EURONET; BOON OR BOMB by Roger K. Summit, Ph.D Director, Information Systems Lockheed Palo Alto Research Laboratory Paper Presented at the National Federation of Abstracting s Indexing Services Meeting March 6-8, 1979 Arlington, Virginia
EURONET; BOON OR BOMB INTRODUCTION Conjecture on a future event or situation such as EURONET is always more risky than descriptive analysis of an existing or past event.
The critics
in society avoid this problem by only addressing past occurrences - a performance, a piece of literature or an information retrieval system. Politicians avoid the risk of conjecture by either acting as critics, or if forced to deal with the future,they do so through the statement of platitudinous goals and objectives with measures of effectiveness or without a full statement of the consequences of policies they propose. I will try to be neither critic nor politician, but rather an interested observer of a very significant development in international information di s seminat ion. In this discussion, I have accepted the assignment to argue that EURONET will inhibit private network expansion, which I take to mean the expansion of commercial or private sector information retrieval services. The arguments presented will be based on two underlying premises: •
Competitive free enterprise systems produce a better long-run balance of rewards and services among market participants than do monopolistic systems (whether capitalist or socialist monopolies)
•
The potential for new users and uses of information far outstrips the current market for products and services
Thus, to the extent that EURONET behaves as a monopolist, and/or to the extent that EURONET acts to syphon off existing demand to its host* organizations as opposed to creating new demand, to that extent EURONET inhibits the actual or potential expansion of private networks, and perhaps the natural growth and expansion of information demand as well.
*
In network terminology, a "host" organization is one operating a computer on the network. "Host" will be used in this sense.
Furthermore, to the extent that EURONET acts to favor its community of host organizations as opposed to the community of information users, it will be deemed to inhibit the growth of information services in Europe. WHAT IS EURONET? Describing the character of EURONET is a bit like describing the color of a chameleon, but let me try.
EURONET is a private communications
network developed within the European common market which will allow organizations from within participating countries to provide information retrieval services at relatively inexpensive data communications rates. EURONET in this regard is not unlike our own TYMNET or TELENET in character and price.
It differs from these services, however, in that
TYMNET and TELENET, as regulated common carriers, must accept all customers who meet their interconnect standards. EURONET does not accept U.S. hosts for interconnection.
As the result of a contract between
EURONET and the PTTs,* the European user will have to pay approximately $25.00 per hour more for telecommunications to access a U.S. host than what he will pay to access a EURONET host. The majority of this differential is assessed by local European PTTS as an overseas interconnect charge. Recently the name DIANE {Direct Information Access Network for Europe) has been introduced to distinguish the collection of service host organizations from the PTT-operated data communications network, which at some point may become a public network. The purpose of DIANE is to provide a medium for cooperation among the host organizations supplying information retrieval services - apparently a kind of international trade association.
Furthermore, it seems that DIANE can provide an institution
to which the current EURONET management group could migrate once the PTTs take over full responsibility for EURONET. Additional stated objectives for EURONET/DIANE include the following: •
Insure that certain basic rules of fair commercial behavior are followed by host organizations
*
PTT refers to European Postal Telephone and Telegraph services.
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•
Develop specific technical interfacing and protocol standards
•
Support a reasonable degree of competition, but to discourage excessive duplication
Contrary to VIEWDATA which was mentioned as a speculative venture of the British Post Office, EURONET represents a heavily invested, subsidized venture of EEC governments. The balance of the presentation will examine problem issues introduced by or associated with EURONET/ DIANE which merit continued observation and monitoring.
The issues are
as follows: •
EURONET and the user's interest - EURONET has professed the user to be its #1 consideration
•
Quality and variety of service - and their effect on information retrieval system usage
•
Government control of information - a First Amendment-type consideration
•
Economics of EURONET - any venture must add value for all parties involved if it is to survive
EURONET and the User There would seem to be an element of contradiction in EURONET's professed orientation toward the user through their denial of U.S. service interconnection. U.S. services began supplying Europe in 1975. They invested in advertising, seminars, representatives, user training, and development programs with the result that European usage currently equals U.S. usage of just a few years ago. Now we have, EURONET, which in itself could be a laudable development, excluding admittance to the very host services which have created the present, viable European market, and which currently supply a major portion of the total information retrieval services used in Europe.
Is it a service to the user to require him to pay a $25.00
per hour premium to continue to use the services he has come to count on?
I feel the user would be better served if his selection of a service
could be based more on quality and variety of service than on price alone. Quality and Variety of Service U.S. suppliers have maintained a high quality level of service to Europe. This has, in fact, been one of the principal factors which has led to the development of Europe into a viable information retrieval services market. -3-
If users are attracted to (or directed to use) lower quality but less expensive services - as will be likely with EURONET price differentials the end user may not be well served.
End user satisfaction with search
results has been the driving force behind the expansion of these services. Low quality services do not encourage expansion. In order to develop the full potential of online use, it has been our experience that we must provide a rich variety of databases. DIALOG offers many such specialized databases from Europe which include PIRA, RAPRA, WELDASEARCH, World Textiles, BHRA Fluid Engineering, LISA, and GEOARCHIVE - to mention just a few.
These relatively low-use, specialized
databases can only be carried and offered at reasonable rates because the use volumes associated with larger databases carry most of the fixed costs and overhead associated with our service. Reduction of revenues from widely used databases - should it come - will not only require reexamination of the pricing of specialized databases, but could result in a reduction of usage on primary databases should some of these secondary databases need to be discontinued. Government Control of Information Of even greater concern to European users and database supplier should be the character of the hosts participating in EURONET. Ostensively all EURONET hosts are government or pseudo-government organizations.
Several
objections can be raised to such a circumstance. In an Orwellean sense, such a body could be viewed as an international cartel of information distributors who can regulate prices and offerings according to political, as opposed to economic considerations. A libertarian could justifiably object to this involvement by powerful government bodies in the information process. The information that politicans want people to access may differ from that which the people themselves wish.
It has been demonstrated in
the United States that the existence of a subsidized government service supplier of a database tends to drive out commercial suppliers of the same database. A $25.00 per hour rate differential may tend to drive tout U.S. service suppliers. Economics of EURONET The over-exuberance of EURONET forecasters notwithstanding, it would appear that demand for major databases will become splintered among several -4-
additional hosts. According to a recent EURONET Newsletter, there will be five hosts offering CAS products, three offering COMPENDEX, and two each offering NTIS, MEDLINE, and BIOSIS.
Even if we maintain usage
parity with EURONET hosts, we will experience a 33% reduction in volume. Including the effect of the preemptive telecommunications pricing advantage EURONET hosts will enjoy, we can expect this loss to approach 50-60% of current sales. We are very likely to see a market situation with an over-supply of providers with each supplier operating at a loss. We may find it necessary to increase domestic prices as an offset to these losses. What will be the effect of such a situation on the expansion of commercial information retreival services in Europe?
The
mother of expansion is profitability; the remedy for loss is contraction. If the European governments were suddenly
to levy a tariff of $25.00
per hour on U.S.-originated services, there would probably be a strong reaction by the U.S. information community.
But this is effectively
what is happening, and there is little reaction from anyone. Perhaps the U.S. database supplier who is after all supplying over half of the EURONET offerings should enjoy some of this $25.00 per hour windfall. A $25.00 per hour additional royalty charge for EURONET hosts would just equalize the telecommunication price differential.
Eurpean users would pay the same
rates they currently are paying, access charges for U.S. hosts and EURONET hosts would be equalized, and database suppliers could realize significant additional revenue. Worth considering, it seems to me. In summary then, whether or not the phenomenon of EURONET acts to stifle or expand free enterprise information retrieval services depends on several decisions yet to be made.
I would argue that private enterprise should be
allowed to function, and that governments should not compete with citizens in this regard.
Satisfaction of users and potential users information
needs is the bridge to the post-industrial society of information. Users should be allowed to select from a rich variety of offerings in an open market. When government organizations conspire to effect de facto price discrimination, there is no longer a free market, and such a situation can not be in the long-run best interest of database supplier, service vendor, or end user. -5-