1. K.Fedra 2003 1 ENV-e-CITY WP 8, T8.3: Business Model (updates, June 2003) DDr. Kurt Fedra ESS GmbH, Austria kurt@ess.co.at http://www.ess.co.at Environmental Software & Services A-2352 Gumpoldskirchen DDr. Kurt Fedra ESS GmbH, Austria kurt@ess.co.at http://www.ess.co.at Environmental Software & Services A-2352 Gumpoldskirchen

2. K.Fedra 2003 2 WP 8: Business models The business model will be based upon a two-level architecture Basic services 1.non-profit operation (does not mean free of charge - subscriptions ?) 2.open interfaces to value-added service providers (within consortium ?) –market-driven development –usage fees –usage fees, subscriptions ? open interface to additional basic services linked from other organisationsopen interface to additional basic services linked from other organisations The business model will be based upon a two-level architecture Basic services 1.non-profit operation (does not mean free of charge - subscriptions ?) 2.open interfaces to value-added service providers (within consortium ?) –market-driven development –usage fees –usage fees, subscriptions ? open interface to additional basic services linked from other organisationsopen interface to additional basic services linked from other organisations

3. K.Fedra 2003 3 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 ? 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 ?

4. K.Fedra 2003 4 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 ? 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 ?

5. K.Fedra 2003 5 Business model Revenues: 1.Usage fees, subscriptions 2.Funding, sponsorships 3.Indirect benefits (matches with existing mandates, advertising) Revenues: 1.Usage fees, subscriptions 2.Funding, sponsorships 3.Indirect benefits (matches with existing mandates, advertising)

6. K.Fedra 2003 6 Business model Costs (after the EU project): 1.Development (European coverage) 2.Operation: 1.Technical infrastructure 2.Maintenance 3.Content management 4.Administration Costs (after the EU project): 1.Development (European coverage) 2.Operation: 1.Technical infrastructure 2.Maintenance 3.Content management 4.Administration

7. K.Fedra 2003 7 Business model Costs (annual, 4 year write-off) 1.Development 125 2.Extended EU coverage 150 3.Operation: 1.Technical infrastructure 25 2.Maintenance 120 3.Content management 240 4.Administration 40 TOTAL ANNUAL COST 700K Costs (annual, 4 year write-off) 1.Development 125 2.Extended EU coverage 150 3.Operation: 1.Technical infrastructure 25 2.Maintenance 120 3.Content management 240 4.Administration 40 TOTAL ANNUAL COST 700K

8. K.Fedra 2003 8 Business model Costs (annual, 4 year write-off) 1.Development 100 2.Extended EU coverage 100 3.Operation: 1.Technical infrastructure 25 2.Maintenance 50 3.Content management 50 4.Administration 25 TOTAL ANNUAL COST 350K Costs (annual, 4 year write-off) 1.Development 100 2.Extended EU coverage 100 3.Operation: 1.Technical infrastructure 25 2.Maintenance 50 3.Content management 50 4.Administration 25 TOTAL ANNUAL COST 350K

9. K.Fedra 2003 9 Business model Revenues: brokerage (selling third party information) Value of information ? 1.Market prices (GIS, meteo data) 2.Opportunity costs BUT: EeC does NOT OWN that data, only a small % fee seems possible Revenues: brokerage (selling third party information) Value of information ? 1.Market prices (GIS, meteo data) 2.Opportunity costs BUT: EeC does NOT OWN that data, only a small % fee seems possible

10. K.Fedra 2003 10 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. 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.

11. K.Fedra 2003 11 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 ? 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 ?

12. K.Fedra 2003 12 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 ?? Brokerage of third part content or services: WHAT DOES ENV-e-CITY OFFER ? WHY SELL THROUGH EeC ? ADDED VALUE GENERATED ? WHAT % is realistic ??

13. K.Fedra 2003 13 Business model Revenues (technically): 1.Micro-payments for individual data sets of services 2.Annual subscriptions for unlimited access (different bundles) 3.Annual subscriptions for tailored services (ASP, subscription bundles for different users) Revenues (technically): 1.Micro-payments for individual data sets of services 2.Annual subscriptions for unlimited access (different bundles) 3.Annual subscriptions for tailored services (ASP, subscription bundles for different users)

14. K.Fedra 2003 14 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 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

15. K.Fedra 2003 15 Business model Unit cost: Transactions: 1 700,000 10 70,000 100 7,000 IS THIS PLAUSIBLE ?? Unit cost: Transactions: 1 700,000 10 70,000 100 7,000 IS THIS PLAUSIBLE ??

16. K.Fedra 2003 16 Business model HOWEVER: These revenues are GROSS; What is the NET part that would belong to an EeC operator ? 10-50% ?? HOWEVER: These revenues are GROSS; What is the NET part that would belong to an EeC operator ? 10-50% ??

17. K.Fedra 2003 17 Business model Data requirements to estimate possible revenues: 1.Unit cost of service 2.Market size and share (expected number of sales) 3.Net portion (%) for EeC Data requirements to estimate possible revenues: 1.Unit cost of service 2.Market size and share (expected number of sales) 3.Net portion (%) for EeC

18. K.Fedra 2003 18 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. 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.

19. K.Fedra 2003 19 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 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

20. K.Fedra 2003 20 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 ?? Value added customised ASP and third party services: WHAT DOES ENV-e-CITY OFFER ? WHY SELL THROUGH EeC ? ADDED VALUE GENERATED ? WHAT % is realistic ??

21. K.Fedra 2003 21 Market size: Cities > 100,000 Current EU:264 New countries:537 Europe, Russia152 TOTAL:953 Cities > 100,000 Current EU:264 New countries:537 Europe, Russia152 TOTAL:953

22. K.Fedra 2003 22 Market size: Cities > 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 Cities > 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

23. K.Fedra 2003 23 Market size: Cities > 100,000 TOTAL:953 BUT this implies Support of MANY national languages and thus high development and support costs Cities > 100,000 TOTAL:953 BUT this implies Support of MANY national languages and thus high development and support costs

24. K.Fedra 2003 24 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) 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)

25. K.Fedra 2003 25 Business model Conclusion: 1.Micro-payments may be cost inefficient 2.Institutional subscriptions with annual payments may be the most likely and efficient model 3.Indirect benefits and thus institutional sponsorship may be most realistic Conclusion: 1.Micro-payments may be cost inefficient 2.Institutional subscriptions with annual payments may be the most likely and efficient model 3.Indirect benefits and thus institutional sponsorship may be most realistic

26. K.Fedra 2003 26 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 ?? 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 ??

27. K.Fedra 2003 27 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 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

28. K.Fedra 2003 28 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) 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)

29. K.Fedra 2003 29 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 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

30. K.Fedra 2003 30 Business model Conclusion: We can NOT sell primary information (we don’t 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 ? Conclusion: We can NOT sell primary information (we don’t 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 ?

31. K.Fedra 2003 31 Business model Conclusion: IN ANY CASE, It may be difficult to generate sufficient revenues from the END USERS of environmental information – expectation: it’s 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 ? Conclusion: IN ANY CASE, It may be difficult to generate sufficient revenues from the END USERS of environmental information – expectation: it’s 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 ?

32. K.Fedra 2003 32 Business model Conclusion: Best estimates: 1.Capital requirement of 1.5 to 2.5 M over the first four years 2.Annual shortfall for continuing operation after development for complete EU coverage) from 0.0 break even ! - -250,000 Return on investment: negative. Conclusion: Best estimates: 1.Capital requirement of 1.5 to 2.5 M over the first four years 2.Annual shortfall for continuing operation after development for complete EU coverage) from 0.0 break even ! - -250,000 Return on investment: negative.

33. K.Fedra 2003 33 Open questions: 1.Continuation model – any ideas, commitments ? 2.WHO is ENV-e-CITY after December 31, 2003 ?? 3.Contracts with suppliers (LOH, FMI) 4.Objective for Deliverable: break even ?? 5.Check data on Services ? 6.Individual exploitation issues ?? 1.Continuation model – any ideas, commitments ? 2.WHO is ENV-e-CITY after December 31, 2003 ?? 3.Contracts with suppliers (LOH, FMI) 4.Objective for Deliverable: break even ?? 5.Check data on Services ? 6.Individual exploitation issues ??

34. K.Fedra 2003 34 Open questions: Commercial entity 1.Cost of incorporation (10-50K) 2.Capitalisation (1-2M – IPO ??) 3.Distribution of shares 4.Distribution of revenues 1.By shares ? 2.By services used ? 5.Contractual arrangements – who pays ? Commercial entity 1.Cost of incorporation (10-50K) 2.Capitalisation (1-2M – IPO ??) 3.Distribution of shares 4.Distribution of revenues 1.By shares ? 2.By services used ? 5.Contractual arrangements – who pays ?