Models and tools
Abstract.
Chapter 3 considers the various types of model – business, costing, funding and pricing – that are relevant to the digital library. It aims to bring together the key themes from earlier chapters and case studies to provide a broader picture of digital library economic management in practice.
Introduction
In this chapter we cover the various types of model – business (economic/financial), costing, funding, pricing – that are relevant to the digital library. We aim to provide a critique of the various models, drawing on practical examples and the case studies and categorising the models according to purpose and requirement. There are many different options for the digital library manager in terms of funding streams, and many of the case studies that accompany this chapter have been selected in order to give practical examples of the ways in which activity can be funded, particularly in the longer term.
Defining the different models Business (economic, financial) model
There are many definitions of the terms ‘economic (or financial) model’ and ‘business model’ and the phrases are often used interchangeably, including in the case studies that form the bulk of this handbook. We regard them as different concepts, however, not least in the digital library context. For us, an economic model is a ‘theoretical representation of economic reality showing the interrelationships between selected economic variables’ (Alexander and Baden, 2000) characterised as ‘a simplified framework designed to illustrate complex processes, often but not always using mathematical techniques’.1 A business model provides ‘a set of generic level descriptors of how a firm organises itself to create and distribute value in a profitable manner’ (Baden-Fuller and Morgan, 2010). We regard a financial model2,3 as being midway between an economic and a business model in that it describes mathematically the relationship between financial and operational aspects of a business and offers the opportunity to carry out ‘what if’ scenario planning and the likely financial impact of a particular set of decisions, thus enabling effective risk management to happen. Given the more practical approach of this book, we focus on business rather than economic or financial models for the most part.
Funding model
We regard a funding model as being ‘a means of establishing an appropriate funding level for sustainment of the assets’4 – in this context, collections, services or other digital library resources or activities. We also add to this definition the identification and management of the sources of funding. ‘The requirements of ongoing sustainability demand at their base a source of reliable funding, necessary to ensure that the constant, albeit potentially low level, support … can be maintained for as long as it is required’ (Bradley, 2005). The Blue Ribbon Task Force commented:
Funding models should be tailored to the norms and expectations of anticipated users. They should leverage economies of scale and scope whenever possible. Digital assets do not need to be treated as a public good in all cases. Market channels are often the most efficient means of allocating resources for preserving many types of digital content. (Blue Ribbon Task Force, 2010)
Costing model
We found the following definition of a costing model helpful and suggest that it is particularly appropriate for digital library work:
In order to calculate the costs of providing services it is necessary to design and build a framework in which all costs can be recorded and allocated or apportioned to specific customers or other activities. Such cost models can be developed to show, for example, the cost of each service, the cost for each customer or the cost for each location.5
Pricing model
A pricing model is ‘a method for deciding what prices to charge for [an organisation’s] products or services’.6 We would add that the determination of pricing levels is likely to depend upon the overall business model chosen, the costs likely to be incurred, possible sources of funding, the outcome of any financial modelling and the level of risk to be entertained. Due account needs to be taken of what those being charged are willing and able to pay.
Business models
The Blue Ribbon Task Force (Blue Ribbon, 2008: Interim Report) defined a business model as
a description of the ways in which an organization does its business to achieve its mission. A formal business model includes items such as the market being served, its product and service offerings, the perceived value delivered to the market, sources of revenue, financial and cost models that will support inflows and outflows of funds, and its strategic alignment, policies, and procedures. In general, however, business models are not formally expressed except at start-up, when funding bodies require proof that a coherent and sustainable plan does exist. Frequently, the term ‘business model’ is used in everyday parlance as a way to express a general intuition of the ways in which an organization raises its money to sustain itself.
On the other hand, Collier commented that:
The term ‘business model’ is used for a broad range of informal and formal descriptions to represent core aspects of an organization, including purpose, offering, strategies, infrastructure, organizational structures, trading practices, and operational processes and policies. (Collier, 2010)
Halliday and (Oppenheim 1999) undertook one of the first British studies attempting to develop business models (which they term ‘economic models’) – ‘ancient history in terms of digital libraries’ (Law, 2009). Since then, there has been a good deal of work on the economic aspects of digital publishing and, more recently, on digital preservation and content creation. Building on this previous work, Houghton (2009) looked at the costs and potential benefits of alternative models for scientific and scholarly publishing in three European countries. The work began in Australia in 2006 with a study of research communication costs, emerging opportunities and benefits (Houghton et al., 2006). This was followed by a major study of the economic implications of alternative scholarly publishing models for the Joint Information Systems Committee (JISC) in the UK (Houghton et al., 2009). In Case Study 7 Houghton comments on and updates this work.
The search for suitable business models in order to deliver sustainability continues to be a major theme (see, for example, Beagrie et al., 2008; Ayris, 2010; Knight, 2010; Beagrie et al., 2010). The Digital Preservation Coalition’s Preservation Management of Digital Material Handbook (2006) also deals with the business model for the digital library, including the issues of benefit and value. It references approaches, such as the British Library’s use of ‘contingent valuation’, to ‘enumerate the value of collections and services which had previously appeared to be unquantifiable’.
Types of business model
In Digital Library Economics (Baker and Evans, 2009), we identified a number of potential business models for digital commerce. Table 3.1 summarises our findings. The choice of model will vary depending upon the particular circumstances (Knight, 2010).
Table 3.1
Types of business model for digital commerce
| Type | Comment |
| ‘Free’ | The costs of set-up and maintenance are absorbed by the owner rather than passed onto the user. Such collections and services may suffer from poor quality, with the user needing to spend time searching to find the good ones. |
| Controlled circulation | The user registers and perhaps pays a membership fee to a ‘society’ or similar organisation which is signed up to access the content. Access and quality are perhaps more obviously monitored, with the costs of provision being associated with qualification for membership and then with user access and authenticity management processes. |
| Subscription | Access will normally be password based; costs will relate to the subscription charge for the users, and for the providers will relate to monitoring/authenticating users and security issues or content aggregators. There will be the potential for having personalised levels of subscription, ranging from a basic, cheaper, subscription for basic access, with premium services that cost more but which are more in-depth, more useful for the individual and perhaps therefore more exclusive.1 |
| Advertising subsidised | Here, content is subsidised by a third party in exchange for advertising space, though experience suggests that it may be difficult to make such a deal attractive and cost-effective for the advertisers, especially because there is no standard model for pricing the advertising offer and ‘ad hoc Web advertising pricing models will continue to hinder the sponsorship model as a legitimate revenue stream’ (Kahin and Varian, 2000). There would seem to be a need for proper metrics and performance indicators to ensure pricing models are based on accurate and sustainable bases in this kind of environment. |
| Transactional or pay-per-view | There are potential cost-savings in this model because of efficiency through specificity, but the costs may be unpredictable with a high administrative overhead cost from administering payments. |
| Broadcast | User-created profiles trigger content being delivered to users’ desktops. Most of the costs would seem to be fielded by advertisers but there are also fixed costs associated with establishing and running the push technologies. |
| Bundling | Bundling has a number of advantages and disadvantages. The bundle may consist of a fixed list of titles for a number of years. If the purchaser does not have the funds to add new titles, this can lead to a lack of flexibility if some journals lose their attraction while new ones gain in value and relevance during the lifetime of a contract; however, bundling and lack of flexibility does provide budget predictability which is often required by libraries and public institutions (Baker and Evans, 2009). |
| Partnership provision | One way of engendering sustainability is to develop (public-private) partnerships, where the roles of content creators and revenue generators are shared, as for example with JSTOR (Case Study 1). Other, more hybrid, models have developed. In the case of the 18th Century Official Parliamentary Publications Portal 1688–18342 at the University of Southampton, materials are served through different platforms.3 Here, a percentage of the commercial publisher’s revenues are shared among the consortia, which helps to maintain and develop the ‘open access’ eighteenth-century materials. Increasingly, consortia of research libraries4 are contributing content to joint ventures where the production costs are lowered. Digitisation centres undertake digitisation for ‘special collections’ or are outsourced through vendors for less valuable objects and then delivered through either not-for-profit agencies such as JSTOR or via commercial partners – adding e-infrastructure and track records in the delivery of collections to various markets. |
| Versioning/ quality discrimination | ‘Consumers [will] … sort themselves into different groups according to their willingness to pay’ (Kahin and Varian, 2000). There will be a need to find out what measures of ‘quality’ the customers are interested in. There is a fear that substandard information may be dangerous and that producers will seek to maximise profits by producing very low-quality products to those at that end of the spectrum. However, if a number of levels are provided, business models could be created that offer better quality at the higher ‘levels’, though the provider must ensure that added features and different elements can be offered so that versioning is possible in this environment. |
1See, for example, Willinsky (2007).
2http://www.parll8c.soton.ac.uk/parl18c/digbib/home
3http://www.il.proquest.com/pressroom/pressrelease/07/20071017.shtml
4UK examples include the Research Libraries UK nineteenth-century pamphlet project: http://www.jisc.ac.uk/whatwedo/programmes/digitisation/pamphlets.aspx and the Core e-Resource on Ireland: http://www.jisc.ac.uk/whatwedo/programmes/digitisation/ireland.aspx.
(Tanner 2009) notes that ‘the business models most associated with Open Access (OA) are the article processing charge (APC) and the direct funding model. In the APC model a fee is levied for the cost of publication, paid generally by the author’s funder or institution. In the direct funded model, a society, a foundation or a research organisation funds the publication as part of the mission of the organisation. The question remains whether the costs to digital libraries of maintaining access will be equitable in OA models against traditional journal publication.7 In many cases there will be a range of possible business models that can be adopted and a hybrid approach may be the best way forward.
The traditional funding model requires libraries to acquire their basic (digital) library services through the purchase of site licences, usually by annual subscription. Individual users then pay for any additional services such as printing and photocopying. Seer (2004) has analysed how the library budget can be stretched and highlights a number of basic approaches which are pertinent to all libraries in general. These approaches include:
decision-making where fee based e-resources have similar content;
negotiating with vendors and avoiding pressure to subscribe to an entire package where a subset of the package will actually satisfy the need;
questioning individuals’ purchasing of personal subscriptions;
promoting resources and leading users to them;
having a written acquisitions policy;
These are all areas the library should be engaging with but they take time and need to be handled methodically and sensitively.
A number of alternative funding models have been suggested. Institutions could continue to cover the full costs, as now, and as technology gets cheaper there are arguments that this model will itself become cheaper. Lesk (2004) considers other models, including funding by institutions, by authors, by user subscription and via advertising, as well as a number of other potential funding routes. Lesk also looks at the cost of a book in terms of digital space and storage and calculates that most of the cost of a library is in services such as cataloguing, reference, circulation and other related services, which implies not so much money will be saved by reducing the storage costs in favour of digitisation. ‘If 80% of a library’s cost is in services, even reducing the storage cost to zero leaves the library needing 80% of its budget.’
The report commissioned by the Strategic Content Alliance on Sustainability and Revenue Models for Online Academic Resources (Guthrie et al., 2008) listed the following types of funding model:
This list can be categorised into direct and indirect beneficiaries as payers:
direct beneficiaries pay subscriptions/one-off payments/per use;
indirect beneficiaries pay (for example, host institutions, sponsors, advertisers, philanthropists, content licensing).
Many fear the pay-per-use/transaction model less than a situation in which publishers cut out libraries completely and interact directly with users, which may restrict society’s access to, and ownership of, information and will in turn reduce a library’s interest in facilitating the preservation of information, possibly resulting in loss to future generations.
Charging, costing and pricing models
Charging for content and services is inextricably bound up with costing of the activities needed to provide the product. What to charge – the price – is also a fundamental part of the equation (see, for example, Lesk, 1997, 1999, 2005). In addition, libraries have to justify costs, especially where they increase. Can use justify cost? Methods need to be used to offer proper evaluation in order to answer this question (Koehn and Hawamdeh, 2010). If information is created by or for the public sector or with public-sector funding, should it be free? There is a risk that if ‘the public’ has to pay for it, the business model becomes in effect one of double charging – via taxes and then via direct charges. Should digital libraries, then, be supported and structured like traditional libraries, and provided free either to certain defined groups of users or, indeed, to all users? Some argue that public sector institutions should not automatically have to provide free, open access. Information needs to be treated as a valuable commodity, not a free public good, or it is a public good but it must have sufficient investment to protect its continued existence and quality. It is important to understand that e-information does not necessarily fit within the existing model of the free-market economy. The digital library offer therefore needs to be both attractive and potentially flexible. Although initial costs are higher than with other forms of library, if the digital library resource is used more frequently than others it should be a good investment. The challenge, then, is likely to relate to increasing usage to make sure that provision is as cost-effective as possible as quickly as possible.
However, as Lynne Brindley points out:
There has been relatively little deep discussion of charging and pricing models … with a general philosophy underpinning national site licence deals being that of ‘free at the point of use’ to all those in the scope of the community covered by the relevant deal. In the twenty-first century, the emphasis has moved much more towards user driven models of economic value, with users wanting more personalized information systems and free access to an increasingly rich set of public domain software tools and content. They expect to experience these for free, albeit often with targeted advertising attached, as new business and service models emerge and begin to dominate. (Brindley, 2009)
We also noted in Digital Library Economics that:
When first developing electronic access, many producers or publishers based their pricing models on those in use for hard-copy materials. A more appropriate model would have been to look to do new things and to make the services – and the prices – most attractive to the consumer. (Baker and Evans, 2009)
In this context, it is important to note that costs can be redistributed. While there may be costs associated with digital libraries that are not present in traditional library services, there will also be savings, as many of the case studies in this handbook point out, and these must be taken into account when looking at the overall business model.
It is the role of foundations and government agencies to provide startup capital for academic projects that are unlikely to generate commercial returns and are therefore unlikely to attract commercial interest. Some foundations may be prepared to make repeated investments in projects that are critical to their own missions, and perhaps prepared to make recurring commitments to fund operating expenses. But in most cases, projects must regard initial funding as precisely that – start-up funding to bridge the organisation to other reliable, recurring, and diverse sources of support. Taking this approach is healthy because it forces projects to engage a variety of beneficiaries directly (users; commercial, governmental and non-profit beneficiaries), rather than working only to ensure that the primary funder continues to be satisfied with progress. (Guthrie et al., 2008)
Start-up costs will present a major challenge for digital libraries. Finding the resources to make the initial investment will require a strong business case to be made. Typically, as noted in Case Study 6, the single largest cost – recurrent as well as capital – will be staff time.
Hardy et al. (2001) researched into charging mechanisms for the delivery of digitised texts to students in the (UK) higher education sector and considered a number of possible pricing strategies in relation to the HERON (Higher Education Resources ON-demand) project that would be ‘mutually acceptable’ to all the key stakeholders. Hickox et al. (2006) describe how to carry out a variable cost analysis so that the total costs to the library can be determined, noting the need to predict future costs broken down according to key categories. Mayrhofer (2003) discusses the pricing of information goods with respect to the digital library. He notes that ‘the cost structure … is a special one’. The cost of production is dominated by the ‘first-copy costs’ which means that information is produced costly but reproduced cheaply. Hence the fixed costs are large but the variable costs of reproduction are small which is a typical case of substantial economies of scale. The Blue Ribbon Task Force (2010) described ‘economies of scale’ as referring to a situation where:
The average cost of producing a good (or service) declines as the scale of production increases. This could happen, for instance, if a firm can buy in bulk, taking advantage of lower unit costs on its inputs, or by allowing more specialization of its workforce, allowing each worker to become more efficient. Economies of scale occur because the organization can spread its fixed costs over a larger and larger level of output as it expands in scale. If a particular industry experiences economies of scale, this suggests that one very large firm can produce the product at a lower average cost than a number of smaller firms could.
Maron and Loy (2011) comment that:
The economies of scale needed to develop and deliver electronic resources do not favour the creation of many small, independent entities, each developing its own infrastructure and content to serve niche audiences. Even the most prestigious national collections with vast holdings to draw from … actively develop content partnerships and continuously seek ways to achieve the scale they feel will provide value to their users and their customers. Smaller, niche collections surely have their work cut out for them.
Mayrhofer (2003) also considers different options of price discrimination and models of pricing – depending on type and status of user (individual, group, organisation, member/non-member), willingness and/or ability to pay and time of year/level of demand – were examined with special emphasis on the economics of bundling information goods. Bundling is a pricing tool primarily for monopoly suppliers and which ‘not only guarantees payment in advance, but also secures payment for low use [materials]’. It also provides certainty – though not necessarily the greatest economy – to the subscriber. The PSLI (UK Pilot Site Licence Initiative) used bundling as a pricing mechanism, with the publishers involved gaining more revenue by offering all of their titles as a single product.8
The PEAK (Pricing Electronic Access to Knowledge) project at the University of Michigan9 provided a production service-based opportunity to develop experimental pricing for journals available from Elsevier Science, to evaluate the effect of different schemes on users and producers and to look at the additional value that can be gained from the use of electronic resources and pricing schemes. Three types of bundling were offered:
traditional – buy access to pre-designed journals;
generalised – buy access to user-chosen articles in bundles of 120;
per article – buy individual and unlimited access to articles.
Initially libraries saw ‘the generalised subscription as a way of increasing the flexibility of their journal budgets and of tying purchasing more closely to actual use’ (Bonn et al., 1999), though experience suggests that the majority of usage is clustered around a small number of articles. According to Mayrhofer’s research, bundling is particularly apposite when there is a relatively broad range of demand for different products that therefore make bundling attractive to the producer, especially where economies of scale ensue because the added cost of providing material to subsidiary audiences is marginal or even zero. This is not always the case, especially where the cost of bringing bundles to widely disparate readerships results in significant additional cost in which case differential pricing – if feasible – has to be introduced. A number of interesting aspects of digital usage have emerged from bundled provision and these provide some of the reasons for developing new pricing schemes. The (digital) environment has changed in recent years and, at least in terms of academic publishing and usage, because the article or the chapter is the main transaction unit rather than the journal or the book (Baker, 2006), bundling in particular is arguably becoming less attractive than when electronic versions first appeared (Baker and Evans, 2009). Unbundling (that is, pay-per-unit or access/use rather than blanket subscription) may be a better option both for supplier and consumer. There are lots of options (based on variables such as access level, length of access and functionality) which are feasible in a digital library situation in a way in which they would not be with print-on-paper provision.
The importance of market research (as discussed in Chapter 2 and Case Studies 2, 10 and 12) is stressed in much of the relevant literature, as is the need to be clear about the actual costs of production and delivery. The prices set should be realistic in the context of actual expenditure, target income and surplus levels. Similarly, products and services need to be developed that are not only attractive to the relevant markets but are also likely to attract a sufficient share of those markets to command a sufficient degree of ‘market power’, as Mayrhofer (2003) puts it. Price discrimination can be difficult when there is limited market differentiation (that is, most of the potential customers are in a similar position – students, for example, with limited disposable income). As already suggested, the likely outcome in more complex environments (highly differentiated education sectors, for example) is a hybrid approach to pricing, such as ‘a mixed bundling strategy, which offers a menu of different bundles at different prices’ (Kahin and Varian, 2000) to satisfy the different needs of customers. This is unlikely to work well if there is ‘leakage’ between the different sub-sectors and/or the pricing model becomes too complex for users to understand easily.
Bia (2006) looks at estimating digitisation costs in digital libraries using software engineering methods. The estimate of web-content production costs is a very difficult task. It is difficult to make exact predictions due to the great quantity of unknown factors. However, digitisation projects need to have a precise idea of the economic costs and the times involved in the development of their contents. Kejser et al. (2009) describe a project funded by the Danish Ministry of Culture to set up a model for costing the preservation of digital materials held by national cultural heritage institutions. The overall objective of the project was to provide a basis for comparing and estimating future financial requirements for digital preservation and to increase the cost-effectiveness of digital preservation activities. In this study they describe an activity-based costing methodology for digital preservation based on the OAIS Reference Model. In order to estimate the cost of digital migrations they identified cost-critical activities by analysing the OAIS model and supplemented this analysis with findings from other models, literature and their own experience. The study found that the OAIS model provides a sound overall framework for cost breakdown, but that some functions, especially when it comes to performing and evaluating the actual migration, need additional detailing in order to cost activities accurately.
Wright et al. (2009) focus on modelling costs and risks. As storage costs drop, storage is becoming the lowest cost in a digital repository – and the biggest risk. They examined current modelling of costs and risks in digital preservation, concentrating on the total cost of risk when using digital storage systems for preserving audiovisual material.
Focusing on digital reference services, Gross et al. (2006) present three measures isolated by project participants as being most useful for their immediate needs: total cost of providing digital reference services; the cost of digital reference services as a percentage of the total reference budget; the cost of reference as a percentage of the total library or organisational budget. Bia et al. (2010) stress that estimating digitisation costs is a very difficult task, despite the fact that digitisation projects need to have a precise idea of the economic costs and the times involved in the development of their contents. Based on ‘methods used in Software Engineering for software development cost prediction … and using historical data gathered during five years at the Miguel de Cervantes Digital Library during the digitization of more than 12,000 books’, they developed a method for time and cost estimates named DiCoMo (Digitization Costs Model) for digital content production in general. This method can be adapted to different production processes. ‘The accuracy of the estimates improve with time, since the algorithms can be optimized by making adjustments based on historical data gathered from previous tasks.’
Case studies
The next set of case studies – while exploring all the major themes outlined in the first two chapters of the handbook – have a particular focus on the topics discussed in this chapter.
Case Study 5
The approach adopted by accessCeramics is a common one, where the project is funded by a ‘parent’ or ‘host’ institution that is prepared to resource the activity because it brings (largely) non-financial benefits. The case study thus provides an interesting perspective on cost and benefit and return on investment. The ‘altruism’ seemingly evident in the project is possible because of the low marginal cost involved in provision, the ability to reinforce core resource provision and the opportunities provided for significant staff development (particularly in managing other digital projects). However, some of the benefits (for example, improved student recruitment) must remain intangible in terms of the lack of robust evidence for a direct correlation between the presence of accessCeramics in the institution and its standing and well-being, whether this be financial or otherwise. The sorts of methods and metrics discussed and analysed in Case Study 10 could be useful here on top of the cost comparisons actually used by the College. The overall business model is worth further study, based as it is on artist participation and funding and a strong emphasis on cooperative and collaborative working as stressed elsewhere in the handbook and – once the start-up phase had been completed – on cost saving, notably in terms of staffing. But other models that aim to monetise the growing value of accessCeramics as a saleable product are considered for the longer term, and include:
This reinforces the options referred to earlier in this chapter. The authors note, however, that some approaches – such as, for example, a subscription model – may well run counter to the spirit and core objectives of the project as it was set up: in this case ‘broad open access’. A membership model – supported by some of the other options listed here – might be more appropriate in such circumstances. As always, there is a delicate balance that needs to be achieved between volume, demand, cost (including an acceptable level of overhead), price and willingness to buy.
Case Study 6
The theme of longer-term sustainability (what to do after the initial funding has run out) is further discussed in relation to the Chronopolis project. The case study usefully focuses on the economic challenges associated with digital preservation (in this instance on a very large scale) and ways in which the significant opportunities and advantages of digital libraries can best be utilised and exploited. Once again, collaboration is very much in evidence. The project management narrowed down longer-term funding sources into four types:
None of these options were seen as ensuring long-term sustainability other than when combined in a layered funding approach (see Case Study 6, Figure CS6.1) and a distributed model where risk and responsibility are shared. Experience shows that sustainability needs to be built in from the start and partnership arrangements need to be properly formalised from the beginning.
Case Study 7
Open access is a major tool in the drive to increase both efficiency and effectiveness in the digital library as well as (academic) digital publishing more generally. Indeed, there are those who would see the adoption of open access models as the end of traditional libraries and the publications that they store and organise.10 As noted by Derek Law in Chapter 4, John Houghton’s work has been of considerable importance in ensuring that the economic and financial implications of new models of publishing are well calculated, understood and considered. All the evidence produced by Houghton’s studies – and similar work by others – points to the significant cost-benefit and return on investment over time of open access to digital content as opposed to other (more traditional) models, and also as compared with print-on-paper provision. This case is especially useful, though, for the insight that it gives into the various techniques used to evaluate the various options (based on a lifecycle approach), and notably:
Case Study 8
The not-for-profit business model is exemplified by Portico and the case study describes the move from grant funding to self-sustaining activity on the basis of well-balanced cooperation between the key stakeholders with their diverse (if not divergent) interests. As the Blue Ribbon Task Force stressed (Blue Ribbon Task Force, 2010) there is often no single stakeholder group on which digital library managers can focus:
Stakeholders for digital materials are often diffuse across different communities. The interests of future users are poorly represented in selecting materials to preserve. Trusted public institutions – libraries, archives, museums, professional organisations and others – can play important roles as proxy organisations to represent the demands of their stakeholders over generations.
Economies of scale and diversity of revenue base were also critical to sustainability, though understanding the partners’ needs – and satisfying them in a transparent way – was the key factor. One major challenge for digital libraries (and their sustainability) is the free rider problem.
There is a particular risk of ‘free riding’ with digital materials because the cost of preservation may be borne by one organisation but the benefits accrue to many. Effective governance mechanisms are needed to aggregate the collective interest into an effective preservation strategy that ensures that the effort and cost of preservation are appropriately apportioned. (Blue Ribbon Task Force, 2010)
This is a major challenge particularly in a digital preservation project because of the non-rival nature of the entity created and its potential availability to those who have not provided funding. Conversely, the need to invest in digital preservation may not be immediately obvious, with benefits only being realised in the longer term. Flexibility – as identified earlier in this handbook – is the key to developing and maintaining buy-in on an ongoing basis. Ultimately, the ability to evolve business models appropriate to dynamic environments and changing requirements provides the best chance of success.
Case Study 9
The application of preferred business models requires funding decisions, as evinced by many of the case studies in this handbook. As we stressed in Digital Library Economics (Baker and Evans, 2009) calculating the return on investment (ROI) is a fundamental part of effective decision-making in the digital library, though the key challenge is to calculate what this is in the context of the particular environment in which content and services are being provided. Closely linked to ROI is the whole question of value for money. ‘In e-terms, value for money also means systems and services that are capable of effective, widespread, deep, relevant and malleable usage’ (Baker, 2005).
But there are difficulties. As Dempster and Grout (2009) point out, ‘the evidence on which any future attempt to predict [cost] may be based is useful but fragmentary. Perhaps this is because assessment of cost really depends on notions of value and what might be considered an adequate return on investment.’ How is cost-effectiveness measured? (Hulme 2006) seeks to describe the key elements of cost-effectiveness analysis and to demonstrate how such analysis may be used in the library environment. The extent to which there is a ‘return’ on the investment is also likely to be the key factor in resource allocation. The greater the return the increased chance there will be of long-term sustainability because those investing in the initial activities associated with the project will be attracted into further investment, and so on. Relative cost and value need to be compared in order to provide possible preferred options. As much definition and information as possible should be gathered and analysed in order to ensure cost-effective decision-making that will lead to sustainable solutions and conclusions. This case study distils experience and knowledge of many of the techniques and associated metrics that can be used to calculate ROI in a range of environments and as appropriate to different types of library.
Case Study 10
As already noted, pricing plans form an integral part of many digital library business models and are likely to become ever more prominent in future environments where grant aid is less forthcoming. The process of determining the when, where, why, what, to whom and how of charging for digital activities, content and services can prove to be valuable in a wide range and variety of circumstances, not least because, in order to carry out this work, the core offer has to be defined, all relevant costs have to be identified and the market for the offer has to be studied. Only then can an appropriate pricing model be identified, developed and applied.
This case study looks at sustaining a service through cost recovery via charging users. In order to do this, the four key steps just described were taken. Building on significant prior experience and a robust pre-existing user base, the leaders of EZID were able to harness key groups and advisers to produce a sustainable service. It is clear from the author’s experience, however, that one ‘size’ of pricing model is unlikely to fit all markets. Continuing and continuous renewal and enhancement of the offer provide the best chance of success in the longer term.
Case Study 11
Much digital library provision is within what could broadly be described as the public sector, that is, typically, organisations that are funded at least in part by government (local, regional, national) to provide collections and services for the common good. However, as is evident from previous chapters and many of the case studies within this handbook, major change is happening within such public services as a result of significant financial pressures and funding constraints. More ‘commercial’ approaches are therefore being embraced, as noted, for example, in Case Study 10. Case Study 11 was therefore commissioned in order to look at the development of costing and pricing models from a private-sector viewpoint. One key message from the study is the need for ongoing improvements in provision, leading to high perceptions of added value by those paying for services rendered, especially in the context of what other providers could offer and at what price. The study also reinforces the conclusion reached in Case Study 10 – the importance of good market research as the basis of delivery of what customers want and need, and, particularly in a tight financial climate, a good return on investment and significant opportunities to reduce costs while adding value.
Case Study 12
This case study also takes a publisher perspective on digital economics. The ability to offer digital products at marginal cost provided an important incentive to publishers in the early years of development. But, here again, thorough market research enabled the formulation of business models that facilitated a move from add-on to mainstream.
Case Study 13
Taking risks is an inevitable element in digital library management. This is especially the case where a project needs to develop into a service. As a project, grant aid is likely to be available, but almost inevitably this will be finite. As noted earlier in this handbook, in order to achieve long-term sustainability, other sources of income have to be found, with clear justification as to why there should be investment in the proposed service, whether it be reduced costs or increased benefits, or preferably both. In order to do this, it is crucial to ensure that all activities have been fully and properly costed (including both direct and indirect costs) within an overarching framework where the vision and the mission are clearly articulated.
Case Study 14
Digital library economics has a number of key facets, as described throughout the handbook. This case study brings together many of the main themes discussed, in particular: sustainability, resource allocation, the main costs associated with digital library service provision and cost-effective decision-making in order to ensure the best possible deployment and use of resources to meet stated aims and objectives.
Conclusion
This chapter has focused on finance-based models for the digital library, and in particular on business models and their constituent parts and techniques as well as the key associated tools, while aiming also to bring together the key themes from earlier chapters and case studies to provide a broader picture of digital library economic management in practice. Chapter 4 aims to provide a further, fuller summary.
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1.http://en.wikipedia.org/wiki/Economic_model
2.http://www.businessdictionary.com/definition/financial-model.html#ixzz22 snpcKcD
3.http://financial-dictionary.thefreedictionary.com/Financial+model
4.http://www.assetinsights.net/Glossary/G_Funding_Model.html
5.http://www.knowledgetransfer.net/dictionary/ITIL/en/Cost_Model.htm
6.http://dictionary.cambridge.org/dictionary/business-english/pricing-model
7.See, for example, http://www.nls.uk/media/808985/future-national-libraries.pdf.
8.Also see SPARC (Scholarly Publishing and Academic Resources Coalition) which aims at facilitating the publication of affordable journals at: http://www.lib.utexas.edu/ejour/SPARC.html?
9.See, for example, http://www.dlib.org/dlib/june99/06bonn.html
10.http://www.uk.sagepub.com/repository/binaries/pdf/Library-OAReport.pdf