Financing New Information Access Paradigms, or Why Academic Information Managers Need Cost Models


Copyright 1992 CAUSE From _CAUSE/EFFECT_ Volume 15, Number 2, Summer 
1992. Permission to copy or disseminate all or part of this material is 
granted provided that the copies are not made or distributed for 
commercial advantage, the CAUSE copyright and its date appear,and notice 
is given that copying is by permission of CAUSE, the association for 
managing and using information resources in higher education. To 
disseminate otherwise, or to republish, requires written permission.For 
further information, contact CAUSE, 4840 Pearl East Circle, Suite 302E, 
Boulder, CO 80301, 303-449-4430, e-mail info@CAUSE.colorado.edu


                FINANCING NEW INFORMATION ACCESS PARADIGMS,
            OR WHY ACADEMIC INFORMATION MANAGERS NEED COST MODELS
                            by Richard N. Katz

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Richard N. Katz is Special Assistant to the Associate Vice President-
Information Systems and Administrative Services of the University of
California (UC), Office of the President. His responsibilities include
planning for administrative and academic computing and developing
administrative strategies for new UC campuses.

This article is based on an address given by the author at a meeting of
the Task Force of the Coalition for Networked Information (CNI) on
November 21, 1991, in Washington, D.C.

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ABSTRACT: A fundamental shift in the way information is produced, 
processed, stored, and distributed has brought academic information 
management to a crossroads. Passage will require strategies that must 
include  development of economic models.


In March 1990, David Roselle, president of the University of Delaware,
suggested that "making full and effective use of emerging 
telecommunications networks requires a new partnership among libraries,
computer and technology experts, and concerned constituencies." With
this suggestion, Roselle announced the formation of the Coalition for
Networked Information (CNI) by CAUSE, EDUCOM and the Association of
Research Libraries. With the objective of "advancing scholarship and
intellectual productivity," the CNI is having a significant impact on
higher education's planning for academic support services in spite of
its short existence.

As one of CNI's founders, and because it recognizes many
administrative implications of emerging capabilities such as the NREN
(National Research and Education Network), imaging, multimedia, and
other new technologies, CAUSE believes that it is important that its
members understand the issues and directions under consideration,
debate, and development by the CNI. One premise of the CNI and of much
planning for academic support services at American colleges and
universities is that "the real value of the network [NREN] will result
from information resources and services made available to a broad user
community."

To promote an understanding of the new opportunities posed by the
NREN and to prepare the ground for an expected paradigm shift both in
the delivery of information services and in scholarly communication, the
CNI is engaged in a wide range of planning activities and technological
ventures and demonstration projects. Among these endeavors is an ongoing
effort to foster dialogue and studies on the economics of information
delivery. This effort is designed to inform librarians, publishers, and
technologists of the challenges, opportunities, risks, and benefits
associated with investments in the infrastructure that will be necessary
to support new information access paradigms.

While many readers of CAUSE/EFFECT may not have formal
responsibilities associated with the discussion that follows, the issues
facing the academic information manager and the administrative
information manager are the same. Over a reasonably short time horizon,
administrative information managers, like their academic counterparts,
will be expected to provide easy and seamless access to institutional
and external data to their constituents. Even the reasons for this
requirement will be the same--the need to improve the productivity of 
the academy. In the future, administrative employees at all levels will 
be empowered to resolve a variety of institutional problems. The ability 
to solve these problems will be determined to a large extent by how well
the campus information technology providers organize their environments
to provide employees with easy access to a wide range of information, in
a variety of media.

The CNI effort to foster dialogue and studies on the economics of
information delivery resulted in the organization of a conference in
March 1991. The so-called "Monterey conference" brought scholars,
technologists, librarians, and publishers together in an attempt to
address an emerging crisis in serials pricing. Over the past decade, few
areas of academic activity have seen their costs rise as quickly as has
the academic journal acquisition function. The twin pressures of
declining budgets and escalating journal prices have led many college
and university libraries to curtail sharply their purchases. Attendees
of the CNI's Monterey conference exchanged views on the underlying
causes of this price escalation and identified the need to develop
economic models of the costs of accessing and distributing scholarly
information on paper, image, character text, or other media.

Academic information management
at a crossroads

One of the messages of the Monterey conference was that academic
information management is at a crossroads: for the first time in
recorded history, academic information managers are in a position to
bring the information mountain to Mohammed. The history of the library
profession--tracing to the great library of stone tablets in Alexandria 
--has been predicated on the very sensible premise that it is easier and 
more cost effective to collect mankind's writings in great repositories 
and to cause the users of these writings to gather at the well, so to 
speak, than it would be to manufacture and distribute sufficient numbers 
of copies to satisfy users' demands.

Libraries as stores of recorded knowledge served at least four
significant economic goals. First, they reduced manufacturing costs. In
earliest times, one can imagine the cost of creating stone tablets to be
quite high. Second, libraries, through centralization, achieved
economies of scale in the processing of recorded knowledge. Third, the
library-storehouse introduced scale economies in the storage of
information. Finally, the storehouse concept reduced institutional
distribution costs by rationing access to the collections and by passing
most of these costs along to the library patron. The library-as-
storehouse concept has served mankind effectively for millennia.
However, it is important to remember that this concept was devised and
refined due largely to the idiosyncracies of the prevailing writing
technology of the day--be it tablet, scroll, sheepskin, papyrus, or 
book.

A second impression left from the Monterey conference was that
there exist significant misunderstandings about basic economic concepts
such as cost, price, and value, and that these misunderstandings stem,
more than anything, from the cultural and linguistic traditions and
perspectives of librarians, publishers, technologists, and scholars.

The threshold issue for all parties is the matter of the
crossroads. We are in the midst of a major shift in the climate in
higher education. This change of climate is being manifested along the
economic, political, and technological dimensions. Those of us with
responsibility for managing higher education's information or technology
resources sense a fundamental shift in the means by which information is
produced, processed, stored, and distributed.

The pace of technological change is accelerating and we should
remind ourselves that it was only thirty years ago that the first patent
was issued for the integrated circuit and that the IBM PC was only
introduced ten short years ago. Less than one year ago, the U.S. Court
of Appeals gave the seven regional Bell Operating Companies permission
to offer electronic information services over their networks. Finally,
as we await the emergence of the NREN, we have witnessed the 700-factor
increase in data network bandwidth since 1987. Estimates of the user
population on these networks range anywhere from 2 million to 20 million
people.

While these developments mean many things to many people, to
economists and to business people they mean no less than the creation of
a mass market for electronic information. As critical mass is achieved
we can expect the suppliers to these markets to be bigger in economic
size and influence. For these reasons, the consumers of information will
need strategies.

What will emergefrom the crucible described are new paradigms for
delivery of information. It will be important for us to recall that new
paradigms of this kind are not, after all, new. Over the past 150 years
we have witnessed new ways of delivering verbal messages (the
telephone), goods (railroads, trucks), people (cars, airplanes), and
images (television, facsimile). Why is it so hard to anticipate new ways
of delivering academic information? In fact, we have more than once
(stone tablets, papyrus, books, CDs) changed fundamentally the way in
which recorded information is created, processed, stored, and
communicated.

What I am alluding to here is the concept of life cycles. Life
scientists, technologists, business planners, and others work closely
with the concept of life cycles to help them understand the development
of insects, technologies, products, and markets. Life cycles are
composed of four stages which can be described as gestation, growth,
maturity, and aging. As prevailing technologies mature and age, the
investment required to achieve a defined result will increase. The
decreasing return on investment often inspires inventors to find a
better way, resulting in the emergence of competitive products,
services, or technologies with differing cost structures, different
attributes, and different appeal to consumers.

The life cycle concept is important because the emergence of new
products and technologies can result in tremendous economic adjustment.
Economic adjustment is the term economists euphemistically use to
describe a process of upheaval that often accompanies technological
change. In this upheaval, markets and economic relationships can be
altered fundamentally. In short, there are winners and losers. I submit
to you that we are at such crossroads now; that those of us who choose
to stay on the existing life cycle curve that is focused on paper-based
access to information will witness a decreasing return on investments.
Conversely, those of us who invest in the infrastructure to support new
electronic delivery paradigms may be able to meet the increasing needs
of our constituents more effectively.

Why are we at a crossroads?

It is no longer news that higher education in the U.S. faces a
dramatically new economic climate. In 1990-91, thirty states made mid-
year cuts in higher education budgets averaging 3.9 percent. Last year,
the increase in tax support to higher education dropped to its lowest
level in thirty years. At the same time, colleges and universities
failed to keep the rise in costs to a level at or below the consumer
price index. Over the decade of the 1990s state budgets are forecast to
be in deficit, federal funding of research is likely to come under new
pressure, and the supply of eligible students will be flat or negative
in all but three or four states. Decreasing research funding and new
caps on indirect cost rates may also slow the flow of funds into higher
education.

At the same time, governments, corporations, and parents are demanding 
increasing accountability from colleges and universities as a condition 
of their support. Any analysis of the demographics will reveal a 
swelling in the ranks of those in our primary and secondary schools. Our 
politicians, in an era of resource constraints and a boom of school age 
children, will find it easy to defer support of higher education in 
favor of the more politically compelling needs of grades K-12.

Another key trend will be the increased focus on the undergraduate
instructional element of the university mission. This shift in focus
recognizes the possible diminution of federal support for research as
well as increased pressure from parents and students. For many
institutions, the changing economic and political climate will mean
nothing less than a struggle for survival through the 1990s. To face
such struggles, colleges and universities are more than ever setting
academic strategies to focus their programs and resources to attract
students and faculty. Finally, in many quarters substantial calls to
revise the reward systems for faculty are being heard. In Monterey, much
of the problem in serials pricing was ascribed to the "publish or
perish" system of faculty evaluation and the tendency of such research
incentives to foster the proliferation of publications without
commensurate demands for quality. The recent moves at Harvard and
Stanford to base tenure and promotion decisions, in part, on the top six
publications may have a dramatic impact on both academic publishing and
information management.

Also bringing us to the crossroads is the new technical climate in
higher education that we, in part, are trying to usher in. Elements of
this environment to watch include the NREN, cooperative processing,
multimedia, HDTV, and cellular communications.

A final reason for emphasizing the crossroads metaphor is the
change in the external environment. In the course of virtually every
industry life cycle is a period of vertical integration and
consolidation. As a mass market for the delivery of networked
information matures, we will see an increase in this integration and
consolidation. Perhaps the most recent example can be drawn from the
motion picture and broadcast television industries which, in less than
ten years, have witnessed the demise of the consent decrees and
financial syndication rules that prevented widespread vertical
integration. Owing largely to technological developments and to
competitive pressures to reach global markets, this industry has
witnessed rapid deregulation and integration of programming producers,
distributors, and exhibitors. This level of consolidation has been
occurring in the publishing industry and will continue to do so,
particularly as the telecommunications companies organize to offer
information services through networks.

In sum, we face a crossroads in which budgets are shrinking,
supplier power is increasing, and a competitive market for networked
information is maturing.

So what does this mean to us?

What it means is nothing less than what was described earlier as
economic adjustment. Virtually every economic relationship that has
characterized academic information management since the
commercialization of the book is in a process of fundamental change. I
pose to you a number of potential changes to these existing economic
relationships in the form of a series of propositions.

First, and potentially most speculative, the supply of published
scholarly information may fall. Such a decrease in the supply of
publications may stem from changes to the faculty evaluation process and
research support levels discussed earlier and may be reinforced by an
increase in the use of data communications networks as vehicles for the
more informal scholarly exchange of ideas and research findings.

Second, a decreasing supply of published information is likely to
raise the value of information published. New information delivery
channels, with new cost structures, will facilitate a fundamental re-
thinking of what scholars publish and how they publish. While a formal
publication process will always form an element of the scholarly
communication and quality control process, we can no longer make
assumptions about the size and nature of that communication niche that
includes formal peer review and the imprimatur of the academic
publishing apparatus.

Third, the cost structures of academic publishing and information
management will likely change. Printing, computing, and networking are
capital-intensive activities that require large investments in fixed
costs. If, for example, the sale of electronic books and serials
cannibalizes the sales of the same books and serials in print, the unit
costs of printed publications will rise. These changing costs will have
differential impacts on colleges and universities. In essence, colleges
and universities that have chosen to invest in network infrastructures
may witness falling unit or total costs, while those that have not may
experience rising costs. The arena in which these potential impacts will
be played out is the arena of pricing. Our crystal balls can
perhaps be clearest where it comes to support costs. The introduction of
online bibliographic databases, CDs, and other electronic library tools
and sources has demonstrably failed to reduce library support costs. I
can see no trend, short of a wholesale circumvention of the library as
an information intermediary, that is likely to lower these support
costs.

Another powerful change is what I refer to as the increasing
control on fair use. The nearly $2 million settlement of the recent case
against Kinko's Copy Centers bears witness to the stakes along this
front. In the era preceding the proliferation of copiers, fair use of
published information was regulated by the time and expense of alternate
modes of copying. Since the copier's introduction we have witnessed the
degradation of publishers' and authors' ability to police the financial
recovery of their copyrights. Networked information delivery paradigms
will increase the efficiency by which we account for use and will
thereby increase returns to copyright holders and costs to users.

There will also be a probable proliferation of information outlets.
Publishers, utilities, regional coalitions, and collectives, in this
context, may compete to deliver information faster, cheaper, and more
conveniently to our students and faculty. This possibility, too, may
have dramatic impacts on our investment strategies.

Finally, as we move towards the promise of networked information we
are likely to see a continued rise in the service expectations of our
constituents. While the natural self-rationing qualities of the books
have been understood and accepted by scholars for millennia, these
qualities will be rejected by present and future generations of network
babies raised in an era of immediate gratification of information needs.
Where in the past books, then computers, and then networks have been the
scarce good, now faculty time is in the shortest supply. The growth of
document delivery services and the proliferation of fax machines bear
witness to this emerging focus on speed of delivery. Importantly, we are
also learning that time is money and that many will pay to receive
information quickly. The metaphor I'll use here is again the motion
picture industry. Today, one can pay $8.00 to see a first run movie, pay
$3.00 to see the same movie on video cassette or on pay-per-view, pay 30
cents a day to see the same movie via cable, or pay nothing to view that
very same movie on broadcast TV. The value of the information to the end
consumer, and therefore the price he or she is willing to pay, is
mediated by time. I believe that academic publishers and information
managers will be able to offer this same range of services to students
and scholars and to price accordingly.

Strategy setting is key

One major implication of the trends described is the unprecedented
need for academic information management professionals to set a strategy
now--one that assumes the existence of a new information storage and
delivery infrastructure. Elements of this strategy include:

  *  doing more, with less
  *  investing in infrastructure
  *  funding innovation
  *  forging alliances
  *  developing economic models.

As just stated, in an era of resource constraints coupled with a
likelihood of supplier consolidation, we will have to do more with less.
This is why organizations such as CNI are, in my opinion, indispensable.
As we information managers set institutional strategies, we must
recognize that our suppliers are setting theirs. Publishers, recall,
operate in the same macroeconomic and technical context as their
customers and are positioning themselves to survive or thrive in the
coming economic adjustment. As I see it, our attention must turn to ways
in which both the publishers and the managers of academic information
prosper under the emerging technological context. We can do this by
examining the underlying economics of our respective areas of interest.
The central objective of our professions should not be to reduce serial
or monograph prices; rather it should be to organize and deploy the
emerging network infrastructure to lower our institutions' total
information life cycle costs without jeopardizing publishers' rights to
fair return on investment.

I believe that this objective can be met. To accomplish this,
publishers must explore ways of reducing costs or expanding their
franchise. Networked information delivery as an element of overall
corporate strategy can accomplish this. For example, just-in-time
publishing, a model in which textbooks are printed on demand and updated
quickly, has reduced the cost of inventory for publishers dramatically.
This kind of use of information technology alone has the potential to
revolutionize the economics of publishing by eliminating one major
investment risk associated with the process. Similarly, institutional
strategies that incorporate networked information will potentially
reduce information management life cycle costs by eliminating those
curatorial costs that are associated with the medium of paper.

Developing a new economic model for libraries

What I think we need is a robust model of library costs that is
based on a highly generalized architecture of information. As a point of
departure, this architecture, and its associated costs, should describe
the current library. One such architecture is described by Davis and
Davidson in their recent book, 2020 Vision. The Davis-Davidson model
greatly simplifies the function of libraries and other information
intermediaries by identifying a very limited number of forms and
functions to be performed. Information, these authors claim, occurs in
only four basic forms: data, sound, image, and text. Information
management, in this framework, consists of four basic functions to be
performed on information in these forms. These functions are generation,
processing, storage, and transmission.

While in many contexts this architectural model simplifies
excessively the complex world of academic libraries, I am comfortable
with the suggestion that all the information management activities we
engage in are variations on these core functions.

A simple architectural model will help us develop a simplified
economic model that describes the flow of information and physical
library materials through the modern university research library. I
refer to such a model as "the base case" because, if endorsed, such a
model can then be used to evaluate the costs and investment requirements
of switching to alternate cases. I propose that, as we begin to describe
the base case, we distinguish between the costs and flows of information
and those of physical "things." It is essential at this time to
reinforce a point alluded to earlier, that is, that books, serials, and
government publications are not information; rather, they are specific
forms of packaging and organizing of information that have been
optimized for efficiency in generation, processing, storage, and
transmission.

Methodologically, we will need to devise standard metrics for
costing academic information management activities, in effect creating a
set of generally accepted accounting practices, or GAAP, for libraries.
We need to come to agreement on units of analysis for costing purposes.
My sense here is that the cost of managing serials is sufficiently
different from that of monographs to suggest a differential costing
analysis by major library product line. A robust cost model should be
comprehensive. Within the proposed architectural framework, all library
costs associated with acquiring, processing, storing, and circulating
information should be allocated.

Necessarily, such allocations will not be neat and clean due to our
attempt to simplify grossly a complex enterprise. While the
misallocation of library costs to any one of our four functional
categories may be cause for internal or political concern, it should not
compromise the model. What will be critical to the development of the
base case will be the differentiation of activities and costs on the
basis of whether or not those activities and costs relate to managing
information or to managing things. By identifying and differentiating
media-specific costs from those that are a function of information
content management, we will create models that can be used to study the
costs of switching to other delivery paradigms.

In the spirit of keeping things simple, I'd like to propose that
for now we set aside the issues of pricing. From the viewpoint of our
architectural model and from that of the institution, the cost we pay
for generating information is equal to the price we pay for that
information. Regarding processing, there are numerous complex processes
that libraries, publishers, utilities, and others perform to acquire
information and to establish intellectual and physical control of
acquired information. Some of these processes and their costs are what I
call medium-specific, such as the physical receiving and shelving of
books and the creation of control tools such as shelf lists. Other
activities and costs are invested to achieve a level of institutional
awareness of the contents of the institutional repository and are
medium-independent. I am inclined to believe that the costs of
abstracting, for example, will remain constant for any particular
journal whether that journal is delivered by UPS or over the NREN.

Intuitively, I suspect the area of storage is where we are likely
to get our biggest return on investment in new information delivery
paradigms. A comprehensive life cycle cost model of the modern academic
library must include an amortization of the facility construction costs,
as well as a recognition of maintenance, utility, and other facility
costs prorated to the book or journal level.

I believe that most of the storage costs of the current academic
research library are tied very closely to our predominant reliance on
paper. It is my hope that analysis of this kind will reveal these costs
to be among the highest in our existing delivery framework. Such a
finding will give us a persuasive and perhaps compelling argument for
investing in networked information delivery systems in the spirit of
doing more, for less.

Lastly, we will need to assess the costs of circulating our
holdings among our customers. In this context, I use the term
circulation broadly to include all of these activities engaged in by
libraries that put requested information into the hands of library
patrons. I've listed here only a few such activities and cost centers,
and I offer a final activity in the spirit of a "trial balloon." That
one is, of course, customer time. If you recall, I argued earlier that
libraries achieve certain economies by passing many of the costs of
circulating information on to the customer. As the mission of CNI
states, we are now concerned more than ever with increasing scholarly
productivity. If this is to be more than a hollow commitment to
productivity, I close by suggesting that we consider factoring into our
economic analysis the opportunity cost of faculty time.

Conclusion

Academic information managers, campus technology managers, and
networked service providers may be positioned to deliver on a promise of
doing more, with less. In addition to making the innovations and
investments that the networked information paradigm will require, we in
higher education administration must begin to assess, model, and
communicate our library costs from the point of view of information
access, as well as information acquisition. Only when we have a
holistic, and user-oriented, model of the base case costs will we be
able to make meaningful comparisons to, and trade-offs among, new
networked information delivery paradigms. Such analysis and future
comparisons will help inform our decisions about how to invest and,
where necessary, how to cut.

The challenges facing higher education in the 1990s are daunting.
More than ever, those information and information technology managers
among us are in a position to help our institutions weather the storm,
while improving services to faculty and students. While perhaps
unexciting, developing a comprehensive model of the base case costs of
delivering books and serials to faculty and students will go far in
enabling the next campus academic information delivery paradigm.

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For further reading:

Davis, Stanley M., and William H. Davidson. 2020 Vision: Transform Your
Business Today to Succeed in Tomorrow's Economy. New York: Simon &
Schuster, 1991.

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