THE AUSTRALIAN NATIONAL UNIVERSITY

ANU E-Commerce/E-Publishing Issues

8. The Electronic Commerce

Electronic commerce is a business activity based on online acceptance and processing of orders. (Nemzow 1966, Yesil 1997, Banaghan 1997).

In early 1997 there were over 3 million web sites. Less than 10% of those sites did conduct online operations integrated with online collection of money (Yesil 1997:xiv). There are a number of approaches to an online business:

• sales of a subscription (monthly, annual, etc.) to a given range of resources (accessible via a username + password combination)
• sales of a 'complete product'
• microsales of access to a 'fragment' of information (a page, a table, a bibliography)
• general charges per connection time (per minute, per hour)
• general charges per Kb of downloaded information

The money can be collected online in a variety of ways. The choice of charging technique is important to one's operating costs. According to statistics world-wide, 80% of recurring operational costs of a telecom company is related to the billing system.

• traditional (cheque in the mail, faxed/phoned credit card details)
  [This technology, a leftover from earlier times, is labour intensive and is gradually replaced by other techniques]
• online credit card payments
• directly, via a secure or not-so-secure server
• via a PIN + password combination identifying one's pre-recorded credit card details [e.g. Telstra's SureLink, First Virtual Bank's Virtual Pin]
• electronic money tokens (Digicash, E-cash)
  [This technique enables the use of micropayments. For anonymous transaction, however, to purchase/spend money tokens, one needs a bank-account]
• smart cards (e-transfer of funds)
  [This technique enables the use of micropayments. Anonymous transaction]
  For more information on this technology see Clarke (1996).

In the first six months of 1996 investors poured more than US$2.1 billion into cyberspace companies in 67 separate financial deals (Yesil 1997:x) involving:

• software (34%),
• provision of access to the Internet and of online services (25%),
• provision of directories (21%),
• provision of content and activity (entertainment) (11%)
• other networked activities (9%)

Simultaneously the size of online markets kept growing. Web-based shopping starts generating large sums of money (Yesil 1997:2):

• in 1994 - between US$132 mln and US$200 mln
• in 1995 - between US$300 mln and US$350 mln

A the same time, Yesil (1997:xi) compares the Internet to a telephone network, and a web-site to a phone combined with an answering machine. Just because there are millions of people connected to the same telephone network it does not mean they all will call any particular number (web-site), and even if a percentage of people do so, it does not mean that they will buy things and leave the operator with any profit.

In the remainder of this report I shall focus on Internet sites specializing in the sale of electronic information

9. Types of E-Commerce Activities

• Online Sales of Entertainment and Activities
• interactive games
• chat lines
• Online Sales of Software
• Online Sales of Information
• text files (books, journals, articles, news)
• image files
• scanned text (books, journals, manuscripts, archival documents)
• photographs
• diagrams, charts, drawings, maps
• art reproductions
• databases (displays of results of relationships between specified variables)
• numeric research-data (e.g. raw data from an opinion poll)
• sound files (e.g. recordings of bird calls)
• video files (e.g. ethnographic films)
• information fragments (an equation, a result of a calculation)

However, apart from traditionally successful online trade in (1) software, (2) games, (3) pornography, and (4) news, the sale of electronic information is not a lucrative proposition.

Very few businesses can, in fact, support online sales of electronic information (as opposed to sales of other online commodities):

• Jones (1997) writes: "Selling on the Net is like free lance writing: while many can write, not all can sell what they write and live off it".
• The Wall Street Journal is a rare example of a profitable online operation, involving subscriptions US$60 ($75) p.a., and the reader-base of about 72,000 subscribers (= a revenue of US$4.32 mln).
• Playboy (www.playboy.com), presently a free web site, with up to 7 mln hits /day. It now hesitantly considers introducing subscriptions of US$6.95 ($8)/mth or US$60 ($75) p.a. which would give readers access to the online archives of 44 years of Playboy's files with text and images.
• The US$800,000 revenue generated in the fiscal year 1996 from electronic activities of the Stanford's HighWire Press was not sufficient to cover its operating costs fully (Salisbury 1996).
• According to Picozzi (1997), large online information systems (e.g. The Swedish Post Office, The Washington Post journal) derived only 6% of their revenue from selling information.
  

It appears, therefore, that the overwhelming bulk of the revenue of sites selling electronic information comes from other online activities. These include:

• HOSTING EXTERNAL ELECTRONIC INFORMATION (books, journals, papers) of another organization. Yesil (1997:65) writes that over 50% of the top sites on the Internet are hosted by hosting services. For instance:
• Stanford's HighWire Press charges (Young 1997:A21)
  (a) scholarly associations between US$35,000 and US$125,000 for the development of each online journal,
  (b) scholarly associations several thousand dollars per month in maintenance costs.
  [In return, the association receives US$1,100 per institution or US$200 per individual member from an online subscription to the journal]
• World Avenue virtual store, which runs on Netscape's Merchant servers (Yesil 1997:67) charges a start-up fee of around US$30,000, a 5% commission on sales, and a monthly maintenance charge of around US$2,500.
• SALES OF PHYSICAL OBJECTS
• books and other paper publications (cf. a number of very successful online bookshops)
• souvenirs, mementos etc.
• CDs and CD-ROMs
• computer and telecommunications hardware
• SALES OF SERVICES AND EXPERTISE
• conference/s registrations
• course/s registrations
• SALES OF THE ADVERTISEMENT SPACE
  Online advertising looks, at first glance, like an attractive option.
• Browning (1996:42) reports that in the second quarter of 1996, spending on web advertising doubled to US$43 mln. It will pass US$300 mln in 1996 and if this growth continues it will reach US$5 bln by 2000.
• Advertisement 'banners' on web pages can generate US$10-US$175 per thousand of views of an advert, the average price being US$35 (Madsen (1996:208).
  For additional details see Note 15
• Spending on advertisements takes place within a very narrow circle of sites: 60% of revenue from advertisements is soaked up by the ten top online firms (software developers and search engines' sites), and six of those top 10 firms rank among top 10 spenders on the Web advertising. This ssohows that online advertising is taken very seriously, with approximately 26% of the company's revenue being ploughed back into creating online visibility through strategically placed advertisements.
  For additional details see Note 9
• In sum, advertisements do not generate adequate income to the electronic publishers. Madsen (1996:206) estimates that content providers cover no more than 20% of their costs with ad revenue. Not only that, the bulk of this revenues goes back to search engines themselves and not to the sites referred to such engines.
• SELLING INFORMATION ABOUT THE CUSTOMERS
  [This approach depends on capturing information on individuals (gleaned when they register and then through their Web activities) and using it for commercial purposes. However, if the Government legislates against this, such a business model is destroyed (Yelland 1997, Williams 1997)]
• selling log files (to be used for subsequent marketing strategy analyses)
• selling 'cookies' files with details of users of a given web site
  [for more information on cookies see Manktelow (1997)]
• selling e-mail address files or subscriber details
  [It is an unethical, un-profitable (US$7 per 10,000 addresses), and ultimately, a suicidal policy destroying client/subscriber's trust in a given organization)

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10. Is E-publishing Worth The Effort?

An answer to this question depends not only on the available data but also on the person who asks it. People, on the whole, can be divided into two large categories:

• those who mainly value money (and the associated power and comforts) - a quantifiable situation;
• those who mainly value the immortality (the glory of being the pioneer, the sense of a well done duty etc. etc.) - a situation which is not readily quantifiable.

Therefore, the final verdict on what is valuable, useful or important is very much a matter of one's temperament and value system.

However, if we put immortality considerations aside and focus solely on financial matters, we can muster the following observations:

• Across the Internet, content providers are struggling with developing a rational and user-acceptable business model:
• charge-per-use, incl. micropayments
• charge-per-connection time
• paid subscriptions
• bundling (a mix of free and premium services, or free access to newspaper sites for users of certain software or Internet services)
• free access, financed by advertising
• free access, financed by off-line revenues
• Web has anover supply of redundant content on every conceivable subject, and the average reader is not willing to pay for good, trustworthy information if he/she can get a less reliable one free of charge (except for such specialist, short-lived commodities as finances and market data, computer software or pornography)
• Electronic publishing requires a long-term business strategy and a long-term investment. The first years of operation bring losses. Most start-ups do not reach profitability until their third year of operation or later (Yesil 1997:40).
• Since most cybershops selling online information cannot support their existence solely from the sale of electronic information, they augment their operations from money saved on reducing the whole sales' chain costs. For instance, Yesil (1997:43) writes that when printing, handling and shipping costs are combined, an average paper-based information packet today costs a corporation around US$15.
  For additional details see Note 16
• Opportunities for augmenting revenue from advertising are very restricted. Most of the advertising goes to a handful of search-engines sites such as Netscape, Yahoo!, Altavista and Microsoft.
• Large-scale operations do take advantage of the economies of scale
• Large-scale operations can augment revenue by producing, storing, selling and distributing electronic information on behalf of publishers without access to cyberstores.
• Electronic publishing invokes an operation of a series of inter-connected feedback loops:
• good reputation, and good brand-name, attract good authors and good publications,
• good, useful, original sites attract large volumes of traffic,
• large traffic attracts new advertisements and associated revenue,
• increased revenue enables energetic advertising campaigns,
• advertising further enhances the publisher's good reputation and international brand recognition.
• At the same time, online inefficiencies, mediocrity and financial problems breed even greater failures, difficulties and mediocrity.

These observations are also backed by Peter White and Susan Ming's La Trobe University report on "Making Money for the Web? - Business Models for Online News" (summarized in Hilvert 1997b). The authors conclude, on the basis of a review of 1700 professional Web publications, that:

• Publishing on the Internet continues to be an act of faith rather than a viable business,
• Only a few specialized publications such as the Wall Street Journal appear to be making business by offering their materials online because their electronic sales costs are covered by the well entrenched paper-based business,
• To be viable, publishers need mass-market access services tied up with browsers such as those offered by Netscape or Microsoft.
• The banner on the home page is always the most expensive position for an advertisement.
• Only 25% of online publications have any revenue strategies

Finally, it may be argued that electronic publishing is a legitimate or even valuable activity because it:

• can deliver information
• uniformly
• in large volumes
• instantaneously, and
• across any distance (the campus, the country, the world)
• creates strong 'online presence/visibility' of a institution and generates good PR for it
  [For instance, since Jan 1994 the Coombsweb server (coombs.anu.edu.au) has been accessed more than 6.5 million times. Assuming that 10 'hits' correspond to a single reader, in the last 3.5 years there were 650,000 people who have read the words: "The Australian National University, Research School of Pacific and Asian Studies". The minimal cost of printing of an equivalent number of leaflets (at AU$.051 a page) would be more than AU$33,000. Distribution and storage costs have not been included in these calculations]
• it generates traffic to a given site and therefore creates additional opportunities for
• online sales of existing paper publications (cf. compare the financial success of such online bookshops as the AMAZON.COM and the BARNESandNOBLE.COM)
• online promotion of the University's other products (research, conferences, courses, expertise etc.)

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11. E-Publishing and E-Commerce: Current Concerns

Apart from addressing the questions of an appropriate business model and of the validity of electronic publishing, each institution needs to be aware of the overall context in which E-Publishing/E-Commerce takes place:

ELECTRONIC COMMERCE and the CULTURAL ISSUES

• Some countries and some institutions are better prepared to embrace e-commerce than others
• USA and Japan lead the world in terms of the volume and frequency of e-commerce operations
• Australia is regarded as a straggler, well equipped in the necessary infrastructure but shy and unadventurous (Plunkett, 1997)
• The prevailing habit of using free online publications, regardless their quality
  [Hence the problem: how to induce people to start purchasing information within an environment where 'traditionally' (i.e. during the first 5 years of the WWW's existence) most of the information resources were available free of charge]
• The lack of general acceptance of online -commerce. A survey from mid 1997 (Anonymous 1997b) shows that while 36% of US Internet users said getting product information online was important, only 10% bought merchandise online. The most popular items were physical objects such as clothing, computer software, books and CDs.
  [Hence the problem: how to induce people to spend money via online e-commerce systems while online shopping continues to be regarded by the Internauts as a hassle and a bore]

There are other issues to be tackled:

DIFFERENCES IN ORGANIZATIONAL PHILOSOPHIES

• one e-publishing initiative per institution or a coalition of interlocking projects?
• overall control and management of the project is either bottom-up or top-down?
• is the institution doing the e-publishing all internally or 'outsourcing' it?
• is the institution doing the e-publishing alone or in cooperation with other
• organizations (e.g. NLA, Academy of Sciences)
• businesses
• universities?
• should e-publishing be treated as an experiment or a seriously funded, routine operation?
• should the initial commitment be short-term (3-5 years) or long-term (5-15)?
• different expectations regarding the financial model:
• free-to-air, or are payments to be collected?
• the charter is for-profit vs not-for-profit?
• different expectations regarding financial outcomes:
• the project eventually becomes a cash-cow for the rest of the institution,
• the project eventually becomes self-funding (no profits but also no losses),
• the project will continue to depend on the regular injection of money.

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12. ANU: External Factors

[This section is given full treatment in the original Report of 7 Aug 1997]

13. ANU: Internal Problems and Issues

CLARITY OF OBJECTIVES

[This section is given full treatment in the original Report of 7 Aug 1997]

MORALE

[This section is given full treatment in the original Report of 7 Aug 1997]

TOOLS AND RESOURCES

[This section is given full treatment in the original Report of 7 Aug 1997]

INITIATIVES AND ASSETS

[This section is given full treatment in the original Report of 7 Aug 1997]

OBSTACLES

[This section is given full treatment in the original Report of 7 Aug 1997]

AVAILABLE EXPERTISE

[This section is given full treatment in the original Report of 7 Aug 1997]

OPERATIONAL FLEXIBILITY

[This section is given full treatment in the original Report of 7 Aug 1997]

CO-OPERATION

[This section is given full treatment in the original Report of 7 Aug 1997]

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14. ANU Electronic Publishing: Possible Strategies

Putting the ANU's external and internal environments aside, we can now look at the courses of action which are potentially open to the University:

Legend:

• Scenario 1 - Represents the current (and undesirable situation)
• Scenario 2 - ANU concentrates on its core-business, namely research and writing
• Scenario 3 - ANU provides some added-value services. However, any fame, profits and copyrights are given away
• Scenario 4 - ANU controls fame, profits and copyrights, while capital/labour costs are minimized
• Scenario 5 and 5A - ANU controls fame, profits and copyrights, and provides complete pre-production service. The first of the two sub-scenarios provides for organizational independence between editing and publishing teams. The second sub-scenario, suggests a unit combining both functions.
• Scenario 6 and 6A - ANU controls fame, profits and copyrights. Also,new and potentially costly digital services bureau needs to be established and operated along the strict business lines. Again, the first sub-scenario implies organizational independence between various task-groups, while the alternative arrangement calls for one, all-embracing, multi-task group.
• Scenario 7 - As in scenarios 6 & 6A, plus the massive costs of establishing and running a real-life cybershop.

These seven types of scenarios are equally applicable to the publishing activities of

• individuals
• departments
• divisions
• schools
• clusters of schools
• an entire university

and may be a way of handling both small scale projects (e.g. a database, or electronic journal) and large scale involvements such as placing online an entire publication series or the output of a whole department.

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15. ANU Electronic Publishing: Optimal Strategies

As it has been already noted, the options open to The Australian National University are constrained by a number of factors.

Nevertheless, if a decision is made that it is important that the ANU maintains and increases its placement on the Internet, then such decision needs to be implemented speedily, easily, and with a minimum of financial effort and managerial fuss. If this is going to be the case, then, from political, organizational and financial points of view:

• a medium scale operation, SCENARIO 5 (in-house writing, editing and publishing)
• commencing with a systematic electronic publishing programme of one school (i.e. RSPAS)
• combined with the hire of external services for
• digital productions (document conversions)
• and e-commerce services
• and then, gradually evolving towards a large scale operation (involving other schools), and
• built around ANU's most visible assets (social sciences and regional studies)

is the optimal (= simplest, quickest and most secure) option.

Moreover, it offers a clear upgrade path to Scenario # 6, or even Scenario #7, should these upgrades be justified by any future improvement to the ANU's political, legal and economic circumstances.

16. ANU Electronic Publishing: Possible Work Alliances

Scenario Number 5 offers a clear-cut division of roles:

• The ANU provides in-house writing, editing and organization (management) of the publication
• Some carefully selected external agency converts the publication into electronic format
• Another carefully chosen external agency provides electronic commerce/distribution services

To use a homely, low-tech comparison, Scenario 5 specifies that the ANU owns the cow, the milk as well as the creamery, while others are simply hired to bottle the product and do the distribution.

The actual answer as to WHO could/should be providing the ANU with those external services depends on a number of not necessarily mutually compatible factors. These, briefly, are:

1. CONVENIENCE, RAPPORT AND CONTROL
   
   [This section is given full treatment in the original Report of 7 Aug 1997]
2. ADVANTAGEOUS COST
   
   [This section is given full treatment in the original Report of 7 Aug 1997]
3. NATIONAL PRIDE AND NATIONAL FUTURE
   
   [This section is given full treatment in the original Report of 7 Aug 1997]
4. ENHANCED BRAND-NAME, VISIBILITY AND PRESTIGE
   
   [This section is given full treatment in the original Report of 7 Aug 1997]
5. SOUND FINANCIAL AND TECHNICAL BACKING
   
   [This section is given full treatment in the original Report of 7 Aug 1997]
6. PROVEN TECHNICAL EXCELLENCE
   
   [This section is given full treatment in the original Report of 7 Aug 1997]

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Conversion              = $3.22 / image (527Kb)        32%
Storage                 = $0.14 / image (527Kb)         1%
Sales + Delivery        = $6.71 / image (527Kb)        67%
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TOTAL                   = $10.07 / image (527Kb)       100%
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print runs    no of pages        job costing    cost per page
           to be duplicated 
-----------------------------------------------------------------
1,400        	238                $6708           2.01 cents
800 		267 	           $4300 	   2.01 cents 
400 		197 		   $2975 	   3.77 cents 
330 		154 		   $2213 	   4.35 cents 
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Netscape:  revenue US$7,755,990;  WWW advertising costs US$1,313,436 
Infoseek:  revenue US$3,793,464;  WWW advertising costs US$1,448,080 
Yahoo!:    revenue US$3,702,500;  WWW advertising costs US$1,279,998
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