. If the institution's cost of participating in network delivery is much less than the cost entailed in sustaining the print subscription-for example, the avoidance of added shelf space as will be discussed below-then more campuses might sign on. This effect may be small for the AEA because it is the premier publisher in economics, but might be significant for other journal publishers.
Pay-Per-Look The AEA has had minimal revenues from reprints and royalties on copies. Indeed, it pioneered in guaranteeing in each issue of its journals a limited right to copy for academic purposes without charge. The association adopted the view that the cost of processing the requests to make copies for class purposes (which it routinely granted without charge) was not worth incurring. By publishing a limited, no-charge right to copy, it saved itself the cost of managing the granting of permissions and saved campuses the cost of seeking them.
With electronic distribution, the campus intranet license will automatically grant permission for the journals to be used in course reserves and in print-on-demand services for classes.
On campuses with too little commitment to instruction in economics to justify a library subscription or a campus intranet license, there may still be occasional interest in use of journal articles. There may be law firms, businesses, consulting enterprises, and public interest groups who occasionally seek information and would value the intensity of exploration found in academic journals. With the ubiquitous Internet, they should be able to search a database on-line for a modest usage fee, identify articles of interest, and then call up such articles in full-image format on a pay-per-look basis. Suppose the Internet reaches a million people who are either
on campuses without print library subscriptions today or are not on campuses at all but who would have interest in some occasional use of the academic material. This market represents a new potential source of revenue for the AEA that could be reached by an Internet-based pay-per-look price.
What rate should the association set per page to serve the pay-per-look market without unduly cannibalizing the sale of campus intranet licenses? Let's take a one print library subscription campus rate at $280 per year for access to about 3,500 published pages of journal articles (leaving aside the index and abstracts). One look at each published article page per year at $.08 per page would equal the $280 license. A campus that had a distribution of users that averaged one look at each page would break even with the campus intranet license with a pay-per-look rate of $.08 per page. This rate is the rate of net revenue to the association; the database distributor may add a markup. For discussion, suppose the database distributor's markup is 100%. If the Internet users beyond the campus intranet licenses looked at 2 million pages per year at $.16 per page including fees to the Internet service provider, the association would recoup nearly a quarter of its lost membership revenue from the intranet licenses from this source.
A critical issue for the emergence of a pay-per-look market is the ability to account for and collect the charges with a low cost per transaction. If accounting and billing costs $10 per hit with hits averaging 20 pages, then the charge might be $14 per hit ($10 to the agent, $4 to the AEA). Such a rate compares well with the $3o-per-exchange cost incurred in conventional interlibrary loan. Yet such high transaction costs will surely limit the pay-per-look market.
A number of enterprises are offering or plan to offer electronic payment mechanisms on the Internet. In the library world, RLG's WebDOC system may have some of the necessary features. These systems depend on users being registered in advance with the Web bank. As registered users, they have accounts and encrypted "keys" that electronically establish their identity to a computer on the Net. To make a transaction, users need only identify themselves to the electronic database vendor's computer using the "key" for authentication. The vendor's computer checks the authentication and debits the readers' account at the Web bank. In this fashion, secure transactions may occur over the network without human intervention at costs of a few cents per hit. If such Web banks become a general feature of the Internet, Web money will be used for a variety of purposes. The incremental cost of using Web banks for access to information should be modest and should allow the pay-per-look market to gain in importance. Markups per transaction might then be quite modest, with gross charges per page in the vicinity of $.10 to $.20. This rate compares with the $.04-per-hit cost of the Britannica mentioned in the opening sentence of this essay.
The core idea here is that individual readers make the decisions about when to look at a document under a pay-per-look regime. The reader must face a budget constraint, that is, have a limited set of funds for use in buying information products or other services. The fund might be subsidized by the reader's institution, but
the core choices about when to pay and look are made individually. When the core decision is made by the reader with limited funds, then the price elasticity of demand for such services may be high. With a highly elastic demand, even for-profit publishers will find that low prices dominate.
Current article fulfillment rates of $10 to $20 could fall greatly. The MIT Press offers to deliver individual articles from its electronic journals for $12. EI Village delivers reprints of articles by fax or other electronic means for fees in this range.
Enhanced Member Services A third strategy for responding to the possible revenue shortfall from the loss of memberships at the AEA would be to enhance membership services. One approach, proposed by Hal Varian, would be to offer superior access to the electronic journals to members only. The electronic database of journal articles might be easily adapted to provide a personal notification to each member as articles of interest are posted. The association's database service for members might then have individual passwords for members and store profiles of member interests so as to send e-mail notices of appropriate new postings. The members' database might also contain ancillary materials, appendices to the published articles with detailed derivations of mathematical results offered in software code (for example, as Mathematica notebooks), copies of the numerical data sets used in empirical estimation, or extended bibliographies. The members' database might support monitored discussions of the published essays, allowing members to post questions and comments and allowing an opportunity for authors to respond if they wish. These enhancements generally take advantage of the personal relationship a member may want to have with the published literature, a service not necessarily practical or appropriate for libraries.
Indeed, one divide in the effort to distinguish member from library access to the journal database is whether the enhancement would have value to libraries if offered. Libraries will be asked to pay a premium price for a campus intranet license. They serve many students and faculty who are not currently members of the AEA and who are unlikely to become members in any event, for example, faculty from disciplines other than economics. Deliberately crippling the library version of the electronic journals by offering lower resolution pages, limited searching strategies, a delay in access, or only a subset of the content will be undesirable for libraries and inconsistent with the association's goal of promoting discussion of economics. However, there may be some demand for lower quality access at reduced prices. The important point is that for membership to be sustained, it must carry worthwhile value when compared to the service provided by the campus license.
Another approach is simply to develop new products that will have a higher appeal to members than to libraries. Such products could be included in the membership fee, but offered to libraries at an added extra cost. One such product would be systematic access to working papers in economics. Indexes, abstracts, and in some cases, the full text of working papers are available without charge at
some sites on the World Wide Web today. The association might ally itself with one of these sites, give the service an official status, and invest in the features of the working paper service to make it more robust and useful. Although freebie working paper services are useful, an enhanced working paper service for a fee (or as part of membership) might be much better.
To the extent that enhanced services can sustain memberships in the face of readily available campus intranet access to journals, the premium for campus intranet access could be lower.
The AEA might offer a discount membership rate to those who opt to use the on-line version of the journals in lieu of receiving print copies. Such a discounted rate would reflect not only the association's cost saving with reduced print distribution but also the diminished value of membership given the increased prospect of campus intranet licenses.
To the extent that the pay-per-look market generates new revenue, then the campus intranet rate could also be less. The total of the association's revenues need only cover its fixed and variable costs. (The variable cost may approach zero with electronic distribution.) If membership revenues dropped by two-thirds and pay-per-look generated one-quarter of the gap, then the premium rate for the campus intranet license need be only one-third to one-half above current rates, say, $200 for a one library print subscription campus to $1,000 for a five library print subscription campus (net revenue to the association after the net distributor's markup).
At the other end of the publishing spectrum from the AEA are those publishers who produce low-volume publications. Some titles have few personal subscriptions and depend primarily on library subscriptions that are already at premium rates. For these titles, replacing the print subscription with an intranet license will simply lower costs. The Johns Hopkins University Press offers its journals electronically at a discount in substitution for the print.
Some titles may have mostly personal subscriptions with no library rate, including popular magazines like the Economist. Such publications might simply be offered as personal subscriptions on the Internet with an individual password for each subscriber. The distribution by network would lower distribution costs and so ought to cause the profit-maximizing publisher to offer network access to individuals at a discount from the print subscription rate. Such a publication may not be available by campus intranet license.
The Journal of Statistics Education (JSE) is distributed via the Internet without charge. It began with an NSF/FIPSE grant to the North Carolina State University in 1993. The JSE receives about 40 manuscripts per year and, after a peer review, publishes about 20 of them. The published essays are posted on a Web site and a table of contents and brief summaries are dispatched by e-mail to a list of
about 2,000 interested persons. JSE's costs amount to about $25,000 per year to sustain the clerical work necessary to receive manuscripts, dispatch them to suitable referees, receive referee reports, and return them to the author with the editor's judgment. The JSE also requires a part-time system support person to maintain the server that houses the journal. The JSE has not charged for subscriptions, receives no continuing revenue, and needs about $50,000 per year to survive. Merger with a publisher of other statistics journals may make sense, allowing the JSE to be bundled in a larger member service package. Alternatively, it might begin to charge a subscription fee for individuals and a campus license rate for libraries. Making the transformation from a no-fee to a fee-based publication may prove difficult. A critical issue is how much fixed cost is necessary to maintain reasonable production values in a low-volume publication. At present, JSE is seeking a continuing source of finance.
In general, a publisher will consider three potential markets: (1) the campus intranet license/library sale, (2) the individual subscription, and (3) the pay-per-look/individual article sale. These three markets might be served by one title with shared fixed costs. The issue of whether to offer the title in each market and at what price will reflect the incremental cost of making the title available in that market, the elasticity of demand in each market, and the cross price elasticities between markets. For example, the price of the campus license will have an effect on individual subscription sales and vice versa, and the price of the individual subscriptions will have an effect on the sale of individual articles and vice versa. The more elastic the demands, the lower the prices, even for for-profit publishers. With higher substitution between the three forms, the closer the prices will be across the three forms.
Economies of Scope
To this point, the analysis applies essentially to one journal at a time, as though the journal were the only size package that counted. In fact, of course, the choice of size of package for information could change. Two centuries ago, the book was the package of choice. Authors generally wrote books. Libraries bought books. Readers read books. In the past 50 years, the size of package shifted to the journal in most disciplines. Authors write smaller packages, that is, articles, and get their work to market more quickly in journals. The elemental information product has become more granular. Libraries commit to journals and so receive information faster and at lower cost per unit. In deciding what to read, readers depend on the editors' judgment in publishing articles. In short, libraries buy bigger packages, the journals, while authors and readers work with smaller units, the articles.
With electronic distribution, the library will prefer to buy a still larger package, a database of many journals. A single, large transaction is much less expensive for a library to handle than are multiple, small transactions. Managing many journal titles individually is expensive. Similarly, readers may prefer access to packages
smaller than journal articles. They are often satisfied with abstracts. The electronic encyclopedia is attractive because it allows one to zip directly to a short, focused package of information with links to more. Authors, then, will be drawn to package their products in small bundles embedded in a large database with links to other elements of the database with related information. Information will be come still more granular.
If the database becomes the dominant unit of trade in academic information, then publishers with better databases may thrive. The JSTOR enterprise appears to have recognized the economies of scope in building a database with a large quantity of related journal titles. JSTOR is a venture spawned by the Mellon Foundation to store archival copies of the full historic backfiles of journals and make them available by network. The core motive is to save libraries the cost of storing old journals. JSTOR plans to offer 100 journal titles within a few years. Some of the professional societies, for example, psychology and chemistry, exploit economies of scope in the print arena by offering dozens of journal titles in their disciplines. Elsevier's dominance in a number of fields is based in part on the exploitation of scope with many titles in related subdisciplines. The emergence of economies of scope in the electronic arena is illustrated by Academic Press's offer to libraries in Ohio LINK. For 10% more than the cost of the print subscriptions the library had held, it could buy electronic access to the full suite of Academic Press journals electronically on Ohio LINK.
To take advantage of the economies of scope, the electronic journal might begin to include hot links to other materials in the database. The electronic product would then deliver more than the print version. Links to other Web sites is one of the attractive features of the Web version of the Encyclopedia Britannica. An academic journal database could invite authors to include the electronic addresses of references and links to ancillary files. Higher quality databases will have more such links.
The American Economic Association eschews scope in the print arena, preferring instead to let a hundred flowers bloom and to rely on competition to limit prices. Its collection of three journals does not constitute a critical mass of journal articles for an economics database, and so it must depend on integration with other economics journals at the database level. The Johns Hopkins University Press's MUSE enterprise suffers similar lack of scope. Although it has 45 journal titles, they are scattered among many disciplines and do not, collectively, reach critical mass in any field.
The emergence of more powerful, network-based working paper services seems likely to lower the cost of the editorial process, as mentioned above. A common, well-managed electronic working paper service might make the cost of adding a journal title much lower than starting a title from scratch without access to electronic working papers. The enterprise that controls a capable working paper service may well control a significant part of the discipline and reap many of the advantages of scope in academic publishing.
In fact, a capable electronic working paper service could support multiple editors of a common literature. One editor might encourage an author to develop a work for a very sophisticated audience and publish the resulting work in a top academic journal. Another editor might invite the author to develop the same ideas in a less technical form for a wider audience. Both essays might appear in a common database of articles and link to longer versions of the work, numerical data sets, bibliographies, and other related material. The published essays will then be front ends to a deeper literature available on the Net.
In addition to limiting the number of journals it produces, the American Economic Association differs from many publishers by emphasizing low cost. The price of its journals is less than half the industry average for economics journals, and the differential between library and individual rates is low. If the AEA's goal were to maximize profit, it could charge authors more, charge members and libraries more, make more revenue from its meetings, and launch more products to take advantage of its reputation by extending its scope. The rents available in this marketplace are then left to the authors, members, libraries, and competing publishers. The AEA is not maximizing its institutional rents.
Other nonprofit publishers may seek higher revenues to capture more of the available rents and use the proceeds to generate more products and association services. Lobbying activities, professional certification and accreditation, more meetings, and more journals are common among professional societies.
Many for-profit publishers seek to maximize the rents they can extract from the marketplace for the benefit of their shareholders. In considering how to package and price electronic products, the for-profit publishers will continue to be concerned with finding and exploiting the available rents. The profit-maximizing price for a journal is determined by the price elasticity of demand for the title and the marginal cost of producing it. With convenient network access, there may be an increase in demand that would allow a higher price, other things being equal. How the price elasticity of demand might change with network access is unknown. The fall in marginal cost with electronic distribution need not lead to a lower price.
One might then ask how a shift to electronic publishing may affect the size of the rents and their distribution. A shift to the database as the optimal size package with falling marginal costs would seem both to increase the size of potential rents and to make easier their exploitation for profit. Suppose control of a powerful working paper service gives a significant cost advantage to journal publishers. Suppose further that academic institutions find major advantages in subscribing to large databases of information rather than making decisions about individual journal titles. The enterprise that controls the working paper service and the database of journals may then have considerable rent-capturing ability. The price elas-
ticities of demand for such large packages may be low and the substitutes poor, and so the markups over costs may be substantial. The possibility of a significant pay-per-look market with high price elasticity of demand might cause the profit-maximizing price to be lower. The possibility of self-publication at personal or small-scale Web sites offers a poor substitute to integration in a database because Web search engines are unlike to point to those sites appropriately.
In contemplating how to take advantage of electronic publications, universities and their libraries face two problems. First, they face decisions about scaling back costly conventional operations so as to make resources available for acquiring electronic licenses. Second, the cost savings occur in a variety of ways, each with its own history, culture, and revenue sources. Although many boards of trustees and their presidents might like all the funds within their institutions to be fungible, in fact they face limitations on their ability to reduce expenditures in one area so as to spend more in another. If donors or legislatures are more willing to provide funds for buildings than for electronic subscriptions, then the dollar cost of a building may not be strictly comparable to the dollar cost of electronic subscriptions. Universities are investing more in campus networks and computer systems and are pruning elsewhere as the campuses become more digital. The following paragraphs consider how conventional operations might be pruned so as to allow more expenditure on electronic information products.
Conventional Library Costs
It is possible that some universities will view electronic access to quality academic journals as sufficiently attractive to justify increasing their library budget to accommodate the electronic subscriptions when publishers seek premium prices for electronic access. Some universities place particular emphasis on being electronic pioneers and seem willing to commit surprising amounts of resources to such activities. Other universities owe a debt to these pathfinders for sorting out what works. For most institutions, however, the value of the electronic journals will be tested by middle management's willingness to prune other activities so as to acquire more electronic journals. The library director is at the front line for such choices, and an understanding of the basic structure of the library's expenditures will help define the library director's choices.
Figure 6.3 provides a summary picture of the pattern of costs in conventional academic libraries. The top four blocks correspond to the operating budgets of the libraries. Acquisitions account for about a third of the operating budget. To give a complete picture, the bottom section of the figure also accounts for the costs of library buildings. The cost of space is treated as the annual lease value of the space including utilities and janitorial services. The total of the operating budget plus
the annualized cost of the building space represents a measure of the total institutional financial commitment to the library.
Library management typically has control only of the operating budget. Let's suppose that, on average, campus intranet licenses to electronic journals come at a premium price, reflecting both the electronic database distributor's costs as well as adjustments in publishers' pricing behavior as discussed above. The library, then, confronts a desire to increase its acquisition expenditure, possibly as much as doubling it.
A first choice is to prune expenditures on print so as to commit resources to digital materials. Some publishers offer lower prices for swapping digital for paper and in this case, swapping improves the library's budget. Some publishers may simply offer to swap digital for print at no change in price. However, many publishers may expect a premium gross price for digital access on the campus intranet. The library manager may seek to trim other acquisition expenditures so as to commit to more digital access. For several decades, academic libraries have been reducing the quantity of materials acquired so as to adjust to increases in prices.
The possibility of substantial cuts in the quantity of acquisitions so as to afford a smaller suite of products in electronic access seems unappealing and so may have limited effect.
A second possible budget adjustment is to prune technical service costs. The costs of processing arise from the necessity of tracking the arrival of each issue, claiming those that are overdue, making payments, adjusting catalog records, and periodically binding the volumes. If the electronic journal comes embedded in a database of many journals, the library can make one acquisition decision and one payment. It need have little concern for check-in and the claiming of issues. Testing the reliability of the database will be a concern, but presumably large database providers have a substantial incentive to build in considerable redundancy and reliability and will carefully track and claim individual issues. The library will avoid binding costs. The library will likely have some interest in building references to the electronic database into its catalog. Perhaps the database vendor will provide suitable machine readable records to automate this process.
A third possibility is the library's public service operations. Until a substantial quantity of materials are available and widely used via network, the demand for conventional library hours, reference, and circulation services may change only modestly. In 1996, one-third to one-half of the references in my students' essays were to World Wide Web sources. However, these sources generally were complements of conventional sources rather than substitutes for them. As frontline journals become commonly accessible by campus networks, the demand for conventional library services may decline. For example, campuses that operate departmental and small branch libraries primarily to provide convenient access to current journals for faculty might be more likely to consolidate such facilities into a master library when a significant number of the relevant journals are available on the Net. These changes are likely to take a number of years to evolve.
A fourth possibility concerns the cost of library buildings. When journals are used digitally by network, the need for added library space declines. Libraries will need less stack space to hold the addition of current volumes. In many larger libraries, lesser used, older volumes are currently held in less expensive, off-site facilities, with new volumes going into the prime space. The marginal stack space, then, is off-site, with costs of perhaps $.30 per volume per year for sustaining the perpetual storage of the added volumes. Replacing a 100-year run of a journal with an electronic backfile ought to save about $30 per year in continuing storage costs at a low-cost, remote storage facility. Reductions in the extent of processing and in public services will also reduce requirements for space.
The library building expenses typically do not appear in operating budgets, so saving space has no direct effect on the library budget. The capital costs of buildings are frequently raised philanthropically or paid through a state capital budget, keeping the costs out of the university current accounts. Even utilities and janitorial services may appear in a general university operating budget rather than within the library account. Savings in building costs will accrue to those who fund
capital projects and to university general budgets but often not to the library operating budget. University presidents and boards may redirect their institutions' capital funds to more productive uses. Of course, the interests of philanthropy and the enthusiasm of state legislators may pose some limit on the ability to make such reallocations. Moreover, library building projects occur relatively infrequently, say every 25 years or so. The savings in capital may not be apparent for some time or, indeed, ever if capital budgets are considered independently of operating budgets. Library buildings, particularly the big ones in the middle of campuses, come to play a symbolic role, an expression of the university's importance, a place of interdisciplinary interaction, a grand presence. Because symbols are important, the master library facility will continue to be important. The marginal savings in building expense will probably be in compact or remote storage facilities and in departmental and smaller branch libraries. Digital access ought then to save the larger campus community some future commitment of capital, but the savings will be visible mostly to the president and board.
A fifth possibility is savings in faculty subscriptions. In law, business, and other schools in which faculty have university expense accounts, faculty may be accustomed to paying for personal subscriptions to core journals from the accounts. If the university acquires a campuswide network license for such journals, the faculty members may rely on the campus license and deploy their expense accounts for other purposes. By adjusting the expense account downward in light of the offering of campus licenses for journals, the university may reclaim some of the cost of the journals. On those campuses and in those departments in which faculty members do not have expense accounts and in which personal copies of core journals are necessary for scholarly success, the faculty salaries might be adjusted downward over a course of time to reflect the fact that faculty may use the campus license rather than pay for personal subscriptions. Indeed, when the personal subscriptions are not deductible under federal and state income taxes, the cost of subscriptions to the faculty in after-tax dollars may be greater than the cost to the university using before-tax dollars. As a result, a shift to university site licenses for core journals should be financially advantageous for faculty and the university.
In sum, the university may find a number of ways to economize by shifting to digital journals distributed by network. Although direct subscription prices may go up in some cases, the university may trim technical and public services, save space, and offer more perquisites to faculty at some saving in cost.
Publishers could establish their own digital distribution function by creating a Uniform Resource Locator (URL) for each title. The publisher would deal directly with libraries and individual readers. For a number of reasons, the publisher is likely to prefer to work with an agent for electronic distribution. Just as the typesetting and printing is usually performed by contractors, so the design and distri-
bution of electronic products is likely to involve specialized agents. However, the role of electronic distribution agent is becoming more important than that of the printer for two important reasons. The first arises because of economies of scale in managing access to electronic services. The second concerns the potential advantages of integrating individual journals into a wider database of academic information. The electronic agent accepts materials, say journal titles, from publishers and mounts them on electronic services to be accessed by the Internet. The agent captures economies of scale in maintaining the service and in supporting a common payment mechanism and a common search interface and search engine, and may take other steps to integrate articles and journal titles so that the whole is greater than the sum of the parts.
OCLC was an early entrant in the market for electronic distribution of academic journals with Online Clinical Trials. Online Clinical Trials was priced at $220 for institutions and $120 for individuals. OCLC shifted to a World Wide Web interface in January 1997. In 1998, OCLC's First Search Electronic Collections Online offers access to hundreds of titles from many publishers. Most of the journals deliver page images using Adobe's PDF. OCLC's new approach offers publishers the opportunity to sell electronic access to journals by both subscription and pay-per-look. It charges libraries an access fee based on the number of simultaneous users to be supported and the number of electronic journals to which the library subscribes. Libraries buy subscriptions from publishers. Publishers may package multiple titles together and set whatever rates they choose. The following discussion puts the strategies of OCLC and other electronic agents in a broader context.
Storage and Networks
With electronic documents, there is a basic logistical choice. A storage-intensive strategy involves using local storage everywhere. In this case, the network need not be used to read the journal. At the other extreme, the document might be stored once-for-the-world at a single site with network access used each time a journal is read. Between these two extremes is a range of choices. With the cost saving of fewer storage sites comes the extra cost of increased reliance on data communication networks.
Data storage is an important cost. Although the unit costs of digital storage have fallen and will continue to fall sharply through time, there is still a considerable advantage to using less storage. Data storage systems involve not simply the storage medium itself, but a range of services to keep the data on-line. A data center typically involves sophisticated personnel, backup and archiving activities, and software and hardware upgrades. If 10 campuses share a data storage facility, the storage cost per campus should be much less than if each provides its own. Having one storage site for the world might be the lowest storage cost per campus overall.
To use a remote storage facility involves data communication. The more remote the storage, the greater the reliance on data networks. A central problem for data communication is congestion. Data networks typically do not involve traffic-based fees. Indeed, the cost of monitoring traffic so as to impose fees may be cost-prohibitive. Monitoring network traffic so as to bill to individuals on the basis of use would require keeping track of the origin of each packet of data and accounting for it by tallying a register that notes source, time, and date. Because even simple mail messages may be broken into numerous packets for network shipment, the quantity of items to be tracked is much more numerous than tracking telephone calls. If every packet must go through the toll plaza, the opportunity for delay and single points of failure may be substantial. Because each packet may follow a different route, tracking backbone use with a tally on each leg would multiply the complexity. Traffic-based fees seem to be impractical for the Internet. Without traffic-based fees, individual users do not face the cost of their access. Like a driver on an urban highway at rush hour, each individual sees only his or her own trip, not the adverse effect of his or her trip in slowing others down. An engineering response to highway congestion is often to build more highways. Yet the added highways are often congested as well. In data networking, an engineering solution is to invent a faster network. Yet individuals deciding to use the network will see only their personal costs and so will have little incentive to economize. The demand for bandwidth on networks will surely grow with the pace of faster networks, for example, with personal videophones and other video-intensive applications. Without traffic-based pricing, congestion will be endemic in data networks.
Another response to network congestion is to build private networks with controlled access. Building networks dedicated to specific functions seems relatively expensive, but may be necessary to maintain a sufficient level of performance. Campus networks are private, and so access can be controlled. Perhaps investments in networking and technical change can proceed fast enough on individual campuses so as to allow the campus network to be reliable enough for access to journals and other academic information.
Because the telephone companies have launched data network services, they seem likely to introduce time-of-day pricing. Higher rates in prime time and higher rates for faster access speeds are first steps in giving incentives to economize the use of the network and so to reduce congestion. America Online (AOL) ran into serious difficulty when, in late 1996, it shifted from a per hour pricing strategy to a flat monthly rate to match other Internet service providers. AOL was swamped with peak period demand, demand it could not easily manage. The long distance telephone services seem to be moving to simpler pricing regimes, dime-a-minute, for example. The possibility of peak period congestion, however, likely means that some use of peak period pricing in telephones and in network services will remain desirable. In the end, higher education's ability to economize on data storage will depend on the success of the networks in limiting congestion.
Some milestones in the choice of storage and networks are illustrated along the horizontal margin of Figure 6.4. The rapid growth of the World Wide Web in the last couple of years has represented a shift toward the right along this margin, with fewer storage sites and more dependence on data communication. The World Wide Web allows a common interface to serve many computer platforms, replacing proprietary tools. Adobe's Portable Document Format (PDF) seems to offer an effective vehicle to present documents in original printed format with equations, tables, and graphics, yet allow text searching and hypertext links to other Web sites. The software for reading PDF documents is available without charge, is compatible with many Web browsers, and allows local printing. Some of the inconveniences of older network-based tools are disappearing.
That rightward shift may offer the electronic agent an advantage over either the publisher or the library. That is, the electronic agent may acquire rights from publishers and sell access to libraries, while taking responsibility for an optimal
choice of storage sites and network access. Storage might end up in a low-cost location with the electronic agent responsible for archiving the material and migrating the digital files to future hardware and software environments.
Integration into a Database
The second advantage for an electronic agent is in integrating individual journal titles and other electronic materials into a coherent database. The vertical margin of Figure 6.4 sketches a range of possibilities. At root, a journal title stands as a relatively isolated vehicle for the distribution of information. In the digital world, each title could be distributed on its own CD or have its own URL on the Web. Third party index publishers would index the contents and provide pointers to the title and issue and, perhaps, to the URL. Indeed, the pointer might go directly to an individual article.
However, relatively few scholars depend on a single journal title for their work. Indeed, looking at the citations shown in a sampling of articles of a given journal reveals that scholars typically use a range of sources. A database that provides coherent access to several related journals, as in the second tier of Figure 6.4, offers a service that is more than the sum of its parts.
At yet a higher level, an agent might offer a significant core of the literature in a discipline. The core of journals and other materials might allow searching by words and phrases across the full content of the database. The database then offers new ways of establishing linkages.
At a fourth level, the organizing engine for the database might be the standard index to the literature of the discipline, such as EconLit in economics. A search of the database might achieve a degree of comprehensiveness for the published literature. A significant fraction of the published essays might be delivered on demand by hitting a "fulfill" button. Fulfillment might mean delivery of an electronic image file via network within a few seconds or delivery of a facsimile within a few minutes or hours.
At a fifth level, the database might include hot links from citations in one essay to other elements of the database. The database might include the published works from journals with links to ancillary materials, numeric data sets, computer algorithims, and an author's appendices discussing methods and other matters. The database might invite commentary, and so formal publications might link to suitably moderated on-line discussions.
In integrating materials from a variety of sources into a coherent database, the electronic agent may have an advantage over publishers who offer only individual journal titles. The agent might set standards for inclusion of material that specifies metatags and formats. The agent might manage the index function; indeed, the index might be a basis for forward integration with database distribution, as EI has done. This issue is discussed more fully below.
Integration of diverse materials into a database is likely to come with remote
storage and use of networks for access. Integrating the material into a database by achieving higher levels of coherence and interaction among diverse parts may be at lower cost for an electronic agent than for publishers of individual journals or for individual libraries. The agent is able to incur the cost of integration and storage once for the world.
Given the interest of publishers in licensing their products for campus intranets and the universities' interest in securing such licenses, there is opportunity for enterprises to act as brokers, to package the electronic versions of the journals in databases and make them accessible, under suitable licenses, to campus intranets. The brokers may add a markup to reflect their cost of mounting the database. The size of the markup will reflect the extent of integration as well as the choice of storage strategy.
SilverPlatter became the most successful vendor of electronic index databases by making them available on CDs for use on campus intranets with proprietary software. OCLC plays an important role in offering such databases from its master center in Ohio. Ovid, a third vendor, supports sophisticated indexing that integrates full text with Standard Generalized Markup Language (SGML) and Hypertext Markup Language (HTML) tagging. A number of other vendors have also participated in the index market and are likely to seek to be brokers for the electronic distribution of journals.
A core strategy will probably be to mount the database of journals on one or more servers on the World Wide Web, with access limited to persons authorized for use from licensed campuses or through other fee-paid arrangements. This strategy has three important parts: (1) the database server, (2) the Internet communication system, and (3) the campus network.
The advantage of the World Wide Web approach is that the data can be made accessible to many campuses with no server support on any campus. A campus intranet license can be served remotely, saving the university the expense of software, hardware, and system support for the service.
The risk of the Web strategy is with the Internet itself and its inherent congestion. OCLC used a private data communication network so as to achieve a higher level of reliability than the Internet and will do the same to ensure high-quality TCP/IP (the Internet Protocol) access. Some campuses may prefer to mount database files locally, using CD-ROMs and disk servers on the campus network. Some high-intensity campuses may prefer to continue to mount the most used parts of databases locally, even at extra cost, as a method of ensuring against deficiencies in Internet services.
The third element, after storage and the Internet, is the campus network. Campus networks continue to evolve. Among the hundred universities seeking to be top-ten universities, early investment in sophisticated networking may play a
strategic role in the quest for rank. On such campuses, network distribution of journals should be well supported and popular. Other campuses will follow with some lag, particularly where funding depends primarily on the public sector. Adoption within 10 years might be expected.
The electronic agent, then, must choose a strategy with two elements: (1) a storage and network choice and (2) an approach to database integration.
Journal publishers generally start at the bottom left of Figure 6.4, the closest to print. They could make a CD and offer it as an alternative to print for current subscribers. The AEA offers the Journal of Economic Literature on CD instead of print for the same price.
Moves to the upper left seem to be economically infeasible. Integrating more materials together increases local storage costs and so tilts the storage-network balance toward less storage and more network. With more data integration, the agent's strategy will shift to the right.
Moves to the lower right, with reduced storage costs and more dependence on networks, should involve considerable cost savings but run risks. One risk is of network congestion. A second is of loss of revenues because traditional subscribers drop purchases in favor of shared network access. The viability of these strategies depends on the level of fees that may be earned from network licenses or pay-per-look.
Moves along the diagonal up and to the right involve greater database integration with cost savings from lower storage costs and more dependence on networks. The advantage of moves upward and to the right is the possibility that integration creates services of significantly more value than the replication of print journals on the Internet. When database integration creates significantly more value, subscribers will be willing to pay premium prices for using products with remote storage with networks. Of course, network congestion will remain a concern.
A move toward more database integration raises a number of interesting questions. The answers to these questions will determine the size of the markup by the electronic agent. How much should information from a variety of sources be integrated into a database with common structure, tags, and linkages? For a large database, more effort at integration and coherence may be more valuable. Just how much effort, particularly how much hand effort, remains an open question. If the electronic agent passively accepts publications from publishers, the level of integration of materials may be relatively low. The publisher may provide an abstract and metatags and might provide URLs for linking to other network sites. The higher level of integration associated with controlled vocabulary indexing and a more systematic structure for the database than comes from journal titles would seem to require either a higher level of handwork by an indexer or the imposition of standard protocols for defining data elements. Is a higher level of integration of journal material from a variety of sources sufficiently valuable to justify its cost? The index function might be centralized with storage of individual journals distributed around the Net. Physical integration of the
database is not necessary to logical integration, but will common ownership be necessary to achieve the control and commonality necessary for high levels of integration?
A second question concerns how an agent might generate a net revenue stream from its initial electronic offerings sufficient to allow it to grow. The new regime will not be borne as a whole entity; rather, it will evolve in relatively small steps. Each step must generate a surplus to be used to finance the next step. Early steps that generate larger surpluses will probably define paths that are more likely to be followed. Experimentation with products and prices is already under way. Those agents finding early financial success are likely to attract publishers and libraries and to be imitated by competitors.
JSTOR has captured the full historic run of a significant number of journals, making the promise of 100 titles in suites from major disciplines within three years. However, it does not yet have a program for access to current journals. Its program is primarily to replace archival storage of materials that libraries may or may not have already acquired in print.
OCLC's approach is to sell libraries access services while publishers sell subscriptions to the information. The publisher can avoid the cost of the distribution in print, a saving if the electronic subscriptions generate sufficient revenue. The unbundling of access from subscription sales allows the access to be priced on the basis of simultaneous users, that is, akin to the rate of use, while the information is priced on the basis of quantity and quality of material made available. Of course, the information may also be priced on a pay-per-look basis and so earn revenue as it is used. What mix of pay-per-look and subscription sales will ultimately prevail is an open question.
A third question is whether publishers will establish exclusive arrangements with electronic agents or whether they will offer nonexclusive licenses so as to sustain competition among agents. Some publishers may prefer to be their own electronic agents, retaining control of the distribution channels. If database integration is important, this strategy may be economic only for relatively large publishers with suites of journals in given disciplines. Many publishers may choose to distribute their products through multiple channels, to both capture the advantages of more integration with other sources and promote innovation and cost savings among competing distributors.
As the electronic agents gain experience and build their title lists, competition among them should drive down the markups for electronic access. If the store-once-and-network strategy bears fruit, the cost savings in access should be apparent. If higher levels of database integration prove to be important, the cost savings may be modest. Cost savings here are in terms of units of access. As the cost of access falls, the quantity of information products used may increase. The effect on total expenditure, the product of unit cost and number of units used, is hard to predict. If the demand for information proves to be price elastic, then as unit costs and unit prices fall, expenditures on information will increase.
The electronic agents will gather academic journals from publishers and distribute them in electronic formats to libraries and others. They will offer all available advantages of scale in managing electronic storage, optimize the use of networks for distribution, offer superior search interfaces and engines, and take steps to integrate materials from disparate sources into a coherent whole. The agent will be able to offer campus intranet licenses, personal subscriptions, and pay-per-look access from a common source. The agent may manage sales, accounting, billing, and technical support. Today, agents are experimenting with both technical and pricing strategies. It remains to be seen whether single agents will dominate given content areas, whether major publishers can remain apart, or whether publishers and universities can or should sustain a competitive market among agents.
Higher education faces a significant challenge in discovering what academic information will succeed on the Net. In 1996, the MIT Press launched Studies in Non-linear Dynamics and Econometrics (SNDE), one of six titles that the Press distributes by network. The price per year is $40 for individuals and $130 for libraries. MIT's strategy seems to be to launch titles in disciplines in which an electronic journal has some extra value, for example, links to computer code and data sets. The rates for the journals seem to be well below those quoted by OCLC's electronic journal program and lower than at least some new print journals. The cost of launching a new journal electronically seems to be falling. It remains to be seen whether the electronic journals will attract successful editors and valued manuscripts from authors, but the venture shows promise. The number and quality of electronic journals continues to grow. MIT has decided to forgo the use of an electronic agent and to depend only on conventional, independent indexing services for database integration, an incremental approach. Yet, the potential seems greater than an individual journal title reveals.
When Henry Ford launched the first mass-produced automobile, he chose a design that carried double the load, traveled three times farther, and went four times faster than the one-horse buggy it replaced, and yet was modestly priced. Successful digital information products for academia seem likely to exploit the inherent advantages of the digital arena, the timeliness, the sophisticated integration of new essays into the existing stock, the links from brief front-end items to more elaborate treatment, and the opportunity to interact with the material by asking for "fulfillment," "discussion," and the "underlying data." Network delivery will make possible both the campus intranet license and the sale of information on a pay-per-look basis. It will allow the material to be more readily consulted in circles beyond the academy.
Electronic agents will play significant new roles as intermediaries between publishers and campuses by handling the electronic storage and distribution and by integrating material into a more coherent whole. Universities and their libraries
will make adjustments in operations so as to expend less on conventional activities and more on digital communication.
Of course, there are unknowns. Agents and publishers will experiment to discover optimal pricing strategies. Agents will explore different ways of storing and delivering electronic products and different approaches to integration. Campuses and libraries will consider just what extra dimensions of service are worth their price. The process here is one of bringing order, meaning, and reliability to the emerging world of the Internet, of discovering what sells and what doesn't.
In the end, universities should be drawn to the electronic information services because of their superiority in instruction, their reach beyond the academy, and their power in the creation of new ideas. American higher education is largely shaped by competitive forces-the competition for faculty, students, research funding, and public and philanthropic support. In different ways, the private and public sector, the large institutions and the small, the two-year and four-year institutions all share the goal of doing a better, more cost-effective job of expanding the human potential. When artfully done, the digital sharing of ideas seems likely to expand that potential significantly.
I appreciate the help of Elton Hinshaw and the American Economic Association in understanding its operations, and the comments of Paul Gherman, David Lucking-Reiley, and Flo Wilson on an earlier draft of this essay.
The Development of a Cost-Driven, Value-Based Pricing Model
Kevin M. Guthrie
In the spring of 1996, when I was first asked for this contribution and was informed that my topic was pricing and user acceptance, I remember thinking it was quite a leap of faith, since JSTOR had neither a business model with prices, nor users. And we surely did not have user acceptance. Much has happened in a relatively short period of time, most notably the fact that JSTOR signed up 199 charter participants during the first three months of 1997. Our original projections were to have 50 to 75 participating institutions, so we are very encouraged to be off to such a good start.
The purpose of this brief case report is to summarize how JSTOR's economic model was developed, what we have learned along the way, and what we think the future challenges are likely to be. JSTOR is a work-in-progress, so it is not possible, nor would it be wise, to try to assert that we have done things "right." The jury is out and will be for quite some time. My goal is only to describe our approach to this point in the hope that doing so will provide useful experience for others working in the field of scholarly communication. In providing this summary I will try not to stray far from the organizing topic assigned to me-pricing and user acceptance-but I think it is impossible to separate these issues from more general aspects of a not-for-profit's organizational strategy and particularly its mission.
JSTOR began as a project of The Andrew W. Mellon Foundation designed to help libraries address growing and persistent space problems. Couldn't advances in technology help reduce the systemwide costs associated with storing commonly held materials like core academic journals? A decision was made to test a prototype system that would make the backfiles of core journals available in electronic
form. Mellon Foundation staff signed up journal publishers in history and economics and, working through a grant to the University of Michigan, began to create a database with associated controlling software that was made available to several test site libraries. It became evident very soon both that the concept was extremely complicated to implement and that it held great promise.
JSTOR was established as an independent not-for-profit organization with its own board of trustees in August 1995. From the outset, JSTOR was given the charge to develop a financial plan that would allow it to become self-sustaining-the Mellon Foundation was not going to subsidize the concept indefinitely. At the same time, JSTOR is fortunate to have had Mellon's initial support because enormous resources have been invested in getting the entity launched that never have to be paid back. Apart from the direct investments of funds in the development of software, production capacity, and mirror sites through grants to Michigan and Princeton, there were large investments of time and effort by Mellon Foundation staff. JSTOR has received, in effect, venture capital for which it need not produce an economic return. We have tried to translate these initial grants into lower prices for the services that we provide to JSTOR participants.
Defining The "Product"
Although JSTOR does not have to repay initial investments, it must have a mechanism to recover its ongoing costs. In developing a plan for cost recovery, our first step was to define exactly what it is that our "customers" would pay for-what is the "product"? On the face of it, this step sounds simple, but it is anything but that, especially given the rate of change of technology affecting the Internet and World Wide Web. For example, those publishers reading this paper who are working to put current issues in electronic form will know that even choosing the display format can be extremely difficult. Should the display files be images or text? If text, should they be SGML, PDF, HTML, SGML-to-HTML converted in advance, SGML-to-HTML converted on the fly, or some combination of these or other choices? The format that is chosen has far-reaching implications for present and future software capabilities, charging mechanisms, and user acceptance. It is easy to imagine how this decision alone can be paralyzing.
For nonprofit institutions like JSTOR, a key guidepost for making decisions of this type is the organization's mission. Nonprofits do not set out to maximize profits or shareholder wealth. In fact, they have been created to provide products or services that would not typically be made available by firms focused on maximizing profit. Consequently, not-for-profits cannot rely solely on quantitative approaches for decision making, even when such decisions are quantitative or financial in nature. Without such tools, having a clearly defined mission and using it to inform decisions is essential.
A good example of how JSTOR has relied on its mission for decision making is the question mentioned briefly above-choosing an appropriate display format.
We have decided to use a combination of images and text for delivery of the journal pages. We provide the images for display-so a user reads and can print a perfect replication of the original published page-and in the background we allow users to search the full text. This decision has been criticized by some people, but it is an appropriate approach for us, given the fact that our goal is to be a trusted archive and because JSTOR is now chiefly concerned with replicating previously published pages. There would be benefits to tagging the full text with SGML and delivering 100% corrected text files to our users, but because we also are committed to covering our costs, that approach is not practical. We are building a database of millions of pages and the effort required to do so is enormous. Digitizing even a single JSTOR title is a substantial undertaking. I have heard some people wonder why JSTOR is including "only" 100 journals in its first phase when other electronic journal initiatives are projecting hundreds, even thousands of journals. Presently, the 20 JSTOR journals that are available on-line have an average run of more than 50 years. So any calculation about the effort required for converting a single title needs to be multiplied 30 to 50 times to be comparable to the effort required to publish an electronic version of a single year of a journal. That imposes very real constraints.
Having a clear understanding of our fundamental mission has also allowed us to remain flexible as we confront a rapidly evolving environment. Trying to keep up with the technology is a never-ending task. We work hard to remain open to change, and at the same time we are committed to using the appropriate technology to fulfill our objective-no more, no less. Progress can grind to a halt quickly when so much is unknown and so much is changing, but our simple goal is to keep making progress. We recognize that by pushing forward relentlessly we will make some mistakes, but we are convinced that we cannot afford to stop moving if we are to build something meaningful in this dynamic environment.
So we established goals consistent with our mission and have made adjustments as we have gained experience. As mentioned previously, one of our fundamental goals is to serve as a trusted archive of the printed record. That means that output produced by the database has to be at least as good as the printed journals. A key determining factor in the quality of JSTOR printouts is the initial resolution at which the journal pages are scanned. Our original inclination was to scan pages at a resolution of 300 dots per inch (dpi). Anne Kenney was a key advocate for scanning at 600 dpi when most people advised that 300 dpi was adequate and 600 dpi too expensive. Kenney made a strong case that scanning at 600 dpi is not just better than scanning at 300 dpi, but that, for pages comprised mainly of black-andwhite text, there are rapidly diminishing perceivable improvements in the appearance of images scanned at resolutions greater than 600 dpi. It made sense, given the predominance of text in our database, to make the additional investment to gain the assurance that the images we were creating would continue to be acceptable even as technologies continued to improve. We are pleased that we made this
choice; the quality of output now available from the JSTOR database is generally superior to a copy made from the original.
Another illustration of how it has been important for us to remain flexible concerns delivery of current issues. In the early days of JSTOR, several scholarly associations approached us with the idea that perhaps we could publish their current issues. The notion of providing scholars with access to the complete run of the journal-from the current issue back to the first issue-had (and has) enormous appeal. On the face of it, it seemed to make sense for JSTOR also to mount current issues in the database, and we began to encourage associations to think about working with us to provide both current issues and the backfiles. It was soon evident, however, that this direction was not going to work for multi-title publishers. These publishers, some of which publish journals owned by other entities such as scholarly associations, justifiably regarded a JSTOR initiative on current issues to be competition. They were not about to provide the backfile of a journal to us only to risk that journal's owners turning to JSTOR for electronic publication of current and future issues. Again, we had to make adjustments. We are now committed to working with publishers of current issues to create linkages that will allow seamless searches between their data and the JSTOR archive, but we will not ourselves publish current issues. If we are to have maximum positive impact on the scholarly community, we must provide a service that benefits not only libraries and scholars but also publishers of all types, commercial and not-for-profit, multi-title and single-title. It is part of having a systemwide perspective, something that has been a central component of our approach from JSTOR's first days.
Once we had framed the basic parameters of what we were going to offer, the key question we had to ask ourselves was whether the organization could be economically viable. Unfortunately, definitive answers to this question are probably never known in advance. The fact of the matter is that during their earliest phase, projects like JSTOR, even though they are not-for-profit, are still entrepreneurial ventures. They face almost all the same risks as for-profit start-ups, and the same tough questions must be asked before moving forward. Is there a revenue-generating "market" for the service to be provided? Does the enterprise have sufficient capital to fund up-front costs that will be incurred before adequate revenue can be generated? Is the market large enough to support the growth required to keep the entity vibrant?
Pursuing this analysis requires a complicated assessment of interrelated factors. What are the costs for operating the entity? That depends on how much "product" is sold. How much product can be sold, and what are the potential revenues? That depends on how it is priced. What should be the product's price? That depends on the costs of providing it. Because these factors are so closely related,
none of them can be analyzed in isolation from the others; however, it is natural for a not-for-profit project focused on cost recovery to begin its assessment with the expense side of the ledger.
Defing the Costs
When the product or service is one that has not previously been offered, projecting potential costs is more art than science. Even if one has some experience providing a version of the product, as JSTOR had because of the Mellon initiative, one finds that the costs that have been incurred during the initial start-up period are irregular and unstable and thus not reliable for projecting beyond that phase. Even now, with nearly 200 paying participants, we still have much to learn about what our stable running costs are likely to be.
What we have learned is that our costs fall into six categories:
1. Production: identifying, finding, and preparing the complete run; defining indexing guidelines to inform a scanning subcontractor; and performing quality control on the work of the scanning subcontractor.
2. Conversion: scanning, OCR, and inputting of index information to serve as the electronic table of contents (performed by a scanning subcontractor).
3. Storage and access: maintaining the database (at a number of mirror sites), which involves continuous updating of hardware and systems software.
4. Software development: migrating the data to new platforms and systems and providing new capabilities and features to maximize its usefulness to scholars as technological capabilities evolve.
5. User support: providing adequate user help desk services for a growing user base.
6. Administration and oversight: managing the overall operations of the enterprise.
Some of these costs are one-time (capital) expenditures and some of them are ongoing (operating) costs. For the most part, production and conversion (#1 and #2 above) are one-time costs. We hope that we are digitizing from the paper to the digital equivalent only once. The costs in the other categories will be incurred regardless of whether new journals are added to the database and are thus a reflection of the ongoing costs of the enterprise.
Because the most visible element of what JSTOR provides is the database of page images, many people tend to think that the cost of scanning is the only cost factor that needs to be considered. Although the scanning cost is relevant, it does not reflect the total cost of conversion for a database like JSTOR. In fact, scanning is not even the most expensive factor in the work done by our scanning contractor. During the conversion process, JSTOR's scanning vendor creates an electronic table of contents, which is just as costly as the scanning. In addition, because
creating a text file suitable for searching requires manual intervention after running OCR software, that step has proven to be even more expensive than scanning. All told, the direct incremental costs of creating the three-part representation of a journal page in the JSTOR database (page image, electronic table of contents entry, and text file) is approximately $.75 to $1.00 per page.
Payments to the scanning bureau do not represent the complete production cost picture. Converting 100,000 pages per month requires a full-time staff to prepare the journals and to give the scanning bureau instructions to ensure that table of contents and indexing entries are made correctly. At present production levels, these costs are approximately equal to the outlays made to the scanning bureau. On average then, JSTOR production costs approach $2.00 per page.
Other costs of operating JSTOR are less easily segregated into their respective functional "department". Our present estimates are that once all of the 100 Phase I journals are available in the database, operating costs (independent of the onetime costs associated with production) will be approximately $2.5 million annually.
On the one hand, the obvious goal is to develop a pricing plan that will cover the $2.5 million in projected annual expenses plus whatever one-time productionrelated expenses are incurred in converting the journals. These production costs, of course, depend on the rate at which the content is being digitized. For projects designed to recover costs by collecting fees from users, it is also important to assess whether the value of the service to be provided justifies the level of expenditures being projected.
In JSTOR's case, we evaluated the benefits to participants of providing a new and more convenient level of access to important scholarly material while also attempting to calculate costs that might be saved by participants if JSTOR allowed them to free expensive shelf space. A central part of the reason for our founding was to provide a service to the scholarly community that would be both better and cheaper. That goal is one that remains to be tested with real data, but it can and will be tested as JSTOR and its participating institutions gain more experience.
Our initial survey of the research indicated that the cost of library shelf space filled by long runs of core journals was substantial. Using a methodology devised by Malcolm Getz at Vanderbilt and cost data assembled by Michael Cooper at UC-Berkeley, we estimated that the capital cost for storing a single volume ranged between $24 and $41. It follows that storing the complete run of a journal published for 100 years costs the holding institution between $2,400 and $4,100. In addition, operating costs associated with the circulation of volumes are also significant, and resources could be saved by substituting centrally managed electronic access to the material. Estimates of these costs for some of our original test site libraries indicated that costs in staff time for reshelving and other maintenance functions ranged from $45 annually for a core journal at a small college to $180
per title at a large research library with heavy use. These estimates of savings do not take into account the long-term costs of preservation or the time saved by users in finding articles of interest to them.
Although these estimates were not used to set prices, they did give us confidence that a pricing strategy could be developed that would offer good value for participating institutions. We set out to define more specifically the key components of the service we would offer and attempted to evaluate them both in the context of our mission and our cost framework. We found that deciding how to price an electronic product was extraordinarily complex, and it was clear that there was no correct answer. This list is by no means exhaustive, but here are some of the key factors that we weighed in our development of a pricing approach:
• Will access be offered on pay-per-use model, or by subscription, or both?
• If by subscription, will the resource be delivered to individuals directly or via a campus site license?
• If by site license, how is the authorized community of users defined?
• Will there be price differentiation or a single price?
• If the price varies in some way for different types of licensees, what classifying approach will be used to make the determinations?
In making decisions, we weighed the merits of various options by evaluating which seemed most consistent with JSTOR's fundamental objectives. For example, we wanted to provide the broadest possible access to JSTOR for the academic community. Because pricing on a pay-per-use model usually yields prices higher than the marginal cost of providing the product, we determined that this approach was not consistent with our goal. We did not want to force students and scholars to have to decide whether it would really be "worth it" to download and print an article. We wanted to encourage liberal searching, displaying, and printing of the resource. In a similar vein, we concluded that it would be better to begin by offering institutional site licenses to participating institutions. We defined the site license broadly by establishing that authorized users would consist of all faculty staff and students of the institution, plus any walk-up patrons using library facilities.
Another decision made to encourage broad access was our determination that different types of users should pay different prices for access. This approach is called price differentiation, which is very common in industries with high fixed costs and low marginal costs (like airlines, telecommunications, etc.). We decided to pursue a value-based pricing approach that seeks to match the amount that institutions would contribute with the value they would receive from participation. By offering different prices to different classes of institutions, we hoped to distribute the costs of operating JSTOR over as many institutions as possible and in a fair way.
Once we had decided to offer a range of price levels, we had to select an objective method to place institutions into different price categories. We chose the Carnegie Classification of Institutions of Higher Education for pricing purposes. Our reason for choosing the Carnegie Classes was that these groupings reflect the degree to which academic institutions are committed to research. Because the JSTOR database includes journals primarily used for scholarly research and would therefore be most highly valued by research institutions, the Carnegie Classes offered a rubric consistent with our aims. In addition to the Carnegie Classes, JSTOR factors in the FTE enrollment of each institution, making adjustments that move institutions with smaller enrollments into classes with lower price levels. We decided to break higher education institutions into four JSTOR sizes: Large, Medium, Small, and Very Small.
Having established four pricing classes and a means for determining what institutions would fill them, we still had to set the prices themselves. In doing so, we thought about both the nature of our cost structure and the potential for revenue generation from the likely community of participants. We noted immediately that the nature of JSTOR's cost structure for converting a journal-a large one-time conversion cost followed by smaller annual maintenance costs-was matched by the nature of the costs incurred by libraries to hold the paper volumes. In the case of libraries holding journals, one-time or capital costs are reflected in the cost of land, building, and shelves, while annual outlays are made for such items as circulation/reshelving, heat, light, and electricity. We decided, therefore, to establish a pricing approach with two components: a one-time fee (which we called the Database Development Fee, or DDF) and a recurring fee (which we called the Annual Access Fee, or AAF).
But what should those prices be? As mentioned previously, the long-term goal was to recover $2.5 million in annual fees while also paying the one-time costs of converting the journals to digital formats. Because it was impossible to model potential international interest in JSTOR, we limited our plan to U.S. higher education institutions. We conducted an assessment of the potential number of participants in each of our four pricing classifications. The number of U.S. higher education institutions in each category is shown in Table 7.1.
After thorough analysis of various combinations of prices, participation levels, and cost assumptions, we arrived at a pricing plan that we felt offered a reasonable chance of success. One other complicating aspect that arose as we developed the plan was how to offer a one-time price for a resource that was constantly growing. To deal with that problem, we defined our initial product, JSTOR-Phase I, as a database with the complete runs of a minimum of 100 titles in 10 to 15 fields. We promised that this database would be complete within three years. Prices for participation in JSTOR-Phase I are shown in Table 7.2.
These prices reflect the availability of the complete runs of 100 titles. For a Large institution, perpetual access to 80 years of the American Economic Review (1911-1991) would cost just $400 one-time and $50 per year. For a Small institution,
the cost would be only $200 one-time and $30 per year. For comparison, consider that purchasing microfilm costs more but offers far less convenient access. Also, institutions that find it possible to move print copies to less expensive warehouses or even to remove duplicate copies from library shelves will capture savings that consists of some or all of the shelving and circulation costs outlined earlier in this paper. (For 80 volumes, that analysis projected capital costs between $24 and $41 per volume, or $1,920 to $3,280 for an 80-volume run. Also, annual circulation costs were estimated as $180 per year for a Large institution.)
We purposely set our prices low in an effort to involve a maximum number of institutions in the endeavor. We are often asked how many participating institutions are needed for JSTOR to reach "breakeven." Because the total revenue generated will depend upon the distribution of participants in the various class sizes, there is no single number of libraries that must participate for JSTOR to reach a self-sustaining level of operations. Further, since our pricing has both one-time and recurring components, breakeven could be defined in a number of ways. One estimate would be to say that breakeven will be reached when revenues from annual access fees match non-production-related annual operating expenditures (since the production-related costs are primarily one-time). Although this guide is useful, it is not totally accurate because, as mentioned previously, there are costs related to production that are very difficult to segregate from other expenses. Another approach would be to try to build an archiving endowment and to set a target endowment size that would support the continuing costs of maintaining and migrating the Phase I archive, even if no additional journals or participants were
added after the Phase I period. Our plan combines these two approaches. We believe it is important to match the sources of annual revenues to the nature of the purposes for which they will be used. We require sufficient levels of annual inflows to cover the costs of making JSTOR available to users (user help desk, training, instruction, etc.). These inflows should be collected by way of annual access fees from participants. There is also, however, the archiving function that JSTOR provides, which is not directly attributable to any particular user. Like the role that libraries fill by keeping books on the shelves just in case they are needed, JSTOR's archiving is a public good. We must build a capital base to support the technological migration and other costs associated with this archiving function.
Like our approach to other aspects of our organizational plan, we remain open to making adjustments in pricing when it is fair and appropriate and it does not put our viability at risk. One step we took was to offer a special charter discount for institutions that chose to participate in JSTOR prior to April 1, 1997. We felt it was appropriate to offer this discount in recognition of participants' willingness to support JSTOR in its earliest days. We also have made minor adjustments in the definitions of how Carnegie Classes are slotted into the JSTOR pricing categories. In our initial plan, for example, we included all Carnegie Research (I and II) and Doctoral (I and II) institutions in the Large JSTOR category. Subsequent conversations with librarians and administrators made it clear that including Doctoral II institutions in this category was not appropriate. There proved to be a significant difference in the nature of these institutions and in the resources they invest in research, and so an adjustment was made to place them in the Medium class. Any such adjustments that we have made have not been for a single institution, but for all institutions that share a definable characteristic. We strive to be fair; therefore, we do not negotiate special deals.
There is a component of our pricing strategy that needs some explanation because it has been a disappointment to some people, that is, JSTOR's policy toward consortia. JSTOR's pricing plan was developed to distribute the costs of providing a shared resource among as many institutions as possible. The same forces that have encouraged the growth of consortia-namely, the development of technologies to distribute information over networks-are also what make JSTOR possible. It is not necessary to have materials shelved nearby in order to read them. A consequence of this fact is that marginal costs of distribution are low and economies of scale substantial. Those benefits have already been taken into account in JSTOR's economic model. In effect, JSTOR is itself a consortial enterprise that has attempted to spread its costs over as much of the community as possible. Offering further discounts to large groups of institutions would put at risk JSTOR's viability and with it the potential benefits to the scholarly community.
A second significant factor that prevents JSTOR from offering access through consortia at deep discounts is that the distribution of organizations in consortia is uneven and unstable. Many institutions are members of several consortia, while some are in none at all (although there are increasingly few of those
remaining). If the consortial arrangements were more mature and if there was a one-to-one relationship between the institutions in JSTOR's community and consortial groups, it might have been possible for JSTOR to build a plan that would distribute costs fairly across those groups. If, for example, every institution in the United States was a member of one of five separate consortia, a project like JSTOR could divide its costs by five and a fair contribution could be made by all. But there are not five consortia; there are hundreds. The patchwork of consortial affiliations is so complex that it is extremely difficult, if not impossible, to establish prices that will be regarded as fair by participants. JSTOR's commitment to share as much of what it learns with the scholarly community as possible requires that there be no special deals, that we be open about the contributions that institutions make and their reasons for making them. Our economic model would not be sustainable if two very similar institutions contributed different amounts simply because one was a member of a consortium that drove a harder bargain. Instead, we rely on a pricing unit that is easily defined and understood-the individual institution. And we rely on a pricing gradient, the Carnegie Classification, which distributes those institutions objectively into groupings that are consistent with the nature and value of our resource.
The initial response to JSTOR's charter offer in the first three months of this year is a strong signal that JSTOR will be a valued resource for the research community; however, it is still far too early to comment further on "user acceptance." Tom Finholt and JoAnn Brooks's research (see chapter 11) into usage at the test site libraries provides a first snapshot, but this picture was taken prior to there being any effort to increase awareness of JSTOR in the community and on the specific campuses. There is much to learn. JSTOR is committed to tracking usage data both for libraries and publishers and to providing special software tools to enable users to create usage reports tailored to their own needs and interests. We will continue to keep the academic community informed as we learn more.
While we are encouraged by the positive reaction of the library community to JSTOR, we recognize that this good start has raised expectations and has created new challenges. In addition to the challenges of reaching our 100-title goal before the end of 1999, trying to encourage the next 200 libraries to participate, and keeping up with changing technologies, we face other complex challenges, including how to make JSTOR available outside the United States and how to define future phases of JSTOR. Addressing these issues will require the development of new strategic plans and new economic and pricing models. In creating those plans, we know that we will continue to confront complicated choices. As we make decisions, we will remain focused on our mission, making adjustments to our plans as required to keep making progress in appropriate ways.
The Effect of Price:
Scientific journal publishers have very little commercial experience with electronic full text distribution, and it is hard, if not impossible, to segregate the effect of pricing on user acceptance and behavior. Most experiments or trial offers have been without charge to the user. Most paid services have targeted institutional rather than individual buyers. Nevertheless, we can look at some of the known experiences and at ongoing and proposed experiments to get some sense of the interaction of pricing and acceptance and of the other factors that seem to affect user behavior. We can also look at institutional buying concerns and pricing considerations.
In the Basic Paper World
Many journals have offered reduced prices to individuals. In the case of journals owned by societies or other organizations, there are generally further reductions in the prices for members. It is important to the society that members not only receive the lowest price but can clearly see that price as a benefit of membership. The price for members may be at marginal cost, particularly if (1) the size of the membership is large, (2) subscriptions are included as a part of the membership dues, and (3) there is advertising income to be gained from the presence of a large individual subscription base. This third factor is commonly seen in clinical medical journals, where the presence of 15,000 or 30,000 or more individual subscribers leads to more than $1 million in advertising income-income that would be near zero without the individual subscription base. Publishers can "afford" to sell the subscriptions at cost because of the advertising.
For many other journals, including most published by my company, there either are no individual rates or the number of individual subscribers is trivial. This
is largely because the size of the journals, and therefore their prices, are sufficiently high (average $1,600) that it is difficult to set a price for individuals that would be attractive. Giving even a 50% reduction in price does not bring the journal into the price range that attracts individual purchasers.
One alternative is to offer a reduced rate for personal subscriptions to individuals affiliated with an institution that has a library subscription. This permits the individual rate to be lower, but it is still not a large source of subscriptions in paper. The price is still seen as high (e.g., the journal Gene has an institutional price of $6,144 in 1997 and an associated personal rate of $533; the ratio is similar for Earth and Planetary Sciences Letters -$2,333 for an institutional subscription, $150 for individuals affiliated with that institution.) This alternative still draws only a very limited number of subscribers.
We have not recently (this decade) rigorously tested alternative pricing strategies for this type of paper arrangement nor talked with scientists to learn specifically why they have or have not responded to an offer. This decision not to do market research reflects a view that there is only limited growth potential in paper distribution and that the take-up by individuals (if it is to happen) will be in an electronic world.
There is some experience with free distribution, which may be relevant. Over the last decade we have developed a fairly large number of electronic and paper services designed to "alert" our readers to newly published or soon-to-be-published information. These services take many forms, including lists of papers accepted for publication; current tables of contents; groupings of several journals in a discipline; journal-specific alerts; and inclusion of additional discipline-specific news items. Some are mailed. Some are electronically broadcast. Others are electronically profiled and targeted to a specific individual's expressed interest. Finally, some are simply on our server and "pulled" on demand.
All are popular and all are sent only to users who have specifically said they want to receive these services. The electronic services are growing rapidly, but the desire for those that are paper-based continues. We even see "claims" for missing issues should a copy fail to arrive in the mail. What we conclude from this response is that there is a demand for information about our publications-the earlier the better-and that so long as it is free and perceived as valuable, it will be welcomed. Note, however, that in the one case where, together with another publisher, we tried to increase the perceived value of an alerting service by adding more titles to the discipline cluster and adding some other services, there was noticeable resistance to paying a subscription for the service.
In developing and pricing new electronic products and services, journal publishers may consider many factors, including (in random order):
• the cost of creating and maintaining the service;
• the possible effect of this product or service on other things you sell ("cannibalization" or substitution);
• the ability to actually implement the pricing (site or user community definitions, estimates of the anticipated usage or number of users, security systems);
• provision for price changes in future years;
• what competitors are doing;
• the functionality actually being offered;
• the perceived value of the content and of the functionality;
• the planned product development path (in markets, functionality, content);
• the ability of the market to pay for the product or service;
• the values that the market will find attractive (e.g., price predictability or stability);
• the anticipated market penetration and growth in sales over time;
• the market behavior that you want to encourage;
• and, not inconsequentially, the effect on your total business if you fail with this product or service.
To make informed judgments, you have to build up experience and expertise. Pricing has long been an important strategic variable in the marketing mix for more mature electronic information players. They have more knowledge of how a market will react to new pricing models. For example, more than five years ago, you would see at an Information Industry Association meeting staff from business, financial, and legal on-line services with titles such as Vice President, Pricing. Nothing comparable existed within the journal publishing industry. A price was set, take it or leave it, and there was little room for nuance or negotiation.
This situation is now changing. Many large journal publishers are actively involved in either negotiating pricing agreements or, under fixed terms, negotiating other aspects of the licensed arrangement that relate to the effective price being paid (such as number of users, number of simultaneous accesses, etc.). At Elsevier in 1996, we engaged consultants to make a rigorous study to assist us in developing pricing models for electronic subscriptions and other electronic services. What we found was that we could not construct algorithms to predict buying behavior in relation to price. That finding has not stopped us from trying to pursue more sophistication in pricing-and indeed, we have now hired our own first full-time Director of Pricing-but until we build up more experience, our pricing decisions are still often a combination of tradition, strategic principle, gut feeling, and trial and error. We do have, however, a view on the desired long-term position and how we want to get there.
Too often, some buyers argue that pricing should be based solely on cost (and often without understanding what goes into the cost). They sometimes express the simplistic view that electronic journals are paper journals without the paper and postage and should therefore be priced at a discount. That view clearly is naive because it overlooks all of the new, additional costs that go into creating innovative electronic products (as well as maintaining two product lines simultaneously). Indeed, if you were to price right now on simply the basis of cost, the price for electronic products would likely be prohibitively high.
It is equally doubtful whether you can accurately determine the value added from electronic functionality and set prices based exclusively on the value, with the notion that as more functionality is added, the value-therefore, the price-can be automatically increased. Some value-based pricing is to be expected and is justified, but in this new electronic market there are also limited budgets and highly competitive forces, which keep prices in check. At the same time, it is not likely that the "content" side of the information industry will totally follow the PC hardware side, in other words, that the prices will stay essentially flat, with more and more new goodies bundled in the product. Hardware is much more of a competitive commodity business.
Pricing components are now much more visible and subject to negotiation. In discussions with large accounts, it is assumed that there will be such negotiation. This trend is not necessarily a positive development for either publishers or libraries. I hope that collectively we won't wind up making the purchase of electronic journals the painful equivalent of buying a car ("How about some rust proofing and an extended warranty?").
There is and will continue to be active market feedback and participation on pricing. The most obvious feedback is a refusal to buy, either because the price is too high (the price-value trade-off is not there) or because of other terms and conditions associated with the deal. Other feedback will come via negotiation and public market debates. Over time, electronic journal pricing will begin to settle into well-understood patterns and principles. At the moment, however, there are almost as many definitions and models as there are publishers and intermediaries. One need only note the recent discussions on the e-list on library licensing moderated by Ann Okerson of Yale University to understand that we are all in the early stages of these processes. An early 1997 posting gave a rather lengthy list of pricing permutations.
End User Purchasing
If we talk of pricing and "user acceptance," an immediate question is: who is the user? Is it the end user or is it the person paying the bill, if they are not one and the same? We presume that the intention was to reflect the judgments made by end users when those end users are also the ones bearing the economic consequences of their decisions. In academic information purchasing (as with consumer
purchasing), the end user has traditionally been shielded from the full cost (often any cost) of information. Just as newspapers and magazine costs are heavily subsidized by advertising, and radio and television revenues (excluding cable) are totally paid by advertisers, so do academic journal users benefit from the library as the purchasing agent.
In connection with the design of its new Web journal database and host service, ScienceDirect, Elsevier Science in 1996 held a number of focus groups with scientists in the United States and the United Kingdom. Among the questions asked was the amount of money currently spent personally (including from grant funds) annually on the acquisition of information resources. The number was consistently below $500 and was generally between $250 and $400, often including society dues, which provided journal subscriptions as part of the dues. There was almost no willingness to spend more money, and there was a consistent expectation that the library would continue to be the provider of services, including new electronic services.
This finding is consistent with the results of several years of direct sales of documents through the (now) Knight-Ridder CARL UnCover service. When it introduced its service a few years ago, UnCover had expected to have about 50% of the orders coming directly from individuals, billed to their credit cards. In fact, as reported by Martha Whitaker of CARL during the 1997 annual meeting of the Association of American Publishers, Professional/Scholarly Publishing Division in February, the number has stayed at about 20% (of a modestly growing total business).
From their side, libraries are concerned that the user has little or no appreciation of the cost to the library of fulfilling their users' requests. In two private discussions in February of 1997, academic librarians told me of their frustration when interlibrary loan requests are made, the articles procured, and the requesters notified, but then the articles are not picked up. There is a sense that this service is "free," even though it is well-documented (via a Mellon study) that the cost is now more than $30 per ILL transaction.
In this context, discussions with some academic librarians about the introduction of electronic journal services have not always brought the expected reactions. It had been our starting premise that electronic journals should mimic paper journals in certain ways, most notably that once you have paid the subscription, then you have unlimited use within the authorized user community. However, one large library consortium negotiator has taken the position that such an approach may not be desirable, that it may be better to start educating users that information has a cost attached to it.
Similarly, other librarians have expressed concern about on-line facilities that permit users to acquire individual articles on a transactional basis from nonsubscribed titles (e.g., in a service such as ScienceDirect ). While the facilities may be in place to bill the end user directly, the librarians believe the users will not be willing to pay the likely prices ($15-25). Yet, if the library is billed for everything, either
the cost will run up quickly or any prepaid quota of articles will be used equally rapidly. The notion that was suggested was to find some way to make a nominal personal charge of perhaps $1 or $2 or $3 per transaction. It was the librarians' belief that such a charge would be enough to make the user stop and think before ordering something that would result in a much larger ultimate charge to the library.
The concern that demand could swamp the system if unregulated is one that would be interesting to test on a large scale. While there have been some experiments, which I will describe further below, we have not yet had sufficient experience to generalize. Journal users are, presumably, different from America Online customers, who so infamously swamped the network in December 1996 when pricing was changed from time-based to unlimited use for $19.95 per month. Students, faculty, and other researchers read journals for professional business purposes and generally try to read as little as possible. They want to be efficient in combing and reviewing the literature and not to read more and more without restraint. The job of a good electronic system is to increase that efficiency by providing tools to sift the relevant from the rest.
It is interesting to note that in a paper environment, the self-described "king of cancellations," Chuck Hamaker, formerly of Louisiana State University, reported during the 1997 mid-winter ALA meeting that he had canceled $738,885 worth of subscriptions between 1986 and 1996 and substituted free, library-sanctioned, commercial document delivery services. The cost to the library has been a fraction of what the subscription cost would have been. He now has about 900 faculty and students who have profiles with the document deliverer (UnCover) and who order directly, on an unmediated basis, with the library getting the bill. He would like to see that number increase (there are 5,000 faculty and students who would qualify). It will be interesting to see if the same pattern will occur if the article is physically available on the network and the charge is incurred as a result of viewing or downloading. Will the decision to print be greater (because it is immediate and easy) than to order from a document delivery service?
This question highlights one of the issues surrounding transactional selling: how much information is sufficient to ensure that the article being ordered will be useful? Within the ScienceDirect environment we hope to answer this question by creating services specifically for individual purchase that offer the user an article snapshot or summary (SummaryPlus), which includes much more than the usual information about the article (e.g., it includes all tables and graphs and all references). The summary allows the user to make a more informed decision about whether to purchase the full article.
Tulip (The University Licensing Program)
Elsevier Science has been working toward the electronic delivery of its journals for nearly two decades. Its early discussions with other publishers about what became
ADONIS started in 1979. Throughout the 1990s there have been a number of large and small programs, some experimental, some commercial. Each has given us some knowledge of user behavior in response to price, although in some cases the "user" is the institution rather than the end user. The largest experimental program was TULIP (The University LIcensing Program).
TULIP was a five-year experimental program (1991-1995) in which Elsevier partnered with nine leading U.S. universities (including all the universities within the University of California system) to test desktop delivery of electronic journals. The core of the experiment was the delivery of initially 43, later an additional optional 40, journals in materials science. The files were bitmapped (TIFF) format, with searchable ASCII headers and unedited, OCR-generated ASCII full text. The universities received the files and mounted them locally, using a variety of hardware and software configurations. The notion was to integrate or otherwise present the journals consistently with the way other information was offered on campus networks. No two institutions used the same approach, and the extensive learning that was gained has been summarized in a final report (available at http://www.elsevier.com/locate/TULIP ).
These are a few relevant observations from this report. First, the libraries (through whom the experiment was managed) generally chose a conservative approach in a number of discretionary areas. For example, while there was a document delivery option for titles not subscribed to (each library received the electronic counterparts of their paper subscriptions), no one opted to do this. Similarly, the full electronic versions of nonsubscribed titles were offered at a highly discounted rate (30% of list) but essentially found no takers. The most frequently expressed view was that a decision had been made at some time not to subscribe to the title, so its availability even at a reduced rate was not a good purchasing decision.
Second, one of the initial goals of this experiment was to explore economic issues. Whereas the other goals (technology testing and evaluating user behavior) were well explored, the economic goal was less developed. That resulted perhaps from a failure in the initial expectations and in the experimental design. From our side as publisher, we were anxious to try out different distribution models on campus, including models where there would be at least some charge for access. However, the charging of a fee was never set as a requirement, nor were individual institutions assigned to different economic tests. And, in the end, all opted to make no charges for access. This decision was entirely understandable, because of both the local campus cultures and the other issues to be dealt with in simply getting the service up and running and promoting it to users. However, it did mean that we never gathered any data in this area.
From the universities' side, there was a hope that more progress would be made toward developing new subscription models. We did have a number of serious discussions, but again, not as much was achieved as might have been hoped for if the notion was to test a radical change in the paradigm. I think everyone is now more experienced and realizes that these issues are complex and take time to evolve.
Finally, the other relevant finding from the TULIP experiment is that use was very heavily related to the (lack of) perceived critical mass. Offering journals to the desktop is only valuable if they are the right journals and if they are supplied on a timely basis. Timeliness was compromised because the electronic files were produced after the paper-a necessity at the time but not how we (or other publishers) are currently proceeding. Critical mass was also compromised because, although there was a great deal of material delivered (11 GB per year), materials science is a very broad discipline and the number of journals relevant for any one researcher was still limited. If the set included "the" journal or one of the key journals that a researcher (or more likely, graduate student) needed, use was high. Otherwise, users did not return regularly to the system. And use was infrequent even when there was no charge for it.
Elsevier Science Experiences with Commercial Electronic Journals
Elsevier Electronic Subscriptions
The single largest Elsevier program of commercial electronic delivery is the Elsevier Electronic Subscriptions (EES) program. This is the commercial extension of the TULIP program to all 1,100 Elsevier primary and review journals. The licensing negotiations are exclusively with institutions, which receive the journal files and mount them on their local network. The license gives the library unlimited use of the files within their authorized user community. As far as we are aware, academic libraries are not charging their patrons for their use of the files, so there is no data relating user acceptance to price. At least one corporate library charges use back to departments, but this practice is consistent for all of its services and has not affected use as far as is known.
If you broaden the term user to include the paying institution, as discussed above, then there is clearly a relation between pricing and user acceptance. If we can't reach an agreement on price in license negotiations, there is no deal. And it is a negotiation. The desire from the libraries is often for price predictability over a multiyear period. Because prices are subject to both annual price increases and the fluctuation of the dollar, there can be dramatic changes from year to year. For many institutions, the deal is much more "acceptable" if these increases are fixed in advance.
The absolute price is also, of course, an issue. There is little money available, and high pricing of electronic products will result in a reluctant end to discussions. Discussions are both easier and more complicated with consortia. It is easier to make the deal a winning situation for the members of the consortium (with virtually all members getting access to some titles that they previously did not have), but it is more complicated because of the number of parties who have to sign off on the transaction.
Finally, for a product such as EES, the total cost to the subscribing institution
goes beyond what is paid to Elsevier as publisher. There is the cost of the hardware and software to store and run the system locally, the staff needed to update and maintain the system, local marketing and training time, and so on. It is part of Elsevier's sales process to explain these costs to the subscribing institution, because it is not in our interest or theirs to underestimate the necessary effort only to have it become clear during implementation. To date, our library customers have appreciated that approach.
Immunology Today Online (ITO)
Immunology Today is one of the world's leading review journals, with an ISI impact factor of more than 24. It is a monthly magazine-like title, with a wide individual and institutional subscription base. (The Elsevier review magazines are the exception to the rule in that they have significant individual subscriptions.) In 1994 Immunology Today's publishing staff decided it was a good title to launch also in an electronic version. They worked with OCLC to make it a part of the OCLC Electronic Journals Online collection, initially offered via proprietary Guidon software and launched in January 1995.
As with other journals then and now making their initial on-line appearance, the first period of use was without charge. A test bed developed of about 5% of the individual subscribers to the paper version and 3% of the library subscribers. In time, there was a conversion to paid subscriptions, with the price for the combined paper and electronic personal subscriptions being 125% of the paper price. (Subscribers were not required to take both the paper and electronic versions-but only three people chose to take electronic only.) At the time that OCLC ended the service at the end of 1996 and we began the process of moving subscribers to a similar Web version of our own, the paid subscription level for individuals was up to about 7.0% of the individual subscribers and 0.3% of the institutional subscribers.
The poor take-up by libraries was not really a surprise. At the beginning, libraries did not know how to evaluate or offer to patrons a single electronic journal subscription as opposed to a database of journals. (There is a steady improvement in this area, provoked in part by the journals-notably The Journal of Biological Chemistry -offered via High Wire Press.) How do you let people know it is available? How and where is it available? And is a review journal-even a very popular review journal-the place to start? It apparently seemed like more trouble than it was worth to many librarians.
In talking with die individual subscribers-and those who did not subscribe-it was clear that price was not a significant factor in their decisions. The functionality of the electronic version was the selling point. It has features that are not in the paper version and is, of course, fully searchable. That means the value was, in part, in efficiency-the ease with which you find that article that you recalled reading six months ago but don't remember the audior or precise month or the
ease with which you search for information on a new topic of interest. The electronic version is a complement to the paper, not a substitute. Those individuals who chose not to subscribe either were deterred by the initial OCLC software (which had its problems) and may now be lured back via our Web version or they have not yet seen a value that will add to their satisfaction with paper. But their hesitation has not been a question of price.
Journal of the American College of Cardiology
A project involving the Journal of the American College of Cardiology (JACC) was somewhat different. This flagship journal is owned by a major society and has been published by Elsevier Science since its beginning in the early 1980s. In 1995, in consultation with the society, Elsevier developed a CD-ROM version. The electronic design-style, interface, and access tools-is quite good. The cost of the CD-ROM is relatively low ($295 for institutions, substantially less for members), and it includes not only the journal but also five years of JACC abstracts, the abstracts from the annual meeting, and one year (six issues) of another publication, entitled ACC Current Reviews.
But the CD-ROM has sold only modestly well. Libraries, again, resist CD-ROMs for individual journals (as opposed to journal collections). And the doctors have not found it a compelling purchase. Is it price per se? Or is it the notion of paying anything more, when the paper journal comes bundled as part of the membership dues? Or is there simply no set of well-defined benefits? Clearly, the perceived value to the user is not sufficient to cause many to reach for a credit card.
GeneCOMBIS and Earth and Planetary Sciences Letters Online
I mentioned above that for some paper journals we have personal rates for individuals at subscribing institutions. This model has been extended to Web products related to those paper journals. In addition to the basic journal Gene, mentioned earlier, we publish an electronic section called GeneCOMBIS (for Computing for Molecular Biology Information Service ), which is an electronic-first publication devoted to the computing problems that arise in molecular biology. It publishes its own new papers. The papers are also published in hard copy, but the electronic version includes hypertext links to programs, data sets, genetics databases, and other software objects. GeneCOMBIS is sold to individuals for $75 per year, but only to those individuals whose institutions subscribe to Gene.
The same model is repeated with the electronic version of a leading earth sciences journal, Earth and Planetary Sciences Letters. The affiliated rate for the electronic version was introduced in 1997, with a nominal list price of $90 and a half-price offer for 1997 of $45. The electronic version provides on-line access to the journal and to extra material such as data sets for individuals affiliated with subscribing institutions.
It is too early to know whether this model will work. There certainly has been interest. In the case of GeneCOMBIS, its success will ultimately depend on the quality and volume of the papers it attracts. With EPSL Online, success will be determined by the perceived value of the electronic version and its added information. In neither case is price expected to have a significant effect on subscriptions. More likely, there will be pressure to extend the subscriptions to individuals working outside institutions that have the underlying paper subscriptions.
Experiences of Others
It is perhaps useful to note also some of the experiences of other publishers.
Red Sage Experiment
The Red Sage experiment started in 1992 and ran through 1996. It was initially started by Springer-Verlag, the University of California at San Francisco, and AT&T Bell Labs. Ultimately, several other publishers joined in, and more than 70 biomedical journals were delivered to the desktops of medical students and faculty at UCSF. As with TULIP, the experiment proved much harder to implement than had been originally hoped for. To the best of my knowledge, there were no user charges, so no data is available on the interplay of price and user acceptance. But what is notable is that there was greater critical mass of user-preferred titles among the Red Sage titles and, as a result, usage was very high. The horse will drink if brought to the right water.
Society CD-ROM Options
A second anecdote comes from discussions last year with a member of the staff of the American Institute of Physics. At least one of their affiliated member societies decided to offer members an option to receive their member subscriptions on CD-ROM rather than on paper, at the same price (i.e., the amount allocated from their member dues). The numbers I recall are that more than 1,500 members of the society took the option, finding the CD-ROM a more attractive alternative. I suspect that had they tried to sell the CD-ROM on top of the cost of the basic subscription, there would have been few takers. However, in this case, if you ignore the initial investment to develop the CD, the CD option saved the society money because it was cheaper on the incremental cost basis to make and ship the CDs rather than print and mail the paper version. In this case, the economics favored everyone.
The final observation relates to an electronic service that started last year called BioMedNet. It is a "club" for life scientists, offering some full text journals, Medline, classified ads (the most frequently used service), marketplace features, news,
and other items. To date, membership is free. There are more than 55,000 members, and another 1,000 or more come in each week. The site is totally underwritten at the moment by its investors, with an expectation of charging for membership at some later date but with the plan that principal revenues will come from advertising and a share of marketplace transactions. The observation here is that while the membership is growing steadily, usage is not yet high per registered member. There is a core of heavy users, but it is rather small (2-3%). So, again, behavior and acceptance is not a function of price but of perceived value. Is it worth my time to visit the site?
Peak: The Next Experiment
As was mentioned above, the aspect of the TULIP experiment that produced the least data was the economic evaluation. One of the TULIP partners was the University of Michigan, which is now also an EES subscriber for all Elsevier journal titles. As part of our discussions with Michigan, we agreed to further controlled experimentation in pricing. Jeffrey MacKie-Mason, an associate professor of economics and information, has designed the experiment at the University of Michigan. MacKie-Mason is also the project director for the economic aspects of the experiment.
This pricing field trial is called Pricing Electronic Access to Knowledge (PEAK). Michigan will create a variety of access models and administer a pricing system. The university will apply these models to other institutions, which will be serviced from Michigan as the host facility. Some institutions will purchase access on a more or less standard subscription model. Others will buy a generalized or virtual subscription, which allows for prepaid access to a set of N articles, where the articles can be selected from across the database. Finally, a third group will acquire articles strictly on a transactional basis. Careful thought has, of course, gone into the relationship among the unit prices under these three schemes, the absolute level of the prices, and the relationship among the pricing, the concepts of value, and the publishers' need for a return.
The experiment should begin in early 1998 and run at least through August 1999. We are all looking forward to the results of this research.
Journal publishers have relatively little experience with offering electronic full text to end users for a fee. Most new Web products either are free or have a free introductory period. Many are now in the process of starting to charge (Science, for example, instituted its first subscription fees as of January 1997 and sells electronic subscriptions only to paper personal subscribers). However, it is already clear that a price perceived as fair is a necessary but not sufficient factor in gaining users. Freely available information will not be used if it is not seen as being a productive
use of time. Novelty fades quickly. If a Web site or other electronic offering does not offer more (job leads, competitive information, early reporting of research results, discussion forums, simple convenience of bringing key journals to the desktop), it will not be heavily used. In designing electronic services, publishers have to deal with issues of speed, quality control, comprehensiveness-and then price. The evaluation of acceptance by the user will be on the total package.
Electronic Publishing Is Cheaper
Willis G. Regier
Electronic publishing is cheaper than many kinds of publishing. Cheap electronic publishing proliferates newsletters, fanzines, vanity publishing, testimonials, political sniping, and frantic Chicken Littles eager to get the word out. Cheaper publishing has always meant more publishing. But students, scholars, and libraries complain that there is already an overproduction of academic writing. Electronic publishing would just make matters worse, unless it comes with additional features to manage its quantity. Scholarly publishing is prepared to enter electronic publishing, but will not let go of print. Why? Because the demands of scholars and libraries for enhanced electronic publishing make it more expensive.
Electronic publishing comes with a long menu of choices: differing speeds of access, adjustable breadth and depth of content, higher or lower visibility, flexibility, durability, dependability, differentiation, and ease of use. In such a field of choices, there is not a basic cost or an optimum one or an upper limit. Until the wish for more and the desire to pay less find equilibrium, there will be discomfort and hesitation in the shift from paper to ether.
At present, most mainstream digital publications remain dependent on print, either as a publication of record, as with most scholarly journals, or as a nexus for electronic sites, as with the Web sites for Wired, numerous newspapers and magazines, publishers of all stripes, book clubs, and booksellers. In this parallelpublishing environment, print costs remain in place; the costs of mounting and maintaining a digital presence are added on.
Some publishers have established Web sites, with little expectation of recovering those added costs, in order to maintain an up-to-date profile, to market directly to customers, and to be sure that when and if the Web market matures, they will be ready to compete for it.
Those who declare that electronic publishing is cheaper than print focus chiefly
on perceived savings in reproduction and distribution. Once the first copy is prepared, its reproduction and transmission reduce or eliminate the costs of printing, paper, ink, packaging, shipping, spoilage, and inventory. The manufacturing cost of a typical print journal in the humanities, for example, consumes about 50% of the journal's operating budget, and shipping and warehousing can eat up another 10%. Such costs are incidental in the electronic environment.
But electronic publishing adds numerous new costs to preparation of the first copy. Further, the savings enjoyed by the publisher are made possible only if the end user, whether a library or an individual, has also invested a hefty sum in making it possible to receive the publication. Both the scholarly publisher and the end user alike are dependent upon even greater costs being born by colleges and universities.
As costs became more routine for Project MUSE, Marie Hansen calculated that the additional costs for preparing parallel print and electronic journals is about 130% of the cost of print only. Even if print versions were dropped, the costs to produce the first copy ready for mounting on a server would be as high as 90% of the cost of a paper journal. The cost savings for printing, storage, shipping, and spoilage are substantial, but in the digital realm they are replaced by the costs of system administration, content cataloging, tagging, translating codes, checking codes, inserting links, checking links, network charges, computer and peripherals charges, and additional customer service. The susceptibility of the Internet for revision and its vulnerability to piracy impose still other additional costs.
There are also high costs for acquisitions. It has taken longer than expected to negotiate contracts with journal sponsors, to obtain permissions, and to acclimate journal editors to the steps required for realizing the efficiencies of the digital environment. Electronic editors play fast and loose with copyright, always waving the banner of "fair use" while blithely removing copyright notices from texts and images. Explaining to electronic editors why copyright is in their best interest, and thus worthy of observance, has been just one time-consuming task. As Project MUSE matures, we see more clearly the costs of rearing it.
The Supra of the Infra
The costs of building a university infrastructure are enormous. The Homewood campus at Johns Hopkins is home to 5,200 students, faculty, and staff who want connections to the Internet. The start-up costs for rewiring the campus for UTPs (Unshielded Twisted Pairs)-at a rate of about $150 per connection-would have been impossibly high for the university if not for $1 million in help from the Pew Trust. According to Bill Winn, formerly associate director for academic computing at the Hopkins, it costs $20 per person per month to connect to the campus network. The network itself costs $1 million per year to maintain and an additional $200,000 to support PPP (point-to-point protocol) connections. The annual
bill to provide Internet access to the 900 students who live off-campus is an additional $200,000. The fee to the campus's Internet service provider for a 4-megabit per-second Internet link, plus maintenance and management, costs the university about $50,000 per year.
Students, Winn says, require high maintenance: if their connections are insecure, it is often because the connections have been ripped from the wall. Last year, students in engineering attempted to install a software upgrade for a switch that exceeded their wildest dreams: it shut down the university's system for more than a week. That adds up to about $20,000 of lost Internet access, not to mention the costs of repair.
In 1996, Johns Hopkins University budgeted $70,000 for hardware maintenance and $175,000 for hardware upgrades, chiefly to handle rapidly increasing traffic. The million-dollar budget supports a staff of three technicians, an engineer, a software analyst, and a director for networking. Their skills are in high demand, the salaries they can command are rising rapidly, and they are notoriously hard to retain.
A $15-to $20-per-month access charge is comparable to other campuses elsewhere in the United States. When it costs $180 to $240 per person per year to link a computer to the Internet, a university's administration confronts a huge recurring cost. And the costs go deeper: it is typical for each academic department to bear most of the costs for its own infrastructure, and often some department systems are incompatible with others. In order to make an initial investment worthwhile, expensive investments must be made regularly: upgrades, peripherals, database access fees, consultants, and specialized software. It is no wonder that many colleges have second thoughts about their level of commitment to Internet access.
To some extent, electronic publishers are stymied by the lag between the Internet's ability to produce and its readers' ability to receive. The lag bears a price tag, and so does any effort to close it. Some institutions cannot or will not pay, most state governments cannot pick up the bill, and the federal government is increasingly reluctant to reserve space or investment for scholarly networking. It becomes a matter for the publisher and the market to decide.
Digital prophets soothsay that electronic publishing will exacerbate monopolies and class divisions, or that a slow, steady spread of access will lower costs and promote democratization. In 1951 a new technology led Theodor Adorno to predict a publishing revolution: "In a world where books have long lost all likeness to books, the real book can no longer be one. If the invention of the printing press inaugurated the bourgeois era, the time is at hand for its repeal by the mimeograph, the only fitting, the unobtrusive means of dissemination." By contrast, Mario Morino, founder of the Legent Corporation, electrifies campus audiences
by asking, "Which corporation will be the first to acquire a university?" Costs are not everything. Even if they were, the Internet is full of threads on the inconsistent costs of access from place to place. If the digital revolution is a revolution rather than a colossal marketing scheme, it is because so many people and institutions are involved and invested.
It may be that computers will be as ubiquitous as television sets and an Internet connection as cheap as a telephone, but when I look at the role of the Internet in higher education, I see higher costs and foresee only more differentiation between universities based upon their ability to pay those costs. The conversion from print to pixels is not merely an expensive change of clothes: it is an enormous expansion of capability. The chief reason that scholarly electronic publishing costs more than print is that it offers more, much more, and students, faculty, and libraries want all of it.
Under the domain plan that Project MUSE, JSTOR, ARTFL, and other experiments are refining, electronic publishing achieves no less than seven advances in scholarly transmission: (1) instead of a library maintaining one copy of a work that can be read by one person at one time, the work can now be read by an entire campus simultaneously; (2) instead of having to search for a location and hope that a work is not checked out or misshelved, a user can find the full text at the instant it is identified; (3) the work can be read in the context of a large and extensible compilation of books and journals, including back issues, each as easily accessible as the first; (4) the work is capable of being transformed without disturbing an original copy; pages can be copied without being ripped out; copies can be made even if a photocopier is jammed or out of toner; (5) the work can be electronically searched; (6) there is no worry about misplacing the work or returning it by a due date; and (7) the electronic library can be open all night every day of the year. The increased value, if offered by a corresponding increase in price, permits libraries to spend a little more to be able to acquire much more: more content, more access, more use. Librarians pay close attention to what they pay for and many are willing to purchase ambitious electronic publishing projects. Project MUSE has already attracted 100 library subscribers who previously subscribed to no Johns Hopkins print journals, including libraries in museums and community colleges (see Figure 9.1).
If some claims for the digital revolution are laughably inflated, it is not for lack of information: the revolution has occurred with unprecedented self-consciousness and organizational care. That care comes from many sources. Foundation support has proved essential. The Association of American Publishers has led the way for standardization, defense of copyright, vigilance against piracy, and scrutiny of current and pending legislation. At Hopkins, Stanford, Chicago, and many other places, frank and frequent discussions between publishers and librarians have focused on the price and appeal of potential projects. Conversations with Jim Neal remind me that libraries are the original multimedium. For multiple reasons, librarians' reactions to the systemic costs of digitalization are immediately relevant
to publishing decisions. Many libraries are asked to acquire extraordinarily expensive databases without a clue about the relationship between price and actual costs, but partnering libraries know better.
For Project MUSE, the greatest cost is for personnel. For decades, it has been possible to maintain a journals program staffed by literate and dedicated people; MUSE employees also have to be adept with computers, software, protocols, and platforms. To raise MUSE from infancy, its employees must also be creative, patient, resourceful, and endowed with heroic stamina. Because their jobs require higher and higher levels of education and technical skill, starting positions are more expensive. Disregarding administrative costs, the staff of MUSE cost about 20% more per capita per month than the staff of print journals, and the differential is rising.
We are just beginning to understand the costs of hiring, training, and retaining qualified staff. Because the skills of the Project MUSE team are pioneering, those
who succeed are subject to recruitment raiding for higher salaries. Due to the inordinate pressures put upon them-the stress of tight schedules, the frustrations of downtime, the frictions of incompatible programming and opposed ideas-these young people are prone to rapid burnout.
Excluding independent contractor costs, personnel costs account for 46% of the start-up and maintenance costs for Project MUSE. Including independent contractor costs, which are themselves chiefly a matter of personnel, that percentage rises to 59%.
The second-largest expense has been hardware, accounting for 12% of total costs. Third is rent, at 3.3%. Fourth, surprisingly, has been travel, requiring 2.9% of investment. The travel budget is a consequence of the need to parlay and negotiate on every frontier: with the learned societies and editorial boards that run the journals, with the librarians who buy them, and with editors who contemplate moving their journals to MUSE. In the first two years of MUSE's development, our efforts to build MUSE were distracted by the novelties of the Internet-training staff, dealing with journal sponsors, conversing with libraries-each a task as vital as the selection of software or the conversion of codes. Marketing was kept to a minimum until MUSE had a complete package to deliver. With the completion of the 40-journal base in December 1996, Hopkins is now in high gear marketing MUSE. Travel and exhibits will have higher costs as MUSE strives to attract a subscription base strong enough to become self-supporting.
The electronic Market
Marketing on the Web is a different creature than marketing via print or radio, because it must contend with misinformation and with building an audience. Misinformation about an electronic site shows up in the same search that finds the site itself and may require quick response. MUSE responds readily enough to the Internet's search engines, but only if the person is searching. Even then, the searcher can read text only if the searcher's library has already subscribed. At the December 1996 Modern Language Association exhibit, about half the persons who expressed their wish that they could subscribe to MUSE belonged to universities that already did, but the scholars didn't know it. With usage data looming as a subscription criterion, we cannot rest after a subscription is sold; we still have to reach the end user and solicit use. Otherwise scholars and libraries alike will be unable to determine the value of what is available on-line.
The marketplace itself is changing. Most conspicuously, the unexpected formation of library consortia has reshaped many a business plan. Expectations of library sales have often hung fire while libraries consorted, but in the long run it is likely that by stimulating these consortia, electronic publishing will have served an important catalytic function for discovering and implementing many kinds of efficiencies.
The Net market is enormous and enormously fragmented. In the next year there will be numerous marketing experiments on the Web. New and improved
tools emerge every month that will help us reply to scholars with specific requests, complaints, and inquiries. Publishers are cautiously optimistic that electronic marketing will prove more advantageous than bulk mail, and it will certainly be cheaper. Already most university presses have their catalogs on-line and many are establishing on-line ordering services.
Customer service is another high cost-at present, much higher than for print journals. Today it takes one customer service agent to attend to 400 Project MUSE subscriptions, while a customer service agent for print journals manages about 10,000 subscriptions. But the future offers bright hope. In February 1997, our customer service agent for Project MUSE sent an e-mail message to 39 pastdue subscribers to MUSE who were not with a consortium. Within 24 hours of sending the message, she received 29 responses to it, and 4 more arrived the next day. Each thanked her for sending the letter, and all 33 renewed for the year. Here the advantages of on-line communication are obvious and immediate.
There are also costs that are difficult or impossible to track or quantify, like intellectual costs. It is these costs that have emerged as the next vexed problem in the development of electronic scholarly resources. The problem has three prongs.
One is scholarly skepticism about the value of electronic publishing for tenure and promotion. Rutgers University has put a policy in place; the University of Illinois and Arizona University are in the process of setting their policies. Like everything else in the digital environment, these policies will likely need frequent change.
The fluidity of the Web, gushing with nautical metaphors, often seems a murky sea. Journal editors are anxious about the futures of their journals and hesitant about entrusting them to a medium as fleeting as electricity. Well aware of past losses to flood and fire, scholars prefer durable media. This preference is firmly based: scholarship studies its own history, its history is full of ideas that took years to hatch, and the Web seems unstable, engulfing, and founded on a premise of perpetual replacement. Scholars care about speed, but they care more that their work endures; that it is a heritage; that if they care for it well, it will live longer than they do. Scholars who use the Net frequently encounter defunct URLs, obsolete references, nonsense, wretched writing, and mistakes of every kind. Ephemera appear more ephemeral on-screen. Chief among the concerns expressed by librarians interested in purchasing an electronic publication is whether the publication is likely to be around next year and the year after.
The third prong is the sharpest: will electronic publishing be able to recover the operating costs of producing it, the costs of editing, of maintaining a membership, of defending a niche? If journals are to migrate to electronic formats, they will have to be able to survive there and survive the transition, too: the current competition is part endurance, part sprint. Since parallel publishing in print and on-line costs more, library budgets will either have to pay more to sustain dual-format journals, choose between them, or cut other purchases.
In the short term, there is reassurance in numbers. Rather than erode reader
and subscription base, electronic versions of journals may increase them (see Figure 9.2). Even if paper subscriptions dwindle, the increase in subscriptions and readership may last. Perhaps, perhaps. Means for cost recovery for each journal must also last, which is why different publishers are trying different pricing strategies.
Competition in the electronic environment is expensive and aggressive (a favorite book for Netizens is Sun Tzu's Art of War ). Foundation assistance was essential for enabling university presses and libraries to enter the competition, but it is uncertain whether their publications can compete for very long when founda-
tion support ends. Scholarship has deep reservoirs of learning and goodwill, but next to no savings; one year of red ink could wipe out a hundred-year-old journal. Unless journal publishers and editors migrate quickly and establish a system to recover costs successfully, the razzle-dazzle of paper-thin monitors will cover a casualty list as thick as a tomb.
The risks of migration increase the costs of acquisition. Publishers and their partners are trying to determine what costs must be paid to attract scholars to contribute to their sites. It is obvious that a moment after a scholar has completed a work, a few more keystrokes can put the work on the Web without bothering a publisher, librarian, faculty committee, or foundation officer. Electronic publishing is cheaper than print, if you rule out development, refereeing, editing, design, coding, updating, marketing, accounting, and interlinking. Further, there are numerous scholars who believe they should be well paid for their scholarship or their editing. Stipends paid by commercial publishers have raised their editors' financial expectations, which in turn exacerbate the current crisis in sci-tech-med journals. Retention of such stipends will devour savings otherwise achieved by digitalization.
How much added value is worthwhile? Competitive programs are now testing the academic market to see whether scanned page images are preferable to HTML, whether pricing should sequester electronic versions or bundle them into an omnibus price, what degree of cataloging and linking and tagging are desired, what screen features make sense, and a realm of other differentia, not least of which is the filtering of the true from the spew. We expect to see the differences between the costs and prices of scientific and humanities journals to grow larger; with library partners scrutinizing real usage and comparative costs, we expect these differences will be less and less defensible. We expect to see gradual but salutary changes in scholarship itself as different disciplines come to terms with the high visibility of electronic media. We expect to see shifts in reformation of publishers' reputation, with all that a reputation is worth, as professionally managed electronic media distance their offerings from the Web sites of hobbyists, amateurs, and cranks. Finally, we expect to see increasing academic collaboration between and within disciplines. As electronic publishing increases its pressure on hiring, evaluation, tenure, and promotion, the certification and prestige functions of publishers will increasingly depend on their attention to the emerging criteria of e-publishing, in which costs are measured against benefits that print could never offer. Because students, faculty, and libraries want these benefits, scholarly electronic publishing is not cheaper.
Economics Of Electronic Publishing—Cost Issues
Comments on Part Two
I have a few brief comments on the very interesting and stimulating chapters prepared by Janet Fisher (chapter 5), Malcolm Getz (chapter 6), and Bill Regier (chapter 9). I'll focus on their presentations of publisher costs. I'll add a few words about the electronic publishing efforts we have undertaken at the University of Chicago Press and contrast the model we have adopted with the ones that have been mentioned earlier.
Janet Fisher, from the MIT Press, gave us costs related both to the electronic journals that they are publishing and to two of MIT's print journals. In Table 10.1, I've reworked the numbers and computed "first-copy" costs on a per-page basis. What I mean by first-copy cost is simply the cost for editing, typesetting, and producing materials that can subsequently be duplicated and distributed to several hundred or several thousand subscribers. The total first-copy costs for electronic journals at MIT Press range from approximately $15 to $56 per page, and the total first-copy costs for the print journals are $22 and $24 per page. In computing these costs, I did not include what Janet labeled as the d G&A costs, the general and administrative costs, but I did include the portion of the cost of the Digital Projects Lab (DPL) that is related to first-copy production.
Several things here are important and worth comment. First, the DPL cost, that is, the cost of preparing an electronic edition after editing and typesetting, is a significant portion of the total. Although the percentage varies between 13% and 62% (as indicated in Table 10.1), the cost is close to 50% of the total first-copy costs of publishing these particular electronic journals.
This breakdown raises the questions, why are these costs so high? and, will they decline over time? I think the expense reflects the fact that there are handcrafted aspects of electronic production, which are expensive, and substantial hardware costs that need to be allocated among a relatively small number of publications and pages. As for the future, the per-page costs at the DPL can be expected to go
down as pages increase and new processing techniques are developed, but even if they do go down to 40%, the totals for digital production are going to be a significant portion of the publisher's total cost. This is important.
Another point about these costs. Note that the total first-copy costs of the electronic journals average $40-$43 per page, whereas those for the print journals average about $23 per page-roughly a $20 difference in the costs. For a 200-page issue, that would amount to about $4,000. That is, it is $4,000 more expensive to produce materials for the reproduction and distribution of 200 pages in electronic form than for the reproduction and distribution of 200 pages in hard-copy form.
If $4,000 will pay for printing and distribution of a 200-page issue to 500 subscribers, which is a reasonable estimate, then MIT can produce a print edition less expensively than an electronic edition when the distribution is under 500. That conclusion is important: at this point, for the MIT Press, it's cheaper to produce journals in paper than to do them electronically, if the circulation is small, i.e., less than 500. That situation may evolve over time, but right now, the additional costs of electronic processing are not offset by sufficiently large reductions in printing and distribution costs.
Now let me turn to the paper by Malcolm Getz. Malcolm presented some numbers from the American Economic Association (AEA), and the numbers in Table 10.2 are approximately the same as the ones he presented. I have also presented numbers from the University of Chicago Press for 37 of our titles. That
figure is not the total of our serial publications; we publish 54 in all. The figure excludes The Astrophysical Journal, our largest single title, and a number of journals that we publish in cooperation with other not-for-profit organizations. The journals that are included are principally titles in the humanities and social sciences, with some in medicine and biology.
The breakdown of costs for the Press and for the AEA is quite similar. Editorial costs are 36% for AEA and 32% for the Press. Typesetting is 13% for AEA and 10% at the Press, though it varies substantially by journal. Distribution costs are similar. Overall, these numbers are very close, and they are, it seems to me, reasonable numbers industry-wide.
It is possible to provide a more detailed breakdown of the numbers for the Press, and in Table 10.3, I have broken down the 32% that is related to editorial into the portion that is related to the peer review of manuscripts, which is 22% of the total, and the portion that is related to manuscript editing, which is 10% of the total. Because of the manner in which some of the Press's costs are recorded, the number I have shown for manuscript editing may be somewhat higher, but the breakdown between peer review and manuscript editing is a reasonably accurate division of costs in traditional journal publishing. I think this revised breakdown of costs provides an interesting context for reviewing the way in which costs evolve in an electronic publishing environment, and I would like to turn now to make a few remarks about the possibilities for cost restructuring and cost reduction.
The electronic publishing model we have been discussing is structured so that, basically, electronic costs are add-on costs: you do everything you do in print, and then you do some more. I have outlined the process in Table 10.4. The process includes the traditional functions of peer review, manuscript editing, typesetting, and printing and mailing and adds new functions and new costs for the derivation of electronic materials from the typesetting process and for the management of electronic services.
In this model, as for the vast majority of journals, so long as we continue to produce both print and electronic editions, the total cost is not going to decrease. The reason is that, even if a significant portion of the subscribers convert from paper to electronic editions, the additional costs for electronic processing are not offset by reductions in the printing and distribution costs. As we all know, the marginal
cost of printing and mailing is small, much smaller than the average cost, and the additional costs for electronic processing are substantial. The consequence is that, in this model, electronic costs turn out to be added costs, costs in addition to the total that would exist if only a print edition were being produced.
This is exactly what is argued by Regier. He reported that for Project MUSE, the electronic publishing venture of the Johns Hopkins University Press, the total costs for both print and electronic editions were about 130% of the print-only costs. This increase is significant, and I believe it is representative of efforts that are based on deriving electronic materials from typesetting files, as a separate stage of production, undertaken subsequent to the typesetting process.
I would now like to discuss another approach to electronic publishing, another way to obtain electronic materials and to do electronic dissemination. This process is quite different from the one I have just described, with different cost structures and different total costs. The process is outlined in Table 10.5. In this process, data are converted to SGML form in the earliest stages of editing. Then the SGML database is used to derive both the typeset output for hard copy printing and the electronic materials for electronic dissemination.
This process generates costs quite different than those for the model we looked at before. The costs are summarized in Table 10.6. Most important, there is a substantial increase in the cost at the beginning of the process, that is, in the conversion of data to SGML form and the editing of it in that format. SGML editing is not easy and it is not cheap. However, because manuscripts are extensively marked
up and formatted in this process, a typeset version can be derived from the SGML database inexpensively, and of course, the electronic files for distribution in electronic form are also straightforward and inexpensive to derive. Overall, the additional costs for conversion and editing are being offset in large part by reductions in typesetting costs.
This process is the approach that we have undertaken with The Astrophysical Journal at the University of Chicago Press and are now implementing for other publications. The Astrophysical Journal, sponsored by the American Astronomical Society, is the world's leading publication in astronomy, issuing some 25,000 pages each year, in both print and on-line editions. The conclusions we have reached in our efforts for that journal are that a reduction in the typesetting costs can offset other additional costs and that this method of producing the journal is less expensive than any alternative way of generating the electronic materials that we want to obtain for the on-line edition.
These general conclusions are probably applicable to most scientific and technical journals, because this method, based on processing in SGML form, results in substantial reductions in the cost of typesetting tabular and mathematical matter. For those publications, we will be able to produce electronic editions for, at most,
10% more than the cost of producing print editions alone. In some cases it may be possible to produce electronic versions in addition to the print versions at no additional total cost.
Let me add one other point. Because we are converting manuscripts to SGML immediately and editing in SGML, we can obtain materials for electronic distribution much faster than in the traditional print model. In 1997 we published papers in the on-line edition of The Astrophysical Journal Letters 14 days after acceptance by the editor. That turnaround is possible because we obtain the electronic version immediately from our SGML database and do not derive it by postprocessing typesetting files.
In sum, this process will allow us, in certain circumstances, to publish complex scientific material in a sophisticated electronic version both less expensively and more rapidly than by employing alternative means. This sort of processing is an important alternative approach to electronic publishing.