ENVeCITY WP 8, T8.3: Business Model updates, June 2003

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ENV-e-CITY WP 8, T8.3 Business Model(updates,
June 2003)
DDr. Kurt Fedra ESS GmbH,
Austria kurt_at_ess.co.at http//www.ess.co.at En
vironmental Software Services A-2352
Gumpoldskirchen
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WP 8 Business models

• The business model will be based upon a two-level
  architecture
• Basic services
• non-profit operation (does not mean free of
  charge - subscriptions ?)
• open interfaces to value-added service providers
  (within consortium ?)
• market-driven development
• usage fees , subscriptions ?
• open interface to additional basic services
  linked from other organisations

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From the TA

• Pricing module for every information and service
  provided, there will be a pricing module plus an
  exploitation platform, provided as an
  infrastructure for major data owners outside the
  consortium that would like to have an electronic
  way of selling info is this still true ?
• DO WE HAVE ANY MAJOR DATA OWNERS OUTSIDE THE
  CONSOTRIUM BY NOW ?

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Business model

• Objectives
• Break even (for a supporting activity by an
  institution that has a related mandate)
• Make profit (through a commercial entity)
• is there a commercial entity ?

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Business model

• Revenues
• Usage fees, subscriptions
• Funding, sponsorships
• Indirect benefits (matches with existing
  mandates, advertising)

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Business model

• Costs (after the EU project)
• Development (European coverage)
• Operation
• Technical infrastructure
• Maintenance
• Content management
• Administration

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Business model

• Costs (annual, 4 year write-off)
• Development 125
• Extended EU coverage 150
• Operation
• Technical infrastructure 25
• Maintenance 120
• Content management 240
• Administration 40
• TOTAL ANNUAL COST 700K

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Business model

• Costs (annual, 4 year write-off)
• Development 100
• Extended EU coverage 100
• Operation
• Technical infrastructure 25
• Maintenance 50
• Content management 50
• Administration 25
• TOTAL ANNUAL COST 350K

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Business model

• Revenues brokerage (selling third party
  information)
• Value of information ?
• Market prices (GIS, meteo data)
• Opportunity costs
• BUT EeC does NOT OWN that data, only a small
  fee seems possible

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Business model

• Revenues
• Data/Services must be
• Complete
• High coverage and resolution
• Up to date
• Integrated ??
• High quality/reliability
• UNIQUE ???
• to be of commercial value NOT YET.

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Business model

• The raw material DATA
• Supplied by third parties
• Access (timing, formats, on-line ?)
• Cost
• Reliability
• Exclusivity
• BUT WE ONLY OFFER META-DATA OR FREE SERVICES NOW
  ?

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Business model

• Brokerage of third part content or services
• WHAT DOES ENV-e-CITY OFFER ?
• WHY SELL THROUGH EeC ?
• ADDED VALUE GENERATED ?
• WHAT is realistic ??

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Business model

• Revenues (technically)
• Micro-payments for individual data sets of
  services
• Annual subscriptions for unlimited access
  (different bundles)
• Annual subscriptions for tailored services (ASP,
  subscription bundles for different users)

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Micro-payments per item

• Value of brokerage or re-selling is a small
  percentage of the basic value or turnover (a few
  )
• Expected total turnover ?
• Assuming the value of an average transaction is
  X, we would need to have
• 700,000/X sales per year

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Business model

• Unit cost Transactions
• 1 700,000
• 10 70,000
• 100 7,000
• IS THIS PLAUSIBLE ??

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Business model

• HOWEVER
• These revenues are GROSS
• What is the NET part that would belong to an EeC
  operator ? 10-50 ??

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Business model

• Data requirements to estimate possible revenues
• Unit cost of service
• Market size and share (expected number of sales)
• Net portion () for EeC

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Business model

• Service Cost Transactions Revenue
  Net revenue for EeC
• LOH1 10 100
  1,000
• LOH2 20 10 200
• LOH3 60 50 3,000
• IER3 2.5 20
  50
• IER4 2.0 30
  50 2,625
• IER5 2.0 30
  50
• IER6 50 10
  500
• IER7 40 5
  200
• IER8 40 5
  200
• ESS3 30,000 5
  150,000 7,500
• GSUb 500 50 25,000
  12,500
• TOTAL ANNUAL NET INCOME 22,625
• THIS AMOUNTS TO 7 OF OPTIMISTIC COSTS.

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Business model

• High-value ASP
• subscription for institutions, cities
• Services would need to be customized to be
  valuable
• Customization increases cost of development or
  support
• BUT COSTS ARE EXTERNAL WITH THE SERVICE PROVIDERS

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Business model

• Value added customised ASP and third party
  services
• WHAT DOES ENV-e-CITY OFFER ?
• WHY SELL THROUGH EeC ?
• ADDED VALUE GENERATED ?
• WHAT is realistic ??

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Market size

• Cities gt 100,000
• Current EU 264
• New countries 537
• Europe, Russia 152
• TOTAL 953

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Market size

• Cities gt 100,000
• TOTAL 953
• 5 (48) 15.0K
• 10 (95) 7.5K
• 720,000 break even
• BUT do we offer something for cities ?
• BUT only a small accrues to EeC

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Market size

• Cities gt 100,000
• TOTAL 953
• BUT this implies
• Support of MANY national languages and thus high
  development and support costs

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Business model

• Conclusion
• Customers must have a real economic or regulatory
  NEED for data/services to support large numbers
  or high values of requests.
• (AQ Framework Directive)

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Business model

• Conclusion
• Micro-payments may be cost inefficient
• Institutional subscriptions with annual payments
  may be the most likely and efficient model
• Indirect benefits and thus institutional
  sponsorship may be most realistic

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Business model

• Conclusion
• For low-cost, high volume services the delivery
  must be completely automatic to be economic
• But WHO is a possible (paying) customer for very
  large numbers ??

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Business model

• Conclusion
• Sufficient revenues are only possible with
  high-value services as the main source, not with
  brokerage.
• Possible example
• ASP service for cities under the AQFW Directive

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Business model

• Conclusion
• General IT/Internet market development suggests
  that capitalization for an information service
  may be difficult if not impossible
• This suggests that any feasible solution must use
  alternative models (sponsorship, payment by data
  provider, not by users, ASP)

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Business model

• Conclusion
• Advantage the product can be generated and
  delivered in electronic format (no warehouse,
  shipping, etc.)
• Disadvantage small market, exclusive product(s),
  no tradition of payments for (scientific or
  environmental) information

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Business model

• Conclusion
• We can NOT sell primary information (we dont
  own/generate any data of economic value!)
• We can only sell
• Information packaging and distribution services
  low revenues, uneconomic ?
• Added value through integration and complex
  analysis WHICH SERVICES DO OFFER THAT ?

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Business model

• Conclusion
• IN ANY CASE, It may be difficult to generate
  sufficient revenues from the END USERS of
  environmental information expectation its
  free !
• It may be more promising to generate revenues
  from the SUPPLIERS of environmental information
  who have a mandate and obligation to distribute.
• BUT domain structure does not support that e.g.,
  for cities ?

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Business model

• Conclusion
• Best estimates
• Capital requirement of 1.5 to 2.5 M over the
  first four years
• Annual shortfall for continuing operation after
  development for complete EU coverage) from
• 0.0 break even ! - -250,000
• Return on investment negative.

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Open questions

• Continuation model any ideas, commitments ?
• WHO is ENV-e-CITY after December 31, 2003 ??
• Contracts with suppliers (LOH, FMI)
• Objective for Deliverable
• break even ??
• Check data on Services ?
• Individual exploitation issues ??

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Open questions

• Commercial entity
• Cost of incorporation (10-50K)
• Capitalisation (1-2M IPO ??)
• Distribution of shares
• Distribution of revenues
• By shares ?
• By services used ?
• Contractual arrangements who pays ?