Geographic Information Business and Interoperability: The Future of GIS Andrew U. Frank Geoinfo TU Vienna overheads available from:

June 29, 1998 Brno GIS Technical vs. Business Considerations Technical advance propels GIS Institutional aspects retard GI We have to pay more attention to the institutional setting! I will concentrate here on economic aspects, but other aspects of the institutional setting are very important as well. (legal, business traditions….)

June 29, 1998 Brno GIS Business Viewpoint Information is useful only if it is used. The value of information is not automatically equal to the cost of its collection. The GI business exists only if Geographic Information contributes to a decision. The value of the information is equal to the improvement of the decision.

June 29, 1998 Brno GIS Example for Business Viewpoint Information about lunch menus (specials) for people in the TU Vienna area. I (and many others) go for lunch in one of the neighborhood restaurants for lunch. I use this example to show you - step by step - an business discussion of the spatial information business. The considerations are the same for other cases, the outcomes different! (based on a course at TU Vienna)

June 29, 1998 Brno GIS What is the Decision? To assess a business case, one must have a clear idea what decision the user needs to take. Here: Which restaurant should I go to have lunch?

June 29, 1998 Brno GIS What is the Information Required? For a decision the user needs several informations. Here (among others): I decide on the base of the menu offered today and distance to the restaurant.

June 29, 1998 Brno GIS How can the Information be generated? As a potential GI business unit: Can I produce the information? What are the data and processes required?

June 29, 1998 Brno GIS Information Generation: Here: I need a daily updated database with the luncheon specials a database which permits to calculate distances from users to restaurants Assume that we get the menus by fax from the restaurants a background street map from the town

June 29, 1998 Brno GIS How is the Information transported to the user? The information producer must learn about the requests from the user and transport the information produced back to the users. Here: Use the internet/web, This restricts the potential users to employees and students of the TU.

June 29, 1998 Brno GIS How much Value has the Information to the User? The price of the information must not be higher than the benefits the user draws from them (the economic utility). This is difficult to estimate; consider other economic aspects of the decision and estimate the contribution of the piece of information in question.

June 29, 1998 Brno GIS Here: We pay typically $10 per meal and give less than $1 as tip. Restaurant prices vary by $1.. $3 Estimation: a user may pay $0.50 for the menu information.

June 29, 1998 Brno GIS Can I make a Business from this? We have to compare the income with the cost of providing the information: Here income: 3000 potential users, of which 5% use the service per day: > $75 per day

June 29, 1998 Brno GIS Cost: Cost of Menus: faxed by restaurant - free to us Manual Input of menu from faxes: 30 3 minutes 1.5 $30 = $45 One time costs: set up of system: $10,000 map of town: $100,000

June 29, 1998 Brno GIS Return on investment: contribution to set up cost per day: $75 - $45 = $30 break even: $110,000/$30 = 3000 days ( working days)

June 29, 1998 Brno GIS Practical issue: how to collect the users contribution? E-cash is essential!

June 29, 1998 Brno GIS Value for city map in electronic form What made this business impossible? The high price for the city map! Reconsider: what is the value of the city map for this business? To break even within two years 2* 250 days * $ 30 = $15,000 - cost of setup: $10,000 The value of the city map for this business is $5,000.

June 29, 1998 Brno GIS The cost of an item and its economic value is not the same! Cost: total resources necessary to produce an item. Value: utility for a user for information: economic contribution to a decision A high cost does not automatically imply high value!

June 29, 1998 Brno GIS General observation about value of base geographic data: Small scale Small scale data is often required for backdrop provide framework, allow distance calculation etc. precision required is low, update level required low value contributed to business is small, but business is often repeated 1 million times $0.01 = $10,000!

June 29, 1998 Brno GIS Value of Large Scale Geographic data Large scale, detailed data has different potential user profile: seldom used (how often do you build a new home?) high precision and update level is required Value contributed to decision is high (and value of decision is very high) High value for few uses: 10 times $1,000 = $10,000 Conclusion: use two very different business models!

June 29, 1998 Brno GIS How can we improve GI Business? Expand uses. But how? Identify more possible uses for GI in decision making - there is a very large potential: 80% of all decisions have a spatial component. Make a business: reduce cost to produce and distribute information i.e. transaction cost. Technological and institutional development should concentrate on reduction of transaction cost.

June 29, 1998 Brno GIS Transaction Costs reduce Value The value of information is reduced by the cost to use the information. Transaction cost are the cost of - finding the data required - gaining access to the data - transferring the data - translating and integrating the data

June 29, 1998 Brno GIS Example: if the user can deposit a list of menu preferences and his position, walking distance preference for each (this has the format of an SQL query!) then we could automatically send him his preferred three top choices to his handy (SMS). Less effort for the client, more value. (here resulting in more sales, not necessarily a higher price; change of pricing strategy - service paid monthly)

June 29, 1998 Brno GIS Standards increase the value of data Standards reduce the transaction costs; they make it easier to use existing data. Use of data becomes more likely. Data becomes more valuable. Here: less cost for setting up the system database Reduction of set-up cost to $7,000.

June 29, 1998 Brno GIS Data Exchange A copy of the data is sent to the customer and integrated with his data. The data is frozen - further updates at the source are not propagated. All data must be transferred. Useful for: data which changes seldom applications which can tolerate ‘old’ data Here: the street network can be re-loaded once per year; menus daily!

June 29, 1998 Brno GIS Open GIS Interoperability The customer accesses the current data at the source. The data used is up to date and maintained. Only the data of interest is sent to the user. Here: the user interacts with the updated database! The Open GIS concept of interoperability reduces transaction cost. Fewer data transferred, data of more value (updated, in standard format).

June 29, 1998 Brno GIS Value of standards Standards are of value, as they reduce transaction cost. They are valuable for - the designers of applications - the data providers, data use is more likely less of the value generated is consumed by transaction cost - the software vendors: more applications become economical

June 29, 1998 Brno GIS Business models: Pay per service (our example) Pay for regular service (monthly payment - in our example $5)

June 29, 1998 Brno GIS Advertisement business models: Free service to the users. Who pays? The provider of the underlying service Here: The restaurants are interested to inform potential clients about their offerings (publicity). Estimate utility to the restaurant: sells 5 meals more (40% of 5 * $10) = $20 total income: 50% of 30 restaurants participate for $10 per day: $150 income (per day)

June 29, 1998 Brno GIS General publicity model The service is free to users and providers of the information, paid by publicity which is coupled to the information. (example: newspaper) This is the business model for much on the web because e-cash does not work yet. I think that users will be willing to pay for “advertisement free” services e.g., search engines.

June 29, 1998 Brno GIS Conclusions Institutional aspects require much more attention: technology pull is strong but institutions hindrance even stronger

June 29, 1998 Brno GIS Conclusions The economy of the business provides rational arguments where such were lacking e.g., the price for geographic data The (trivial) example demonstrates the lines along which business arguments must be made.