- Email: [email protected]
Creating an open market for information
”
MANAGING TECHNOLOGY edited by Charles B. Lowry
Creating
an Open Market
for Information
by Marvin A. Sirbu
Just a few years ago, the Internet was synonymous with ‘free good” or “shared commons. “The most recent indication of how much this has changed is Microsoft5 bundling of its online services into Windows ‘9STM. It is generally recognized today that the Internet will be characterized by “mixed economy” which provides a variety of services-some free, some at a cost, some free to specific user communities, some by subscription, and some pay per use. It is also clear that the tools of commerce are being built to allowfor commercial exploitation of the information superhighway. Services like ‘AOL” and “Compuserve” provide a panoply of resources in one stop and bill their customers directly. However; for the Internet to really demonstrate commercial variety will require a third party billing service so that “netsueers” can pay for stops at small enterprises or large ones when they present desired resources. Libraries too will need such a billing capability, if only to secure intellectualproperty, or to bill for basic services they now offeer;like copying.C.B.L., Carnegie Mellon University.
A
mong goods in the marketplace, information is a most unusual item. It is often costly to create, but cheap to reproduce. Sometimes creators will spend enormous sums to create information and give it away, as with advertising. Other times, authors and publishers will demand compensation and use the protection of copyrights to oblige payment. Because information can be easily shared, it is often bought by organized groups-such as libraries-and then shared freely among the members of the library community. The shift to the use of digital technology for creating, formatting, storing, communicating and displaying information has further accentuated information’s unique properties. Electronic reproduction and distribution are virtually costless, especially in comparison with the costs of creating and formatting the information in the first instance. The data processing costs of searching for a desired information item may well exceed the costs of delivering the item once identified. Valuable information comes in all sizes. Consumers may at times wish to acquire a unit of information as small as a single stock price quotation or as large as the novel War and Peace.
Marvn A. Sirbu holds a joint appointment as Professor in Engineering and Public Policy the Graduate School of Industrial Administration, and Electrical and Computer University,
Pittsburgh,
Engineering
at Carnegie
Mellon
PA 75273.
SUBSCRIPTIONSAND LIBRARIES It is informative to think about the ways in which we pay for information, with particular attention to the problem of bundling. How is information bundled together for the purposes of marketing and distribution? Consider for a moment, scientific and technical journal articles. At the most disaggregated level, I can purchase article reprints from the publisher, or a third party, paying only for the specific pages I need. Or, I can purchase a single issue of a journal, which will bundle together a dozen or so articles in a particular field. A journal subscription constitutes yet a larger bundle, entitling me to all the articles in all the issues published over some time interval, typically one year. Some publishers, such as the IEEE, will give me a discount if I subscribe to a set of related journals. Finally, I can buy a membership in an institutional library-for example by paying tuition to a University-which gives me access to hundreds of journals acquired by the library. The library solution may be a little less convenient than the others, since I have to go to the journals instead of the journals coming to me. Journal publishers prefer subscription to article sales for many reasons. First, subscriptions provide a predictable revenue stream. Second, the cost of creating and formatting the articles in a journal dominates the cost of printing and distribution; that is, the bulk of the cost does not depend upon how popular a particular article or issue turns out to be. Under these circumstances, a pricing scheme that is itself fixed, independent of the demand for individual articles aligns price with costs. Much as heavy telephone users benefit from flat rate local service, a scholar who typically wants to peruse all the articles in the journal of his discipline benefits from a flat rate subscription. Subscription works best as a bundling and pricing strategy when creation costs exceed production costs, and users are likely to be interested in many of the articles that are bundled into a subscription. Just as at the supermarket, buying in larger quantities has another benefit: it spreads the cost of the transaction over a larger base. Selling the daily newspaper from a vending machine for a quarter barely pays for the cost of the transaction. Even renewing a subscription can cost the publisher a couple of dollars for mailing of invoices and processing of incoming checks. When payment must be collected for individual issues, or articles, transaction costs loom even larger. A membership library is simply a larger scale reproduction of the same phenomenon, but with cost sharing-and potential congestion-by the members of the library. By buying a share of thousands of subscriptions maintained by the library, the library patron who is a heavy user of the literature gets access to a large corpus at no additional cost per access. By comparison
November
1995
467
with individual subscriptions, the library provides tremendous savings by sharing the cost of a single subscription among its members. As long as the library community is not so large that patrons must incur significant waiting time to obtain popular journals, there is little downside to this sharing. Of course, the larger the collection of journals in a library, the higher must be the library membership cost. At some point, only the most avid readers will be able to afford the fixed cost of membership. One alternative is to group collections into tiers which can be subscribed to separately. A basic tier of popular journals can be offered at relatively low cost, since there will be many subscribers. A higher tier, for example all the specialized journals in one discipline, may have a higher cost because there will be fewer members who will subscribe, and thus a smaller base over which to spread the subscription costs. This is quite similar to pricing in the cable TV industry which has similar cost characteristics. A basic tier of channels is offered at low cost and is subscribed to by most households. “Enhanced’ tiers cost more per channel since the costs of providing them are spread over fewer subscribers. The subscription model I have been describing makes sense when an individual is likely to have repeated interest in related items, such as successive articles in a particular journal. But what about the latest novel, or the occasional need for a fact not to be found in one’s subscribed offerings? It is not surprising then that novels are sold individually more often than by subscription (e.g., Book of the Month clubs), since providing a regular series of hit novels is difficult for any publisher. PUBLISHING AND THE INTERNET In the last year, the dissemination of information via the Internet, particularly using the technology of the World Wide Web (WWW) has exploded from a trickle to a virtual torrent. As I write this article the latest estimates are of 60,000 web servers on the Internet, up from just 10,000 at the end of 1994. What sort of information is on the web? The first thing to note is that there is today no widely accepted method for collecting money for information delivered over the Internet. Thus, the information on the Internet today is limited to that information that is in the interests of the producer to give away. To date this has meant: l
l
l
l
468
The economics of web publishing are truly remarkable. For less than $30 per month an author can buy 10 megabytes of storage on a well-connected web server which will redistribute his work to Internet readers. A single such server can easily deliver a page of information (i.e., 10Kbytes) to 10,000 readers per hour, day or night. (Actually, the $30 per month rate is based on a presumed small average readership. If all works generated 10,000 readers per hour, the average rate would rise sharply.) In practice, a Web server can deliver an individual copy to a consumer for a cost measured in fractions of a cent. Internet Payment Mechanisms and Information Markets Payment mechanisms for selling information on the Internet are beginning to make their appearance. What are the ideal characteristics of an Internet payment mechanism? First, like cash currency, it should be widely accepted. A century and a half ago when local banks issued their own notes which were not widely convertible one could never be sure what kind of money could be used with which merchant. Second, if the cost of processing the transaction is too high, information providers will be forced to bundle information into large chunks. This could limit information sales to large reports or subscriptions only. The delivery cost of a page of information may be fractions of a cent, but if the transaction cost is a quarter, information cannot be sold at pennies per page. Third, it must be possible to limit information delivery to paying customers only. This requires some form of securitytypically provided by encryptionfor both payment and information delivery. Fourth, the payment mechanism should positively link payment with information delivery; users should not have to worry about being charged for information they never received, and merchants should not have to worry that they will not get paid for information they have delivered.
Public Notices: Where governments see it as their obligation to provide the public with information, such as the text of pending legislation, the web provides an inexpensive means of making such documents widely and rapidly available.
Department Store Model A variety of approaches are being proposed for information payment on the Internet. In the department store model a service provider acquires information from many sources and makes it available from a single large server or server cluster. The store may offer “credit” so that the user receives a single bill at the end of the month for all the purchases made at the store. Since the department store model allows many purchases to be aggregated into a single bill, this allows the use of relatively expensive payment mechanisms such as paper invoices sent by post and payment by check. The store needs only to be able to identify customers so that they know whose account to charge for each purchase. One problem with the department store model is that it leads to economic concentration with a few superstores determining what information is available, and the terms for delivery. General purpose credit cards offer another model. Visa and Mastercard, together with Microsoft, are developing techniques for sending encrypted credit card transactions over the Internet. Thus, any consumer who has a credit card can buy from any information merchant who has signed up to accept one of these cards.
Vanity Publishing: Authors who have a need to see their prose distributed can self publish on the web more effectively and for far less cost than by printing paper volumes. This is as true for academics, motivated by publish or perish, as for more frivolous works which can be found on countless home pages across the web.
Boutique Model This payment technology leads to what I call the “boutique” model. A small information merchant, who may not do enough repeat business with any one customer to justify sending monthly bills, can off load to the bankcard companies the burden of collecting from the consumer. In hard goods retailing, the
Advertising: including catalogs, product specification sheets, price lists, and general image advertising. It also includes teaser articles for publications available only through paper. Customer support materials. Often the web provides a cheaper means of disseminating customer support materials that are considered part of the cost of a sale. Thus, by putting responses to frequently asked questions on the web, a manufacturer can avoid costly customer service representatives and 800 number phone bills.
The Journal
of Academic
Librarianship
advent of the general purpose bankcard has contributed to the demise of the large department store and the rise of specialized boutiques. Credit cards on the net combined with the low cost of entry for putting up a web server may have a similar impact on large information providers, allowing for a great surge of entrepreneurship. For a real-world illustration of this phenomenon one need only look at the French Minitel system where France Telecom provides a general purpose billing mechanism. As a result, some 20,000 “kiosks” provide computer-based services to Minitel users. Many of these kiosks are provided by small entrepreneurs who can enter the marketplace for little more than the cost of a PC and the labor to acquire or develop valuable information. The principal limitation of this scenario is the discrepancy between the cost of electronic publishing and the cost of a credit card transaction. A typical credit card transaction has a minimum cost of 20 to 30 cents. Thus, sales are limited to bundles worth several dollars or more to avoid all profit being consumed by transaction costs. The result is to force Web merchants into a subscription model simply to avoid being consumed by transaction costs. THE NETBILL~~ TRANSACTION MODEL A dramatic shift towards unbundling will come about only when there is a payment mechanism with low transaction costs-on the order of a penny or less-which would permit information to be sold for as little as 10 cents per page, roughly the cost of a Xerox copy. An example of such a payment system is NetBill a set of protocols, software, and a business model for information sales over open networks being developed by Carneig Mellon University in cooperation with Visa International,
Mellon Bank, and the University of Illinois’ National Center for Supercomputer Applications.’ Figure 1 shows NetBill’s model. A consumer, represented by a client computer, wishes to buy information from a merchant’s server. A NetBill server maintains accounts for both consumers and merchants. These accounts are linked to conventional financial institutions. A NetBill transaction transfers the information goods from merchant to consumer, and debits the consumer’s account and credits the merchant’s account for the value of the goods. When necessary, funds in a consumer’s NetBill account can be replenished from a bank or credit card; similarly funds in a merchant’s NetBill account are made available by depositing them in the merchant’s bank account. The transfer of an information good consists of delivering bits to the consumer. This bit sequence may have any internal structure, for example, the results of a database search, a page of text, or a software program. Consumers may be charged on a per item basis, or by a subscription allowing unlimited access, or by a number of other pricing models. Once the consumer receives the bits, there are no technical means to absolutely control what the consumer does with them. For example, suppose an information provider wants to charge a different price for pages viewed online, versus printed pages. The merchant can provide consumers with client software distinguishing viewing from printing, and which initiates a new billing transaction when the screen is printed. However, there are no technical means to prevent the consumer from tampering with that software once it is on a personal machine; a corrupt consumer who has only paid to view the bits could thus bypass the charge for printing. Merchants may still choose to distribute special software in the belief that tampering will be infrequent.
Figure 1 The NetBill Model
End User (Consumer)
November 1995 469
If pricing is reasonable then the inducement to do so will be small, as for instance it is with video. When videos were priced over $50, the proclivity to copy them illegally was high. Similarly, today there is no technical means to prevent consumers from violating copyright by redistributing information in print form, but they do not do so on a scale which makes publishing unprofitable. Pricing remains a key factor in the equation. NetBill uses a single protocol that supports charging in a wide range of service interactions. NetBill provides transaction support through libraries integrated with different client-server pairs. These libraries use a single transaction-oriented protocol for communication between client and server and NetBill; the normal communications model between client and server is unchanged. Clients and servers can continue to communicate using protocols optimized for the application-for example, video delivery or database queries-while the financial-related information is transmitted over protocols optimized for that purpose. This approach allows NetBill to work with information delivery mechanisms ranging from the WWW to FTP and MPEG-2 streams.
complete in real time over the Internet, requiring little more from the consumer than to click on an item of interest. The process begins when the consumer requests a formal price quote for a product. This price may be different than the standard list price because, for example, the consumer may be part of a site license group, and thus be entitled to a marginal price of zero. Altematively, the consumer may be entitled to some form of volume discount, or perhaps there is a surcharge during the peak hour. Requesting the price quote is easy. In a WWW browser application we have built, a consumer requests a price quote by simply clicking on a displayed article reference. The consumer’s client application then indicates to the NetBill client librarywhich we call the Checkbook-that it would like a price quote from a particular merchant for a specified product (Step 1). The Checkbook library sends an authenticated request for a quote to the NetBill merchant library-known as the Till-which forwards it to the merchant’s application. The merchant then must invoke an algorithm to determine a price for the authenticated consumer. He returns the price quote through the Till, to the Checkbook (Step 2) and on to the consumer’s application. A database lookup on every purchase request, to determine if the consumer is a subscriber, is costly to perform. Accordingly, we have developed the notion of a credentials server that can issue a temporary credential to the consumer indicating that he or she is a subscriber. This credential can be presented with each price quote request to enable rapid identification of subscribers. Merchants operate credential servers alongside their product servers to reduce database lookups to one per session. Operation of credential servers also can be separated from the
The NetBillTM Transaction Protocol Before consumers begin a typical NetBill transaction, they will usually contact a server to locate information or a service of interest. For example, the consumer may request a table of contents of a journal showing available articles, and a list price associated with each article. NetBill provides support for three phases in the purchase process: rice negotiation, goods delivery, and payment (see Figure 2). ! The process, which takes severa1 paragraphs here to describe, takes only a few seconds to
Figure 2 Transaction Protocol
PI
PI PI PI Fl PI [6]
NetBill Server
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The Journal
of Academic
Librarianship
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merchant service. A digital library running at the University of California at Berkeley could provide site licensed material to all nine UC campuses based on credentials issued from separate servers maintained at each campus. Upon receipt of the price quote, the consumer’s application then must make a purchase decision. The application can present the price quote to the consumer or it can approve the purchase without prompting the consumer. For example, the consumer may specify that his or her client software accept any price quote below some threshold amount; this relieves him or her of the burden of assenting to every low-value price quote via a dialog box. Assume the consumer’s application accepts the price quote. The Checkbook then sends (Step 3) a purchase request to the merchant’s Till. The Till then requests the information goods from the merchant’s application and sends them to the consumer’s Checkbook encrypted in a one-time key (Step 4), and computes a cryptographic checksum on the encrypted message. As the Checkbook receives the bits, it writes them to stable storage. When the goods transfer is complete, the payment phase of the protocol begins. The Checkbook computes its own cryptographic checksum on the encrypted goods and returns to the Till a digitally signed message specifying the product identifier, the accepted price, the cryptographic checksum, and a time-out stamp: we refer to this information as the electronic payment order (EPO) (Step 5). Note that, at this point, the consumer can not decrypt the goods; neither has the consumer been charged. Upon receipt of the EPO, the Till checks its checksum against the one computed by the Checkbook. If they do not match, then the goods can either be retransmitted, or the transaction aborted at this point. This step provides very high assurance that the encrypted goods were received without error. If the checksums match, and the merchant agrees with the item description and price in the EPO, the merchant’s application appends the decryption key for the goods to the EPO and endorsesAigitally signs-the entire message. The application sends the endorsed EPO to the NetBill server (Step 6). The NetBill server verifies that the consumer and merchant signatures are valid indicating consumer and merchant acceptance of the terms of the EPO. If the consumer has the necessary funds or credit in his or her account, the NetBill server debits the consumer’s account and credits the merchant’s account, logs the transaction, and saves a copy of the decryption key. The NetBill server then returns to the merchant a digitally signed receipt containing the decryption key, or an error code indicating why the transaction failed (Step 7). The merchant’s application forwards the NetBill server’s receipt (which includes, if appropriate, the decryption key) to the Checkbook (Step 8). Because the key to the delivered goods is not delivered until after the consumer’s account has been charged, the consumer will have access to the information if and only if he or she has paid for it. At the same time, because NetBill will not debit a user’s account without evidence of successful delivery in the form of the merchant’s signature on the checksum of the received bits, the consumer cannot be charged for goods that were never received or were received in error. For the special case of subscription goods where the marginal price of any article is zero, the entire protocol can be shortened to as few as two messages, providing significant improvements in efficiency.
is designed to allow readers to open a single NetBill account and gain access to information provided by thousands of independent information providers. By early 1996, it should be possible for consumers at Carnegie Mellon University and other universities to purchase digital library information from a variety of information providers either on a subscription basis or at prices ranging as low as 10 cents per page. Because the cost of mounting a web server and becoming a NetBill merchant will be very low, we can expect a dramatic evolution in the structure of the publishing and library industries. A small number of servers can easily provide access to large digital collections for more than one campus. It seems unlikely that every institution will need to mount servers with its own copies of information the way it currently houses paper journals. Further in the future, the ease of mounting a server may lead authors to choose to self-publish, retaining all the revenues collected using a NetBill style billing system. However, even with transaction costs as low as a penny, it may still prove more economical to provide small information goods, such as stock quotes, by subscription, or even via advertiser support. Thus, we can expect to see a mixture of support models for information continue even into the digital age. AcknowledgmentsThis research was sponsored by the Air Force Materiel Command, under Advanced Research Projects Agency contract No. F1962895C0018, “Electronic Commerce: The NetBill Project.” Additional support was received from the National Science Foundation under Cooperative Agreement No. IR19411299, and from Visa International. The views and conclusions contained in this article are those of the author and should not be interpreted as representing the official policies, either expressed or implied, of the Advanced Research Projects Agency, the National Science Foundation, or the U.S. govemment. NetBill is a trademark of Carnegie Mellon University. Additional information about the NetBill project is available on the web at http://www.ini.cmu.edu/netbilll. REFERENCES 1. Marvin Sirbu & J. Doug Tygar, “NetBill: An Electronic Commerce System Optimized for Network Delivered Services,” IEEE Communications Magazine (August 1995). 2. Benjamin Cox, J. Doug Tygar, & Marvin Sirbu, “NetBill Security and Transaction Protocol,” Proceedings of the First Usenix Workshop on Electronic Commerce, New York, July, 1995. In the next issue, Onno Mastenbroek and Natalia Grygierczyk discuss “Electronic Library Utrecht: Approaching An Ambitious Innovation. ” Individuals interested in contributing guest columns should send a precis of their proposed essay to: Charles B. Lowry, University Librarian, Editor; “Managing Technology, ” JAL, Carnegie Mellon University Libraries, Hunt Library, Frew St., Pittsburgh, PA 15213-3890. Or phone: (412) 268-2447, Fax: (412) 268-6944, E-mail:.
Implications This fall Carnegie Mellon and its partners will begin a pre-commercial trial of the NetBill concept. Transaction costs should be on the order of one to two cents. The NetBill model
November
1995
471
MANAGING TECHNOLOGY edited by Charles B. Lowry
Creating
an Open Market
for Information
by Marvin A. Sirbu
Just a few years ago, the Internet was synonymous with ‘free good” or “shared commons. “The most recent indication of how much this has changed is Microsoft5 bundling of its online services into Windows ‘9STM. It is generally recognized today that the Internet will be characterized by “mixed economy” which provides a variety of services-some free, some at a cost, some free to specific user communities, some by subscription, and some pay per use. It is also clear that the tools of commerce are being built to allowfor commercial exploitation of the information superhighway. Services like ‘AOL” and “Compuserve” provide a panoply of resources in one stop and bill their customers directly. However; for the Internet to really demonstrate commercial variety will require a third party billing service so that “netsueers” can pay for stops at small enterprises or large ones when they present desired resources. Libraries too will need such a billing capability, if only to secure intellectualproperty, or to bill for basic services they now offeer;like copying.C.B.L., Carnegie Mellon University.
A
mong goods in the marketplace, information is a most unusual item. It is often costly to create, but cheap to reproduce. Sometimes creators will spend enormous sums to create information and give it away, as with advertising. Other times, authors and publishers will demand compensation and use the protection of copyrights to oblige payment. Because information can be easily shared, it is often bought by organized groups-such as libraries-and then shared freely among the members of the library community. The shift to the use of digital technology for creating, formatting, storing, communicating and displaying information has further accentuated information’s unique properties. Electronic reproduction and distribution are virtually costless, especially in comparison with the costs of creating and formatting the information in the first instance. The data processing costs of searching for a desired information item may well exceed the costs of delivering the item once identified. Valuable information comes in all sizes. Consumers may at times wish to acquire a unit of information as small as a single stock price quotation or as large as the novel War and Peace.
Marvn A. Sirbu holds a joint appointment as Professor in Engineering and Public Policy the Graduate School of Industrial Administration, and Electrical and Computer University,
Pittsburgh,
Engineering
at Carnegie
Mellon
PA 75273
SUBSCRIPTIONSAND LIBRARIES It is informative to think about the ways in which we pay for information, with particular attention to the problem of bundling. How is information bundled together for the purposes of marketing and distribution? Consider for a moment, scientific and technical journal articles. At the most disaggregated level, I can purchase article reprints from the publisher, or a third party, paying only for the specific pages I need. Or, I can purchase a single issue of a journal, which will bundle together a dozen or so articles in a particular field. A journal subscription constitutes yet a larger bundle, entitling me to all the articles in all the issues published over some time interval, typically one year. Some publishers, such as the IEEE, will give me a discount if I subscribe to a set of related journals. Finally, I can buy a membership in an institutional library-for example by paying tuition to a University-which gives me access to hundreds of journals acquired by the library. The library solution may be a little less convenient than the others, since I have to go to the journals instead of the journals coming to me. Journal publishers prefer subscription to article sales for many reasons. First, subscriptions provide a predictable revenue stream. Second, the cost of creating and formatting the articles in a journal dominates the cost of printing and distribution; that is, the bulk of the cost does not depend upon how popular a particular article or issue turns out to be. Under these circumstances, a pricing scheme that is itself fixed, independent of the demand for individual articles aligns price with costs. Much as heavy telephone users benefit from flat rate local service, a scholar who typically wants to peruse all the articles in the journal of his discipline benefits from a flat rate subscription. Subscription works best as a bundling and pricing strategy when creation costs exceed production costs, and users are likely to be interested in many of the articles that are bundled into a subscription. Just as at the supermarket, buying in larger quantities has another benefit: it spreads the cost of the transaction over a larger base. Selling the daily newspaper from a vending machine for a quarter barely pays for the cost of the transaction. Even renewing a subscription can cost the publisher a couple of dollars for mailing of invoices and processing of incoming checks. When payment must be collected for individual issues, or articles, transaction costs loom even larger. A membership library is simply a larger scale reproduction of the same phenomenon, but with cost sharing-and potential congestion-by the members of the library. By buying a share of thousands of subscriptions maintained by the library, the library patron who is a heavy user of the literature gets access to a large corpus at no additional cost per access. By comparison
November
1995
467
with individual subscriptions, the library provides tremendous savings by sharing the cost of a single subscription among its members. As long as the library community is not so large that patrons must incur significant waiting time to obtain popular journals, there is little downside to this sharing. Of course, the larger the collection of journals in a library, the higher must be the library membership cost. At some point, only the most avid readers will be able to afford the fixed cost of membership. One alternative is to group collections into tiers which can be subscribed to separately. A basic tier of popular journals can be offered at relatively low cost, since there will be many subscribers. A higher tier, for example all the specialized journals in one discipline, may have a higher cost because there will be fewer members who will subscribe, and thus a smaller base over which to spread the subscription costs. This is quite similar to pricing in the cable TV industry which has similar cost characteristics. A basic tier of channels is offered at low cost and is subscribed to by most households. “Enhanced’ tiers cost more per channel since the costs of providing them are spread over fewer subscribers. The subscription model I have been describing makes sense when an individual is likely to have repeated interest in related items, such as successive articles in a particular journal. But what about the latest novel, or the occasional need for a fact not to be found in one’s subscribed offerings? It is not surprising then that novels are sold individually more often than by subscription (e.g., Book of the Month clubs), since providing a regular series of hit novels is difficult for any publisher. PUBLISHING AND THE INTERNET In the last year, the dissemination of information via the Internet, particularly using the technology of the World Wide Web (WWW) has exploded from a trickle to a virtual torrent. As I write this article the latest estimates are of 60,000 web servers on the Internet, up from just 10,000 at the end of 1994. What sort of information is on the web? The first thing to note is that there is today no widely accepted method for collecting money for information delivered over the Internet. Thus, the information on the Internet today is limited to that information that is in the interests of the producer to give away. To date this has meant: l
l
l
l
468
The economics of web publishing are truly remarkable. For less than $30 per month an author can buy 10 megabytes of storage on a well-connected web server which will redistribute his work to Internet readers. A single such server can easily deliver a page of information (i.e., 10Kbytes) to 10,000 readers per hour, day or night. (Actually, the $30 per month rate is based on a presumed small average readership. If all works generated 10,000 readers per hour, the average rate would rise sharply.) In practice, a Web server can deliver an individual copy to a consumer for a cost measured in fractions of a cent. Internet Payment Mechanisms and Information Markets Payment mechanisms for selling information on the Internet are beginning to make their appearance. What are the ideal characteristics of an Internet payment mechanism? First, like cash currency, it should be widely accepted. A century and a half ago when local banks issued their own notes which were not widely convertible one could never be sure what kind of money could be used with which merchant. Second, if the cost of processing the transaction is too high, information providers will be forced to bundle information into large chunks. This could limit information sales to large reports or subscriptions only. The delivery cost of a page of information may be fractions of a cent, but if the transaction cost is a quarter, information cannot be sold at pennies per page. Third, it must be possible to limit information delivery to paying customers only. This requires some form of securitytypically provided by encryptionfor both payment and information delivery. Fourth, the payment mechanism should positively link payment with information delivery; users should not have to worry about being charged for information they never received, and merchants should not have to worry that they will not get paid for information they have delivered.
Public Notices: Where governments see it as their obligation to provide the public with information, such as the text of pending legislation, the web provides an inexpensive means of making such documents widely and rapidly available.
Department Store Model A variety of approaches are being proposed for information payment on the Internet. In the department store model a service provider acquires information from many sources and makes it available from a single large server or server cluster. The store may offer “credit” so that the user receives a single bill at the end of the month for all the purchases made at the store. Since the department store model allows many purchases to be aggregated into a single bill, this allows the use of relatively expensive payment mechanisms such as paper invoices sent by post and payment by check. The store needs only to be able to identify customers so that they know whose account to charge for each purchase. One problem with the department store model is that it leads to economic concentration with a few superstores determining what information is available, and the terms for delivery. General purpose credit cards offer another model. Visa and Mastercard, together with Microsoft, are developing techniques for sending encrypted credit card transactions over the Internet. Thus, any consumer who has a credit card can buy from any information merchant who has signed up to accept one of these cards.
Vanity Publishing: Authors who have a need to see their prose distributed can self publish on the web more effectively and for far less cost than by printing paper volumes. This is as true for academics, motivated by publish or perish, as for more frivolous works which can be found on countless home pages across the web.
Boutique Model This payment technology leads to what I call the “boutique” model. A small information merchant, who may not do enough repeat business with any one customer to justify sending monthly bills, can off load to the bankcard companies the burden of collecting from the consumer. In hard goods retailing, the
Advertising: including catalogs, product specification sheets, price lists, and general image advertising. It also includes teaser articles for publications available only through paper. Customer support materials. Often the web provides a cheaper means of disseminating customer support materials that are considered part of the cost of a sale. Thus, by putting responses to frequently asked questions on the web, a manufacturer can avoid costly customer service representatives and 800 number phone bills.
The Journal
of Academic
Librarianship
advent of the general purpose bankcard has contributed to the demise of the large department store and the rise of specialized boutiques. Credit cards on the net combined with the low cost of entry for putting up a web server may have a similar impact on large information providers, allowing for a great surge of entrepreneurship. For a real-world illustration of this phenomenon one need only look at the French Minitel system where France Telecom provides a general purpose billing mechanism. As a result, some 20,000 “kiosks” provide computer-based services to Minitel users. Many of these kiosks are provided by small entrepreneurs who can enter the marketplace for little more than the cost of a PC and the labor to acquire or develop valuable information. The principal limitation of this scenario is the discrepancy between the cost of electronic publishing and the cost of a credit card transaction. A typical credit card transaction has a minimum cost of 20 to 30 cents. Thus, sales are limited to bundles worth several dollars or more to avoid all profit being consumed by transaction costs. The result is to force Web merchants into a subscription model simply to avoid being consumed by transaction costs. THE NETBILL~~ TRANSACTION MODEL A dramatic shift towards unbundling will come about only when there is a payment mechanism with low transaction costs-on the order of a penny or less-which would permit information to be sold for as little as 10 cents per page, roughly the cost of a Xerox copy. An example of such a payment system is NetBill a set of protocols, software, and a business model for information sales over open networks being developed by Carneig Mellon University in cooperation with Visa International,
Mellon Bank, and the University of Illinois’ National Center for Supercomputer Applications.’ Figure 1 shows NetBill’s model. A consumer, represented by a client computer, wishes to buy information from a merchant’s server. A NetBill server maintains accounts for both consumers and merchants. These accounts are linked to conventional financial institutions. A NetBill transaction transfers the information goods from merchant to consumer, and debits the consumer’s account and credits the merchant’s account for the value of the goods. When necessary, funds in a consumer’s NetBill account can be replenished from a bank or credit card; similarly funds in a merchant’s NetBill account are made available by depositing them in the merchant’s bank account. The transfer of an information good consists of delivering bits to the consumer. This bit sequence may have any internal structure, for example, the results of a database search, a page of text, or a software program. Consumers may be charged on a per item basis, or by a subscription allowing unlimited access, or by a number of other pricing models. Once the consumer receives the bits, there are no technical means to absolutely control what the consumer does with them. For example, suppose an information provider wants to charge a different price for pages viewed online, versus printed pages. The merchant can provide consumers with client software distinguishing viewing from printing, and which initiates a new billing transaction when the screen is printed. However, there are no technical means to prevent the consumer from tampering with that software once it is on a personal machine; a corrupt consumer who has only paid to view the bits could thus bypass the charge for printing. Merchants may still choose to distribute special software in the belief that tampering will be infrequent.
Figure 1 The NetBill Model
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If pricing is reasonable then the inducement to do so will be small, as for instance it is with video. When videos were priced over $50, the proclivity to copy them illegally was high. Similarly, today there is no technical means to prevent consumers from violating copyright by redistributing information in print form, but they do not do so on a scale which makes publishing unprofitable. Pricing remains a key factor in the equation. NetBill uses a single protocol that supports charging in a wide range of service interactions. NetBill provides transaction support through libraries integrated with different client-server pairs. These libraries use a single transaction-oriented protocol for communication between client and server and NetBill; the normal communications model between client and server is unchanged. Clients and servers can continue to communicate using protocols optimized for the application-for example, video delivery or database queries-while the financial-related information is transmitted over protocols optimized for that purpose. This approach allows NetBill to work with information delivery mechanisms ranging from the WWW to FTP and MPEG-2 streams.
complete in real time over the Internet, requiring little more from the consumer than to click on an item of interest. The process begins when the consumer requests a formal price quote for a product. This price may be different than the standard list price because, for example, the consumer may be part of a site license group, and thus be entitled to a marginal price of zero. Altematively, the consumer may be entitled to some form of volume discount, or perhaps there is a surcharge during the peak hour. Requesting the price quote is easy. In a WWW browser application we have built, a consumer requests a price quote by simply clicking on a displayed article reference. The consumer’s client application then indicates to the NetBill client librarywhich we call the Checkbook-that it would like a price quote from a particular merchant for a specified product (Step 1). The Checkbook library sends an authenticated request for a quote to the NetBill merchant library-known as the Till-which forwards it to the merchant’s application. The merchant then must invoke an algorithm to determine a price for the authenticated consumer. He returns the price quote through the Till, to the Checkbook (Step 2) and on to the consumer’s application. A database lookup on every purchase request, to determine if the consumer is a subscriber, is costly to perform. Accordingly, we have developed the notion of a credentials server that can issue a temporary credential to the consumer indicating that he or she is a subscriber. This credential can be presented with each price quote request to enable rapid identification of subscribers. Merchants operate credential servers alongside their product servers to reduce database lookups to one per session. Operation of credential servers also can be separated from the
The NetBillTM Transaction Protocol Before consumers begin a typical NetBill transaction, they will usually contact a server to locate information or a service of interest. For example, the consumer may request a table of contents of a journal showing available articles, and a list price associated with each article. NetBill provides support for three phases in the purchase process: rice negotiation, goods delivery, and payment (see Figure 2). ! The process, which takes severa1 paragraphs here to describe, takes only a few seconds to
Figure 2 Transaction Protocol
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PI PI PI Fl PI [6]
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merchant service. A digital library running at the University of California at Berkeley could provide site licensed material to all nine UC campuses based on credentials issued from separate servers maintained at each campus. Upon receipt of the price quote, the consumer’s application then must make a purchase decision. The application can present the price quote to the consumer or it can approve the purchase without prompting the consumer. For example, the consumer may specify that his or her client software accept any price quote below some threshold amount; this relieves him or her of the burden of assenting to every low-value price quote via a dialog box. Assume the consumer’s application accepts the price quote. The Checkbook then sends (Step 3) a purchase request to the merchant’s Till. The Till then requests the information goods from the merchant’s application and sends them to the consumer’s Checkbook encrypted in a one-time key (Step 4), and computes a cryptographic checksum on the encrypted message. As the Checkbook receives the bits, it writes them to stable storage. When the goods transfer is complete, the payment phase of the protocol begins. The Checkbook computes its own cryptographic checksum on the encrypted goods and returns to the Till a digitally signed message specifying the product identifier, the accepted price, the cryptographic checksum, and a time-out stamp: we refer to this information as the electronic payment order (EPO) (Step 5). Note that, at this point, the consumer can not decrypt the goods; neither has the consumer been charged. Upon receipt of the EPO, the Till checks its checksum against the one computed by the Checkbook. If they do not match, then the goods can either be retransmitted, or the transaction aborted at this point. This step provides very high assurance that the encrypted goods were received without error. If the checksums match, and the merchant agrees with the item description and price in the EPO, the merchant’s application appends the decryption key for the goods to the EPO and endorsesAigitally signs-the entire message. The application sends the endorsed EPO to the NetBill server (Step 6). The NetBill server verifies that the consumer and merchant signatures are valid indicating consumer and merchant acceptance of the terms of the EPO. If the consumer has the necessary funds or credit in his or her account, the NetBill server debits the consumer’s account and credits the merchant’s account, logs the transaction, and saves a copy of the decryption key. The NetBill server then returns to the merchant a digitally signed receipt containing the decryption key, or an error code indicating why the transaction failed (Step 7). The merchant’s application forwards the NetBill server’s receipt (which includes, if appropriate, the decryption key) to the Checkbook (Step 8). Because the key to the delivered goods is not delivered until after the consumer’s account has been charged, the consumer will have access to the information if and only if he or she has paid for it. At the same time, because NetBill will not debit a user’s account without evidence of successful delivery in the form of the merchant’s signature on the checksum of the received bits, the consumer cannot be charged for goods that were never received or were received in error. For the special case of subscription goods where the marginal price of any article is zero, the entire protocol can be shortened to as few as two messages, providing significant improvements in efficiency.
is designed to allow readers to open a single NetBill account and gain access to information provided by thousands of independent information providers. By early 1996, it should be possible for consumers at Carnegie Mellon University and other universities to purchase digital library information from a variety of information providers either on a subscription basis or at prices ranging as low as 10 cents per page. Because the cost of mounting a web server and becoming a NetBill merchant will be very low, we can expect a dramatic evolution in the structure of the publishing and library industries. A small number of servers can easily provide access to large digital collections for more than one campus. It seems unlikely that every institution will need to mount servers with its own copies of information the way it currently houses paper journals. Further in the future, the ease of mounting a server may lead authors to choose to self-publish, retaining all the revenues collected using a NetBill style billing system. However, even with transaction costs as low as a penny, it may still prove more economical to provide small information goods, such as stock quotes, by subscription, or even via advertiser support. Thus, we can expect to see a mixture of support models for information continue even into the digital age. AcknowledgmentsThis research was sponsored by the Air Force Materiel Command, under Advanced Research Projects Agency contract No. F1962895C0018, “Electronic Commerce: The NetBill Project.” Additional support was received from the National Science Foundation under Cooperative Agreement No. IR19411299, and from Visa International. The views and conclusions contained in this article are those of the author and should not be interpreted as representing the official policies, either expressed or implied, of the Advanced Research Projects Agency, the National Science Foundation, or the U.S. govemment. NetBill is a trademark of Carnegie Mellon University. Additional information about the NetBill project is available on the web at http://www.ini.cmu.edu/netbilll. REFERENCES 1. Marvin Sirbu & J. Doug Tygar, “NetBill: An Electronic Commerce System Optimized for Network Delivered Services,” IEEE Communications Magazine (August 1995). 2. Benjamin Cox, J. Doug Tygar, & Marvin Sirbu, “NetBill Security and Transaction Protocol,” Proceedings of the First Usenix Workshop on Electronic Commerce, New York, July, 1995. In the next issue, Onno Mastenbroek and Natalia Grygierczyk discuss “Electronic Library Utrecht: Approaching An Ambitious Innovation. ” Individuals interested in contributing guest columns should send a precis of their proposed essay to: Charles B. Lowry, University Librarian, Editor; “Managing Technology, ” JAL, Carnegie Mellon University Libraries, Hunt Library, Frew St., Pittsburgh, PA 15213-3890. Or phone: (412) 268-2447, Fax: (412) 268-6944, E-mail:
Implications This fall Carnegie Mellon and its partners will begin a pre-commercial trial of the NetBill concept. Transaction costs should be on the order of one to two cents. The NetBill model
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