Usage Volume and Value Segmentation in Business Information Services

Abstract

Business Information Services are intermediaries that collect, package and distribute engineering, medical, legal, and such professionally-oriented information. Users of these services have three options for searching for and accessing information. First, a package service that delivers a database to subscribers using data storage media like CD-ROMs. Second, an online (Internet) service. Finally, users also have the option of self-service, where they collect and collate information directly from its sources. Potential subscribers are characterized by their annual usage volume for such services, and by a value parameter, defined as the maximum value they expect to derive from each search. We model a duopoly where service providers with either a package or online service compete for subscribers who also have the option of self-service. Under a plausible ordering of relative costs for online versus package technologies, we demonstrate that package and online services can co-exist, with the package provider serving high volume subscribers with a given value parameter, while the online provider serves low volume users. When the average value parameter in the subscriber base increases, service providers are shown to increase their database sizes and subscription charges. As search costs for online access drop relative to package services, we show that the package provider is eliminated from the market.