Applying videotex in organizations

systems

Rules of dumb for assessing costs and benefits of using videotex

Applying videotex in organizations by HILARY THOMAS andJOHN RODDY

0 ver the past five years, the DP world has seen a remarkable growth in the use of videotex

systems by private and corporate organizations. It is worth asking pre- cisely what it is that has convinced an intitially sceptical DP community that videotex provides the right solution to so many of its problems. The answer lies largely not within the DP depart- ment but out among the growing population of nonDP-orientated users.

Ultimately, the answer to increased videotex use is in the bottom line. Corporate applications of videotex have been shown to have very persua- sive cost and profitability arguments in their favour in situations where a

Abstract: The success of videotex in I984 is measured in terms of its conm’bution to cost effective and productive distributed data processing. Videotex systems are installed in over 200 sites in the UK and contribute ~~i~a~tl~ to the c~~~‘al success of a wide variety of ~gan~at~~. In this article, the authors provide a set of commonsense rules, based on experknce, for data processing managers and others investigating the implementation of open systems in the corporate erwironment and beyond.

&yworak videotex, dis~.buted data processing, te2ecinnmunications.

Hilary Thomas is managing director of Aregon Business Consultants, and John Roddy is principal consultant at Aregon, which offers strategic consultancy, business planning and market analysis to implementors of open systems.

user community demands services which must otherwise be supplied by more ‘traditional’ DP methods. They open up new and otherwise unattain- able opportu~ties for cost savings, increased productivity, more efficient customer service and even new streams of revenue.

The open systems concept

model developed by Aregon and

The critical distinguishing feature of

shown in Figure I. As the terminal

videotex is that its applications are open systems’. The open systems concept is well illustrated by the

and changes in its characteristics. Users become less expert, more de- pendent on the friendliness of the application software and much less intensive in their use of terminals.

Rules of thumb

Rule 1: Reduce costs to the open

Since these are commonsense rules, based on experience and observation, rather than theoretical laws of nature, they may be referred to as ‘rules of thumb’. This article reviews these rules and illustrates their operation from successful applications.

population moves away from the DP ‘ystem Operator centre it both grows, geometrically, The increase in numbers and decrease

Salesmen Agents Customers Customers

1970 I980

(terminal) (personoi computer)

Figure 1. ~pe?t systems in distributed processing.

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in intensity of use of terminals dic- tates that the overall cost of being an open system user should be low. There are several ways in which this can be achieved.

It is almost always true that the cost of both central system and access terminal will be cheaper in a videotex system than in a traditional DP system delivering the same function at a more centralized level. Videotex terminals are themselves much less ex- pensive than DP terminals. This is partly a result of the sheer size of the market, with the conco~ttent economies of scale and partly due to the relatively low level of use which permits the construction standard to be closer to that of consumer electronic equipment.

It has also come to be true that videotex systems tend to be based on minicomputers with a high power/ cost ratio in fairly low absolute power range; DP systems are more often based on systems whose absolute power is very much higher but whose power/cost ratio is less attractive.

Within Aregon’s experience, there are several very good examples of this, of which three in particular may be cited:

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Thomas Cook, a large travel operator, has installed a system which allows travel agents to use videotex terminals to make direct reservations. The substitution is between the videotex terminals and a DPI TP method based on IBM 3270- oriented equipment, which is relatively costly and, more important- ly, under utilized except at peak booking time. The Press Association is a UK news agency which has traditional- ly delivered its product via a dedi- cated teleprinter network to per- manently connected subscribers. The cost, both to the operator and the subscriber, is high and not

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easily reducible given the traditional technology. Videotex has the effect of both widening the pros- pective market and reducing the ~d~rly~g cost of equipment and distribution by the use of low cost terminals and co~ections dialled through the PSTN. A City of London stoekbroking firm which has installed an inhouse videotex notation system as a direct alternative to a system based on existing mainframe equipment. The cost comparisons are instruc- tive (see tinted box).

In the process of substitu~n~ one delivery medium for another it is often possible to reach a situation in which the user/subscriber pays for equipment or facilities which wonld otherwise have been part of the system operator’s cost. In the cases of

Thomas Cook and the Press Associa- tion, and also in the case of the motor ~~acturers who are using videotex on a large scale in Europe, the terminal ~~prne~t is bought by the user. The user also pays for the telephone co~~ca~ons and, perhaps most significantly, the labour to drive the system.

ft may also be possible to take advantage of a subsidy given by another operator to a user population which can be shared or captured. Much of the impetus for videotex development in the UK travel industry came initially from a terminal supply subsidized by Sealink which ensured that a base population of about 2500 travel agents with Prestel terminals was created. This enabled Thomas Cook to install its initial videotex system and save about 20 data entry operators and workstations. Subse- quently, it has become the realistic

data processing

systems

objective of most UK travel operators to take between 40% and 60% of

bookings via videotex systems. with large labour cost savings and an improved level of service.

Rule 2: Suppress complexity

The need of the open systems users for friendly systems which are used quite infrequently imposes a require- ment for the greatest possible simplicity at the presentation level.

The main benefits of complexity suppression are a sharply reduced cost of training and an increase in accessi- bility to nonspecialist and occasional users. The original objective of Pres-

tel was that the system should be as accessible as the telephone and wholly selfexplanatory in use. The penalty

for this is, of course, the need for much more care in the design of the presentation level and user interface. The

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extended simplicity of many such designs can albo be a disadvantage to adept users and it is often necessary to include an alternative interface for the ‘expert user’.

As an example of the reduced cost of training, the travel operator example may he used again. It is generally accepted that it requires

about two weeks to tram an operator for a DI’ terminal to make reservations. With well-designed videotex systems ir is I ommon to train one key operator from each retail outlet, nor- mally for halt a day to one da>-. The remaining stall’ are trained on the job by the key operator.

Use by nonspecialist and infrequent users is mosf often seen in systems

devoted to salesforce management. For rxampit ICI Plant Protection division now relies verv largely on a videotex systl:m for two way commu- nication bervwn salesmen and their

managers, see article by Muckersie

and Young, page 12.

Rule 3: Increase service options

From Figure 1, it is obvious thaat the opportunity co benefit from economies of scale is a powerful argument

for open systems. In the proposed environment of infrequent and casual use, the best means to achieve the

necessary scale is a widening of the range of services available to users. The British Leyland system was originally instalied to provide dealers with a stock locator and parts ordering system. There was a degree of surplus capacity which BL’s DP service structure made it possible 10 sell to outside users. From this. a number

of new services were added specificai- ly for those users and the BL 5ubsi- diary Istel is now a major supplier of videotex facilities and services.

Apart from the revenue generation aspect which will be discussed later, the significance of the rule is that a number of applications can be opera- ted effectively without additional ex- penditure on the system. The basic ICI PPD system has 600 active users sharing ports, i.e. 20 users per port.

Experience has shown that as additional users were added to the original sales ordering applications, new- ports had to be added at a rate of one per ten users. However, as a wider range

of applications becomes available the traffic patterns change; the number of ports required has stabilized at 32 and is not expected to increase for some time, despite considerable planned growth in the user population.

Rule 4: Improve communications

It may seem an obvious point that a videotex system IS expected to improve communications. Of equal im-

portance is the need to provide all the basic communications facilities to ensure that the potential of the videotex

system can be fully realized. The key issue is that all the communications

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Open sysams users need ftimd&y sys.tems.

components of a videotex system - terminals, PSTN terminations, dialled calls - are cheap enough to make it worthwhile ensuring that quite lavish provision is made. This is true even where the expected connect time is measured in minutes per day.

Beyond its role as an immediate source of service, the videotex system also permits the delivery of facilities which would otherwise require several different types of rerminal. Users who would have been preven- ted from making effective use of services by reasons of cost, complexity or lack of skill can be given access to these services via a videotex system. The originally closed services are converted by videotex into open systems.

The best examples of this are found among the financial community, where notation is, literally, money. In London there are about ten major sources of financial and stock market information, with almost in- numerable minor ones. Major names are Reuters, Dow Jones, Telerate, and the Stock Exchange Topic videotex system. Bach requires a quite different terminal and presents a quite different user protocol. Aregon is currently developing a set of facilities which enables several such services to be connected to a single videotex sys-

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tern and delivered through a single term&I using normal, single videotex presentation.

Ownership and copyright consider- ations prevent such services being redistributed in a genuinely public system, but the operator of a private open system adds greatly to the function of the system by placing it at the centre of a web of communi~~ons in which it becomes the delivery medium for a range of otherwise incompa- tible services.

Rule 5: Find areas for improved customer service

Although the cost savings made possible by open systems are a major knelt, the ability to improve service to the users is of at least equal importance, Because open systems reach beyond the con&es of the operating organization, the customer can see directly the improved service made possible by the system. This is seldom true of DP systems which are kept within the organization. There is here an almost limitless opportunity for the open system operator to add to the services to his customers and become more competitive and successful.

As an example, the travel operators may again be considered. The single

greatest service problem in this market, whose customers are in this sense the travel agents, has been that of handling the peak booking demand which occurs during the first few days of a new booking season. Telephone bookings to reservation operators were the most favoured method and it was impossible to provide staff and DP equipment to meet the peak. The videotex direct reservations systems remove this service bottleneck without necessarily moving it to some other point in the process, Major haliday tour operators such as Thom- sons and Intasun have justified invest- ments which may ultimately exceed f2M almost entirely on rhe expected service benefit and the competitive advantage which it gives.

Rule 6: Seek new revenue streams

Open systems offer the potential to generate new revenue in three important ways:

by giving access to a new customer population for existing services by enabling new services or even new businesses to be built on the foundation of existing services by giving access to advertising revenue

need not be assumed that all the new markets or businesses are in the area of portion services. Open systems o~mto~ may be retailers, financial service providers or any other kind of business.

The sixth rule simply proposes that once an operator has an open system, there will be ways to use it which will generate revenue from previously un- tapped soumes. Examples in each of the areas may be cited:

z?eeos u@?&ies - in the UK the Press Association and in Italy AGI - have both installed systems which, while certainly representing new access media in old markets, also allow entire new sectors to be tapped. The system

data processing

systems

characteristics which permit this are the ease of use and low cost discussed previously, but the effect has been to move these organizations from being bulk wholesalers of information to being near retailers, or at least servi- cing many more small scale customers.

Financial service operators in the UK, who have installed systems for their internal use, are now actively seeking to build new businesses based on the need for accurate and up-to-date investment information. Several city broking firms are designing services for individual investors, small scale trust managers and personal investment advisors which will provide both direct subscription revenue and create a new market for broking services. Others will certainly enter the market as specialists and every financial centre in the world will soon have a proliferation of electronic market newsheets and stock tipsters.

Advertising revenue examples are currently less easy to find. This is partly due to a tendency towards regulation which has inhibited the development of the electronic media as advertising vehicles and partly due to the lack of large populations of general users. The UK Prestel system and the IBA’s teletext system, Oracle, now carry a certain amount of advertising and promotional material; the exploitation of this is being eagerly studied by advertisers and agencies. In the longer term, the truly open public systems will probably be largely financed by advertising revenue, in the same way that newspapers and magazines are at present. A major advantage to advertisers is provided by the topic-struc- tural nature of electronic information media; if a user retrieves a page related to, for instance, holiday reservations, he/she is an excellent target for a car hire advertisement. Properly exploited, the advertising potential of open systems may well come to rank as high as any of the benefits available to operators.

Rule 7: Assess the risks

Unhappily, in open systems as in the rest of life, there are no benefits to be had without some exposure to risk. Three major business risks can be identified:

0 loss of control l the possibility of creating new com-

petitors l the possibility of subsidising com-

petitors

As the progress illustrated by Figure 1 proceeds, it becomes increasingly dif- ficult for the system operator to pre- dict and control the patterns of use of the system. Most videotex and other open systems are configured on the basis that a large user population will contend for relatively few access ports. This is not generally true of DP systems. The user contention design is one of the cost-containing features of open systems, but given the lack of control it carries the risk that service levels will deteriorate as populations gl-OW.

The remedy is, of course, in the careful monitoring of system use, not only from within the system, but by constant independent contact with the user community. Successful open systems need the open systems concept to extend well beyond their electronic components.

The other two risk factors are related, though different in their action. They arise because an open systems operator may easily be the source rather than the beneficiary of expanding markets, existing terminals and receptive user populations which have been discussed as ripe for exploitation.

Indeed, it is almost certain that all open system providers will to some extent fill this role. The nature of the new environment is such that at each turn of the development spiral the players will change places, sometimes appearing as exploiters and sometimes seeing their investment exploited by others.

The remedy is not the highly defen- sive strategy adopted by earlier deve- lopers of electronic media. It is the closed and limited approach to access adopted by, for instance, the information services or reservation service bureaux which has created the opportunity for open systems videotex services to thrive. To follow the same path will simply ensure that some other development will in its turn supersede videotex.

The preferred strategy must be one which examines each risk carefully and assesses the balance of benefits which may be achieved. If every development can be seen to pay for itself, the second order effects will contribute to the general good. I will not charge you for my bees pollinating your orchard, just so long as you do not charge me for the nectar they collect in doing it.

Optimization, not justification

The seven rules proposed are not intended to be the basis of justification for any particular open system development. They are, rather, some straightforward suggestions for making the most of systems once they exist. In most cases, the initial investment will have been justified on a single application, or at most a small application cluster. Open systems dif- fer crucially from traditional DP systems, in that their users can be induced to accept new services and their facilities used to reach new users, in a way not possible with closed systems.

The seven ‘rules of thumb’ are a guideline for managers to help in exploiting this vital characteristic of open systems to their own and their user’s best advantage.

References

Open Systems: Strategic Implicatians, Are- gon International Limited, London (1983). 0

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Documents

Applying videotex in organizations