CASE STUDY INFORMATION ON A SILVER PLATTER

Jeffrey F. Rayport Whitney Bower (MBA ’94)

prepared this case under the
supervision of Professor Jeffery F.
f Rayport as the basis for class
discussion rather than to illustrate
We are intent on being the world’s best distributor of information in
either effective or ineffective
electronic form. That is SilverPlatter.
handling of an administrative
—Bela Hatvany, CEO, SilverPlatter
situation.

On the morning of April 28, 1993, the executive team of Silver- Copyright © 1995 by the President
Platter Information, a publisher of databases on CD-ROMs (Com- and Fellows of Harvard College. To
pact Disk-Read Only Memory), began its quarterly meeting. Dis- order copies or request permission
to reproduce materials, call 1-800-
cussion would primarily concern the company’s future pricing
545-7685 or write Harvard Business
strategy given the rapidly changing CD-ROM marketplace; three School Publishing, Boston, MA
broad pricing options were on the agenda. As the industry was 02163. No part of this publication
evolving rapidly, SilverPlatter recognized that CD-ROM could not may be reproduced, stored in a
meet all the needs of its target customers—academic institutions, retrieval system, used in a
public libraries, and research hospitals. These customers had spreadsheet, or transmitted in any
been early adopters of CD-ROM full text and bibliographic data- form or by any means— electronic,
bases and now wished to broaden their access to electronic infor- mechanical, photocopying,
recording, or otherwise—without
mation. Essentially, this meant accessing data from individual PCs
the permission of Harvard Business
on desktops in offices or dorm rooms, rather than from a single School.
location. Although such changes in usage patterns would dramat-
ically increase the demand for electronic data, it could dampen
the rapid growth of CD-ROMs. Local and wide area networks
(LANs and WANs) could operate more quickly and perhaps more
inexpensively using magnetic hard drives to store databases.
Just as technological advances in optical technology had en-
abled Bela Hatvany, CEO, to create SilverPlatter, technological
advances in networking technologies now threatened to eliminate
the advantages on which the company was founded. Hatvany
realized that SilverPlatter’s business model and the means by
which it hoped to become the premier distributor of information

Published by John Wiley & Sons, Inc. and

Direct Marketing Educational Foundation, Inc.
CCC 1094-9968/99/020029-20
f

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VOLUME 13 / NUMBER 2 / SPRING 1999

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 JOURNAL OF INTERACTIVE MARKETING
EXHIBIT 1
CD ROM titles by application
in electronic form needed rethinking. Adding
urgency to this need was the fact that a critical
SilverPlatter supplier was about to reconfigure
its pricing structure.
CD-ROM: BACKGROUND
Developed by Philips NV and Sony Corpora-
tion, CD-ROM, by the early 1990s, had emerged
as an explosive growth area in computer soft-
ware and electronic publishing. CD-ROM pro-
vided exceptional data storage and retrieval ca-
pabilities. One CD could hold up to 660
megabytes of information— equivalent to
350,000 typewritten pages or 330 floppy disks.
CD-ROM therefore had tremendous substitu-
tion value for existing information products in
music, software, and publishing. It also enabled
entirely new industries such as “multimedia”
and electronic publishing to be established.
(See Exhibit 1.)
While CD-ROM technology was initially com-
mercialized in the early 1980s, only recently had
it achieved widespread acceptance. Discrepan-
cies in hardware format and communication
standards had originally made CD-ROM drives
difficult to install and use, leaving only the tech-
nically savvy capable of exploiting the medium.
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Meanwhile, low-volume production levels kept
manufacturing prices high, deterring mass-mar-
ket acceptance of optical drives. This cycle
seemed unbreakable until 1992, when several
standards emerged, enabling optical drives,
computer operating systems, and computer
screens to transfer data smoothly.
Concentration of standards helped CD-ROM
title developers like SilverPlatter focus their
scarce product development resources on clear
hardware solutions. Agreement on standards
dramatically increased the expected payback
for a given product and attracted a slew of new
competitors. Meanwhile, Sony, NEC, MediaVi-
sion, and Creative Labs, among others, began
shipping drives with the plug-and-play simplicity
of CD stereo components. Soon, major com-
puter manufacturers such as Apple, IBM, Com-
paq, Dell, and Gateway began offering multime-
dia personal computers (MPCs) featuring
excellent audio quality sound, internal CD-
ROM drives, color monitors, and powerful pro-
cessors to drive data-intensive programs. Prices
for drives began to drop from roughly $1,000 in
1990 to $200 in 1993; annual shipments in-
creased from 600,000 to over 2 million in the
same time period. Analysts estimated that ship-
ments would reach 6 million by year-end 1993
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 SILVERPLATTER INFORMATION
EXHIBIT 2
Growth in CD-ROM companies and titles
and double again in 1994. CD-ROM was ex-
pected to become a mass-market product by the
turn of the century, with over 35 million drives
in use.
CD-ROM Titles: Driving Sales
A CD-ROM drive was purchased for its ability to
provide access to valuable information content.
Even when drives were still both expensive and
difficult to use, academic institutions and re-
search-oriented companies realized significant
gains by reducing the amount of space required
to house information, increasing the speed with
which data was accessed, and providing link-
ages to bodies of literature not available on site.
CD-ROM characteristics led title developers
initially to focus on products with no direct
substitutes in print or on-line form. Titles con-
centrated on complex images (frequently dia-
grams), technical journals, and bibliographies
(with the added feature of article abstracts).
Access to this type of material was a break-
through for professionals.
Increasingly sophisticated research software,
which helped users navigate through oceans of
data, enabled relatively unsophisticated re-
searchers to perform the same high-level data
retrieval exercises traditionally reserved for
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trained librarians. Novice users gained local
control of, and access to, vast amounts of data at
comparatively low costs of retrieval; this empow-
ered the researcher while increasing subject
and periodical coverage as well as more rapid
access to data.
Following success in the academic market,
price declines for CD-ROM drives and PCs
opened the consumer market for CD-ROM-
based multimedia products. To the optical
drive, which simply read a continuous stream of
digital code, text, animation, graphics, and
voice all appeared identical, enabling these
once disparate media to be presented in one
package. This spawned a new industry led by,
among others, movie director George Lucas,
computer entrepreneur Trip Hawkins, and ed-
ucator Jan Davidson. While each segment of the
CD-ROM market had different characteristics,
the overall category grew tremendously. Be-
tween 1990 and 1993, the number of titles rose
from 817 to 3,597, and the number of compa-
nies operating in the industry increased from
732 to 2,825. (SeeExhibit 2.)
The price of a particular title tended to re-
flect the exclusivity of the data. (See Exhibit 3.)
At the low-end of the price spectrum were
widely appealing multimedia games produced
● VOLUME 13 / NUMBER 2 / SPRING 1999
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 JOURNAL OF INTERACTIVE MARKETING
EXHIBIT 3
CD-ROM titles by price
from a variety of sources. In 1993, these prod-
ucts were nearly all priced under $100 and were
expected ultimately to settle at prices between
$29 and $49. The $100 to $500 range included
hybrid products that were informational in na-
ture but were used casually rather than profes-
sionally. Professional titles representing low-end
versions of more expensive packages or prod-
ucts that could be substituted by print at a sig-
nificantly lower price cost between $500 and
$1,000. More popular technical products com-
bining moderately exclusive information with
the storage and retrieval benefits of CD-ROM
were priced between $1,000 and $5,000. At
prices above $5,000 were proprietary databases,
and though expensive in absolute terms, the
ratios of price to access compared favorably to
on-line databases. As technology evolved and
title developers built new skills in electronic
media, however, the product universe was ex-
pected to change rapidly.
Market Segments: Information
Professionals and Retail Consumers
With the body of published literature doubling
every one to three years by the early 1990s,
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information-intensive organizations faced an ev-
er-increasing amount of data that they needed
to store, access, and deliver to their customers.
Libraries had to balance the desire to obtain
information and the budgetary constraints re-
garding its storage. While librarians themselves
embraced information technology as the means
to provide better services to information profes-
sionals, decisions regarding major information
technology investments were typically made
elsewhere—in the MIS and finance depart-
ments, for instance, where the focus was on data
processing activities, not on information acqui-
sition.
One industry survey conducted in 1990 re-
vealed that the total operating expenditures for
libraries at the 3,274 U.S. institutions of higher
education totaled $3.3 billion. The three largest
individual expenditure items were salaries and
wages, $1.7 billion (52%); current serial sub-
scription expenditures, $529 million (16.8%);
and print material expenditures, $402 million
(12.3%). Electronic items constituted less than
5% of the operating budget. (Exhibit 4 presents
background data on the potential market for
professional CD-ROM products.)
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 SILVERPLATTER INFORMATION

EXHIBIT 4
Targeted Markets for Professional CD-ROM Products

Total Student
Student Enrollment Institutions Enrollment

Academic From To Number % Number %

1 4,999 1,379 43 3,446,881 10

5,000 9,999 817 26 6,127,092 18
10,000 19,999 458 14 6,869,771 20
20,000 30,000 307 20 7,675,000 23
over 30,000 217 7 9,765,000 29

Employee Count U.S. Fortune 500 Employee Total

Corporate From To Number % Number %

0 4,999 97 19 242,452 3
5,000 9,999 134 27 1,004,933 10
10,000 19,999 107 21 1,605,000 17
20,001 40,000 85 17 2,550,043 27
over 40,000 70 14 4,200,000 44

Bed Count Institutions Total Bed Count

Hospital From To Number % Number %

0 100 2,900 42 145,000 12

100 200 1,750 25 262,500 22
200 300 950 24 237,500 20
300 400 500 7 175,000 15
over 400 850 12 382,000 31

Total Book Budget

Book Budget Institutions (million $)
Public
Library From To Number % Number %

$ 0 $249,999 5,461 83 $683 41

250,000 499,999 507 8 190 12
500,000 749,999 215 3 134 8
750,000 1,000,000 110 2 96 6
over $1 million 273 4 546 33

Retail Consumer lent to the $6 billion cartridge game market

The retail market was dominated by entertain-
ment and “edutainment” (entertainment and
education) companies, which sold products
priced under $100 targeted to children. The
market opportunity was considered equiva-
dominated by Sega and Nintendo. A recent
study of MPC buyers revealed that the most
common reasons cited for purchases were to
(1) perform office work at home, 43.5%; (2)
provide a computer for children, 38.4%; and

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 JOURNAL OF INTERACTIVE MARKETING
EXHIBIT 5
Customer profile using CD-ROM and On-Line
(3) conduct home finance and budgeting
work. Nearly a third of CD-ROM game and
education vendors expected tremendous
growth in this industry and were scrambling
to develop products, product lines, and brand
equity.
SILVERPLATTER: BACKGROUND
Many technologists were saying CD-ROM
would never work: “It is much too slow. There
are no titles and there are no drives. You’re
wasting your time.” But CD-ROM was just so
obvious because of the patent inadequacy of
paper . . . It’s the perfect publishing medium.
—Bela Hatvany
Bela Hatvany founded SilverPlatter in 1983 to
exploit the converging trends of library automa-
tion and optical data storage. Hatvany and his
partners, Walter Winshall and Ron Rietdyk, had
successfully managed library automation soft-
ware companies in the 1970s, and were aware of
the tremendous advantages that optical storage
on CD-ROM could provide. In a cramped Lon-
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don office, Hatvany and the startup team began
to develop a prototype. Hatvany recalled, “All
that was available was the 12-inch disks—the
laser disk that could hold a gigabyte of informa-
tion—and the PC. We put that together with a
tape containing a database comprising a por-
tion of the New Testament. By the middle of
1984, we had a fantastic prototype— but it
crawled. We thus set about building our own
technology to do a more adequate job.”
SilverPlatter would undertake beta tests for
six products in 1985, and by 1986, the company
was extolling the virtues of CD-ROM. At this
point, SilverPlatter made an important strategic
decision not to sell data but to license it for an
annual subscription fee. Charging by subscrip-
tion distinguished CD-ROM from its closest ri-
val, on-line, by offering unlimited data use for a
one-time charge. On-line had consistently
priced by “connect hour”; the longer the user
was on-line using the database, the more the
user paid. Fixed fees were more palatable to
librarians, who had budget constraints and lim-
ited control over how data was actually used.
(See Exhibit 5.)
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 SILVERPLATTER INFORMATION
Financial Performance
As SilverPlatter sales grew from $3.5 million in
1988 to $24 million in 1992 (seeExhibit 6), the
number of titles increased to 150 and focused
on health care, business, as well as industry-
specific and scientific subjects. From a top-line
and cash flow perspective, the company experi-
enced success. However, the company had yet
to be profitable, due primarily to its large invest-
ment in launching new titles, developing new
lines of business, and the effect of accounting
rules on a fast-growing subscription business.
As a subscription business, SilverPlatter col-
lected payments in advance of services ren-
dered. According to U.S. Generally Accepted
Accounting Principles (USGAAP), only the
amount of cash matching the product delivery
could be recognized in the current period. For
example, a customer who in June 1992 sub-
scribed to MEDLINE (the company’s leading
title) paid $2,475 for 12 months’ use of the
product. SilverPlatter recognized six months of
revenue in 1992 and deferred the remaining six
months’ revenue until 1993. Payment to the
information provider, the National Library of
Medicine, was made in June 1992, though the
expense would be recognized in equal parts in
1992 and 1993. Sales and marketing, general
administration, and operational expenses at Sil-
verPlatter, however, were all recognized in
1992.
Products
SilverPlatter purchased the rights to distribute
data from public and private information pro-
viders (IPs). The data came to SilverPlatter on
magnetic tape and was repackaged, formatted
on CD-ROM, and bundled with SPIRS (Silver-
Platter Information Retrieval Software) for li-
censing to customers. Royalty agreements var-
ied, ranging from flat fees of several thousand
dollars for some public domain information to
60% for exclusive distribution of proprietary
data. On average, the company paid out
roughly 40% of revenues to IPs.
In developing its title base, the company fo-
cused on producing databases of highly techni-
cal, value-added information predominantly in
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medicine, science, and agronomy. (See Exhibit
7 for a partial product listing.) SilverPlatter at-
tempted to attract the highest quality IP in each
subject area in order to position its products
with influential customers and to build brand
equity as the premier distributor of high-end
information. This strategy was most pro-
nounced with SilverPlatter’s MEDLINE, a com-
pendium of literally millions of articles written
about all facets of medical science, clinical find-
ings, related research, and the medical profes-
sion.
Pricing Strategy
SilverPlatter’s strong cash flow (its annual sub-
scription renewal rate averaged 88%) was attrib-
uted to both internal and external factors. The
company attempted to distinguish itself
through SPIRS, service, persuasive marketing,
and a broad range of titles. It also benefited
from relatively low saturation of CD-ROM
drives, as well as low numbers of titles for exist-
ing customers. The latter phenomenon had led
most vendors to seek new customers, thus grow-
ing the market, rather than attempt to canni-
balize other vendors’ existing ones. Switching
costs represented the risk of new and possibly
redundant software. Although librarians
strongly preferred to use only one software in-
terface, roughly 60% nonetheless bought from
more than one vendor.
Subscription pricing enabled SilverPlatter to
charge less than if it made a direct sale of the
database. Its prices had originally been estab-
lished for a single, standalone computer, based
on an inexact formula of print and on-line fees,
the increased functionality of CD-ROM technol-
ogy, and the cost of the overall computer sys-
tem, including the computer and optical-disk
drive. Yet while prices for CD-ROM titles had
declined on average, SilverPlatter products ap-
preciated, although MEDLINE by and large re-
mained steady.
While LANs were becoming more popular
overall, they had only recently gained enter-
prise-wide adoption among SilverPlatter’s key
customers. Little demand for LAN pricing led
the company originally to base its quotes on
casual observation of performance constraints
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EXHIBIT 6
SilverPlatter International, N.V. and Subsidiaries Financial Summary

Consolidated Income Statement—December 31, 1992, 1991, and 1990

1992 1991 1990

REVENUE
Subscriptions 21,341,880 12,995,983 8,213,630
Hardware and other 2,117,185 2,063,622 1,430,728
Total 23,459,065 15,059,605 9,644,358
COSTS AND EXPENSES
Cost of revenue 12,518,143 7,847,125 4,772,647
Sales and marketing 5,747,906 3,554,278 2,450,945
General and administrative 6,211,268 3,846,028 2,470,595
Research and development 1,258,211 1,060,763 666,179
Total 25,735,528 16,308,194 10,360,366
PROFIT (LOSS) FROM OPERATIONS (2,276,463) (1,248,589) (716,008)
OTHER INCOME (EXPENSES)
Interest income 32,004 56,973 11,405
Interest expense 0 (403,325) (444,283)
Other (74,545) (75,260) 5,810
Total (42,541) (421,612) (427,068)
NET INCOME (2,319,004) (1,670,201) (1,143,076)

MEDLINE Family of Products Contribution Analysis

1992 % of Total

GROSS REVENUE
New subscriptions 1,210,630 36
Renewals 2,179,725 64
Total 3,390,355 100
VARIABLE COST
IP share (NLM) 328,615 10
Disc cost 170,041 5
Shipping 327,904 10
Order processing 21,787 1
Total 826,560 24
CONTRIBUTION TO DIRECT COST AND OVERHEAD 2,563,795 76
DIRECT FIXED COST 826,805 24
OVERHEAD 389,644 11
PRODUCT PROFITABILITY 1,347,346 40

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 SILVERPLATTER INFORMATION

EXHIBIT 6
Continued

Consolidated Balance Sheets—December 31, 1992, 1991, and 1990

1992 1991 1990

ASSETS
CURRENT ASSETS
Cash and equivalents $ 2,353,833 $ 2,004,704 $ 782,757
Accounts receivable 2,989,976 2,401,468 1,733,177
Inventory 260,124 176,591 138,871
Deferred license fees 6,147,223 4,201,858 2,474,045
Prepaid expenses and other 622,942 399,116 195,318

$ 12,374,098 $ 9,183,737 $ 4,968,168

PROPERTY AND EQUIPMENT
Computer equipment 2,071,387 1,602,769 1,177,103
Office furniture and fixtures 392,215 292,618 135,074
Motor vehicles 25,165 0 0

Total property and equipment $ 2,488,767 $ 1,895,387 $ 1,312,177

Less accumulated depreciation 1,505,917 884,499 600,676
PPE net 982,850 1,010,888 711,501
Other assets 163,329 24,215 58,422

TOTAL ASSETS $ 13,520,277 $10,218,340 $ 5,738,091

LIABILITIES AND STOCKHOLDERS

DEFICIENCY
CURRENT LIABILITIES
Accounts payable $ 3,593,784 $ 2,884,345 $ 1,938,151
Accrued expenses 663,152 581,453 481,733
Deferred revenue 15,911,313 10,825,007 6,094,387
Accrued interest due to stockholders 171,301 1,932,692 1,529,655

Total current liabilities $ 20,339,550 $16,223,497 $10,043,926

NOTES PAYABLE TO
STOCKHOLDERS 3,580,000 2,750,000 2,750,000
STOCKHOLDERS DEFICIENCY
Common stock, $.01 par value;
3,000,000 shares authorized; issued
and outstanding, 2,426,998 and
2,428,998 shares in 1992 and 1991,
respectively 24,270 24,290 24,155
Deficit (10,903,028) (8,584,020) (6,913,819)
Cumulative translation adjustments 485,970 (188,442) (158,711)
Less stockholder notes receivable (96,485) (6,485) (7,460)

Total stockholders’ deficiency $(10,399,273) $(8,754,657) $(7,055,835)

TOTAL $ 13,520,277 $10,218,840 $ 5,738,091

Source: Adapted from company documents.

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 JOURNAL OF INTERACTIVE MARKETING
during beta testing. It was observed that once
eight people on a network were using the same
database, the ninth user would have trouble
accessing it. The company therefore decided
that if a customer asked, network licenses were
available for up to eight simultaneous or con-
current users. SilverPlatter would sell a second
subscription if the customer believed its needs
would require more than eight simultaneous
users. While there was no way to find out if the
customer exceeded this limit, this was the li-
censing policy that existed in April 1993. The
specific price was determined by market intu-
ition and included a 50% markup for LAN us-
age.
The result was a two-level pricing structure
that was less rigorous than those of other play-
ers in the market. (See Exhibit 8.) In addition,
the sales force had reported some customer
dissatisfaction with the pricing structure. While
SilverPlatter remained the leader in market
share for most of its products, relatively low
levels of penetration and high growth in the
market for electronic databases rendered it vul-
nerable to competitive challenge. Advances in
computer networking technology promised to
link remote terminals, cannibalizing many cur-
rent subscriptions in the field and seriously lim-
iting prospects for growth. This set the stage for
rethinking pricing policy.
The most significant factor in SilverPlatter’s
ultimate decision to revise pricing came in Au-
gust 1992, when its largest information pro-
vider, the U.S. National Library of Medicine
(NLM), announced it would adopt a new and
perhaps radical pricing policy. The NLM indi-
cated it would review pricing proposals from the
10 largest electronic publishers using its data
and render a decision on which structure to
accept within one year. Pricing was an essential
component of any subscription, not only for its
impact on the profitability of a customer but
also for its connection to the disk’s search soft-
ware and data encryption. An “undesirable” rul-
ing could force a company to spend as much as
nine months rewriting computer codes and re-
forming CD-ROM pressing facilities, as well as
upgrading the installed base.
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The U.S. National Library of
Medicine
The NLM was the largest repository of medical
information in the world, comprising millions of
medical records. As a government-sponsored li-
brary, the NLM served the medical needs of the
general public through interlibrary loans, elec-
tronic access to its holdings, and publication of
numerous periodicals. In 1991, the NLM had a staff
of 653, which handled over 400,000 circulation re-
quests and five million computerized searches and
published some 46 electronic databases.
Of all these databases, MEDLINE was the
most popular. It was the digital equivalent of
Index Medicus, a monthly subject and author
index produced by the NLM and containing
more than seven million records logged from
250,000 articles dating back to 1966. Data
ranged from the mundane to the esoteric and
was updated monthly by scores of NLM librari-
ans. The collection required 16 CD-ROM disks.
On-line and CD-ROM capacity provided MED-
LINE resources to people who otherwise would
be unable to access such valuable medical data.
It was most intensively used by physicians and
students to reference medical queries. In fact,
in many instances, access to MEDLINE informa-
tion had quite literally been life-saving.
While basic services were underwritten by
Congress, publications of electronic databases
were not. For these, the NLM traditionally
charged electronic resellers an amount suffi-
cient to cover direct reproduction costs. The
increase in access to data and service required
to support the electronic vendors piqued the
interest of Congress and led the NLM to con-
sider charging fees to cover all costs associated
with products like MEDLINE. Congress wanted
the NLM to charge more to international users
of information because they did not pay U.S.
taxes (a portion of which underwrote the
NLM). As a further incentive to change, vast
integrated computer networks had brought on-
line and CD-ROM closer together. Without can-
nibalizing sales, the NLM intended to put every-
one on a level playing field and achieve
maximum distribution of its data.
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 SILVERPLATTER INFORMATION

EXHIBIT 7
Selected Title List Including Database Description Price

Subscription Fees

2–8
Simultaneous
Database Records Database Subject Description Workstation Users

AgeLine 33,000 Bibliographic Medicine Devoted to the rapidly growing field $ 995 $ 1,493
of aging
AGRICOLA 3,200,000 Bibliographic Agriculture U.S. Agricultural and life sciences 1,675 2,513
information
AGRIS 2,000,000 Bibliographic Agriculture Agricultural and technology literature 2,035 3,053
AGRISEARCH 75,000 Res. Projects Agriculture Worldwide data on agriculture, food, 795 1,193
nutrition
AIDSLINE 83,000 Bibliographic Medicine All aspects of the AIDS crisis 595 893
Analytical 170,000 Bibliographic Science Analytical Chemistry 1,495 3,738
Abstracts
Applied Science 624,000 Bibliographic Science Full range of scientific and technical 1,720 2,150
information
Aquatic Sciences 399,000 Bibliographic Agriculture Aquatic Sciences No listing No listing
Art Index 228,400 Bibliographic Arts Domestic and international periodicals 1,720 2,150
AV On-Line 400,000 Bibliographic Library Educational audiovisual materials 795 1,193
BEASTCD 390,000 Bibliographic Agriculture Animal breeding and nutrition 7,325 14,650
Bioethicsline 40,000 Bibliographic Medicine Ethics and public policy in health care 795 1,193
Biography Index 131,400 Bibliographic Reference Bibliographical data—2,800 periodicals 1,260 1,575
and books
Biological 370,000 Bibliographic Science Peer-review biological/biomedical 9,290 10,790
Abstracts research
Biological 1,150,000 Bibliographic Science Reports, Reviews, Meetings 4,675 6,175
Abstracts
RRM
Book Review 53,900 Bibliographic Arts Excerpts/citations to literature reviews 1,260 1,575
Digest
Business 822,000 Bibliographic Business 345 International English Language 1,720 2,150
Periodicals periodicals
CABCD 1,240,000 Bibliographic Agriculture Agriculture, Forestry, and allied 11,400 22,800
disciplines
CABPestCD 480,000 Bibliographic Agriculture Crop protection and pest management 8,150 16,300
CANDER-CD 7,525,000 Bibliographic Science Cancer and related subjects 1,500 2,500
Chembank 120,000 Bibliographic Chemicals Potentially hazardous chemicals 1,595 2,393
Chemical 1,150 Chemical Specs. Chemicals Chemical substances for use in spills No listing No listing
Hazard
Response
CINAHL 160,000 Bibliographic Medicine English Speaking nursing journals 1,095 1,643
ClinPysc 298,000 Bibliographic Medicine Psychological information for clinical 2,995 4,495
psych.
COMLINE 110,000 Summaries Business 75,000 English summaries of Japanese 995 1,592
bus. pubs.
Corporate & 695,000 Full Text Business Worldwide company and Industrial No listing No listing
Industrial information
Cross Cultural — Full Text Arts Social and behavioral sciences and 5,083 7,625
CD humanities
Earth Sciences 173,000 Bibliographic Science Earth sciences and natural resource 595 893
Disc data

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EXHIBIT 7
Continued

Subscription Fees

2–8
Simultaneous
Database Records Database Subject Description Workstation Users

EconLit — Bibliographic Arts International literature in the field 1,600 2,400

of economics
EINECS plus CD 100,000 Bibliographic Chemicals European Inventory of Commercial 1,400 2,100
Substances
EIU — Full Text Business Full text of international business No listing No listing
International newsletters
Bus.
Encyclopedia of 80,000 Descriptions Library Local/national/international 1,395 2,195
Assoc. associations
ERIC 775,000 Bibliographic Library Journals and research literature in 1,250 1,875
education
ETDE Energy 1,000,000 Bibliographic Science Nuclear science and energy 3,850 5,775
Excerta Medical: 116,500 Bibliographic Medicine Clinical/experimental aspects of 995 1,493
Anesthesia. anesthesiology
Excerta Medica: 500,000 Bibliographic Medicine Cardiology/cardiovascular diseases/ 995 1,493
Card. surgery
Excerta Medica: 1,560,000 Bibliographic Medicine Coverage of drugs and pharmacology 3,495 5,245
Drugs
Excerta Medica: 345,000 Bibliographic Medicine Gastroenterology 995 1,493
Gastro.
Excerta Medica: 500,000 Bibliographic Medicine Clinical and experimental immunology 995 1,493
Immun.
Excerta Medica: 900,000 Bibliographic Medicine All Excerta Medica Abstract Journals 1,500 No listing
Libr
Excerta Medica: 270,000 Bibliographic Medicine Experimental/clinical aspects of 995 1,493
Neph. kidney disorders
Excerta Medica: 510,000 Bibliographic Medicine All aspects of neurology 995 1,493
Neuro.
Excerta Medica: 237,000 Bibliographic Medicine Obstetrics and gynecology 995 1,493
Obst.
Excerta Medica: 300,000 Bibliographic Medicine General pathology and organ 995 1,493
Path. pathology
Excerta Medica: 297,000 Bibliographic Medicine All aspects of psychology and 995 1,493
Psch. psychiatry
Excerta Medica: 356,000 Bibliographic Medicine All aspects of radiology 995 1,493
Rad.
Food & Human 290,000 Bibliographic Agriculture Food science and nutrition literature 750 1,125
Nutrition
FSTA 425,000 Bibliographic Agriculture Comprehensive coverage of food 5,500 11,000
sciences
Geobase — Bibliographic Arts Geography/geology/mineralogy No listing No listing
GeoRef 1,790,000 Bibliographic Arts Geology and geosciences 3,100 4,650
GPO 387,000 Bibliographic Library Citations to U.S. Government 9,290 10,790
publications
Health and 120,000 Bibliographic Science Worldwide literature on health and No listing No listing
Safety Exec. safety
Health Plan 432,000 Bibliographic Medicine Nonclinical aspects of health care 950 1,425
since 1981

JOURNAL OF INTERACTIVE MARKETING ● VOLUME 13 / NUMBER 2 / SPRING 1999

40
 SILVERPLATTER INFORMATION

EXHIBIT 7
Continued

Subscription Fees

2–8
Simultaneous
Database Records Database Subject Description Workstation Users

HORTCD 440,000 Bibliographic Agriculture Worldwide coverage of horticulture 7,790 15,580

IARCancer — Full Text Medicine Linkage between over 700 chemicals 1,550 2,325
and cancer
ICAR 5,000 Bibliographic Agriculture Projects in agriculture, food, and No listing No listing
related topics
ICC Keynotes — Full Text Business Market studies of over 130 industries 1,720 2,150
Iconda 300,000 Bibliographic Science Construction and related fields 1,045 1,568
Index to Legal 147,000 Bibliographic Business Legal journals and government 1,720 2,150
Periodicals publications
Information 200,000 Bibliographic Arts Information and library sciences 1,095 1,643
Sciences Abs.
Intn’l Nuclear 1,200,000 Bibliographic Science Nuclear Science and technology 2,875 5,750
Info. System
Intn’l — Bibliographic Medicine Pathology and medicine within No listing No listing
Occupational industry
Safety
Intn’l 217,000 Bibliographic Medicine Drug therapy and pharmaceutical No listing No listing
Pharmaceutical information
Abs.
Investext 12,000 Full Text Business Analysis and data on public U.S. 3,450 5,175
corporations
Major Hazard — Bibliographic Science Hazardous substances with off-site No listing No listing
Data impacts
Mathsci 1,850,000 Bibliographic Science Mathematics and implications on 9,550 14,325
related fields
MDX Health 15,000 Bibliographic Medicine Consumer health issues 1,900 2,850
Digest
Medline Express 8,000,000 Biographic Medicine Worldwide biomedical research 1966– 2,475 3,713
present
Medline 630,000 Descriptions Medicine Clinical medicine-subset of Medline 795 1,193
Professional Express
Medline 8,000,000 Bibliographic Medicine Full Medline with thesaurus/full 1,795 2,693
Standard explanation
MLA 500,000 Bibliographic Arts Modern 1,545 2,318
Bibliography Language/literature/linguistics/folklore
NTIS 620,000 Bibliographic Science Unrestricted technical reports 2,850 5,280
OCLC 384,000 Bibliographic Library Computer references and related fields 450 675
Computer
Libr.
OCLC 570,000 Bibliographic Library Reference for education literature 450 675
Education
Libr.
OCLC 540,000 Bibliographic Library Environment and related fields 450 675
Environment
Libr.
OCLC Music 550,000 Bibliographic Library Music and related fields 450 675
Lib.
Omni Gazetteer 1,500,000 Bibliographic Library U.S. place names 2,000 3,000

JOURNAL OF INTERACTIVE MARKETING ● VOLUME 13 / NUMBER 2 / SPRING 1999

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 JOURNAL OF INTERACTIVE MARKETING

EXHIBIT 7
Continued

Subscription Fees

2–8
Simultaneous
Database Records Database Subject Description Workstation Users

OSH-ROM 350,000 Res. Projects Science Compilation of intn’l health and safety 1,078 1,617
databases
OSH-UK — Full Text Science UK occupational safety and health 1,195 2,390
legislation
PAIS 360,000 Bibliographic Business Economic, political, and social issues 1,995 3,990
PDQ — Full Text Medicine Practical treatments for cancer 950 1,425
Pest-Bank 80,000 Bibliographic Agriculture Registered U.S. pesticides and 2,280 3,420
canceled products
Peterson’s 3,500 Bibliographic Library Profiles of accredited colleges in the 594 995
College United States and Canada
Peterson’s 28,000 Bibliographic Library Profiles of graduate and professional 695 1,095
Gradline programs
PolTox 1 800,000 Bibliographic Science 10 years of vital pollution/toxicology 1,995 2,993
literature
POPLINE 189,000 Bibliographic Library Population/family planning/related 790 1,185
health care
Predicasts F&S 500,000 Full Text Business 1,000 trade and business journals 6,000 N/A
Index
PscyhLIT 570,000 Bibliographic Science Psychology and behavioral sciences 4,495 6,750
PSYNDEX 65,000 Bibliographic Science German language psychology 995 1,493
Readers Guide 581,500 Bibliographic Reference Data from 240 popular magazines 2,295 2,865
Abstracts
RSWB 400,000 Bibliographic Science German language info. on blding/ No listing No listing
engineering
SEC 10K 4,500 Full Text Business Subset of full SEC fillings-forms 10K 2,900 4,700
and 20F
SEC On-line 27 Full Text Business Forms 10K, 10Q, Annual Reports 6,950 10,425
EDBASE 440,000 Full Text Medicine Side affects of drugs 995 1,493
SIGLE 250,000 Bibliographic Science Leading European science/technology 950 1,900
research
SOCIOFILE 175,000 Bibliographic Arts Literature of sociology 1,950 2,995
SOILCD — Bibliographic Agriculture Soils, water, fertilizer, and land 6,650 13,300
measurement
SPORT DISCUS 307,000 Bibliographic Medicine Sports and fitness 1,500 2,100
TOXLINE 1,000,000 Bibliographic Science Toxicological information 1,375 2,063
TOXLINE Plus 1,200,000 Bibliographic Science Toxicological information 3,850 7,700
TREECD 350,000 Bibliographic Science Worldwide forest and agroforestry 10,745 21,490
TROPAG & 90,000 Bibliographic Science Agriculture/economics in 825 1,238
RURAL tropics/subtropics
UK 3,000 Full Text Business Full unedited text of annual reports 4,200 6,300
Corporations
VETCD 300,000 Bibliographic Agriculture Veterinary science and animal health/ 10,060 20,120
nutrition
Water Resources 250,000 Bibliographic Science Comprehensive coverage of water 750 1,125
Abs resources
WLAS 54,000 Bibliographic Agriculture Agriculture materials 760 1,140
Average price 2,578 4,124

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 EXHIBIT 8
Competitor Analysis

Sales ’92 (Est. Market Pricing Structure

Company million) Titles Focus (Ranked low to high) Interface Other

SilverPlatter $23 Academic Academic 1. Single workstation Good • Market leader in number of titles
Medical Hospital 2. 2–8 simultaneous users • Excellent cross reference search software
Scientific 3. Negotiable • 50% sales outside United States
• Systems solution: 20% of revenue from
CD1 $10 Medical Hospital 1. Single workstation Excellent hardware

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Academic Academic 2. 2–6 simultaneous users • Strong direct sales force

43
3. 7–10 simultaneous users • Search software has natural language mapping
4. 11–20 simultaneous users
Dialog $15 Business Corporate 1. Single workstation Good • Consistent with on-line interface
• Strong position with IPs through on-line
Science/tech Academic 2. 1–3 simultaneous users franchise
Newspaper 3. 4–6 simultaneous users
SILVERPLATTER INFORMATION

• Big customer base to sell into

4. 7–9 simultaneous users
5. 10–12 simultaneous users
6. Site license
Wilson $ 5 General Ref Academic 1. Site license based on size Poor • Weak in CD-ROM field; strong in print
• Excellent data

VOLUME 13 / NUMBER 2 / SPRING 1999

Source: Company data.
 JOURNAL OF INTERACTIVE MARKETING

EXHIBIT 9
MEDLINE Price and Product Comparison

Dialog Magnetic Tape

MEDLINE Offering SilverPlatter CD1 (On-Line) (From the NLM)

250 hours
Entry product Single workstation Single workstation connected Site license
Price $2,475 $3,000 $9,000 $12,000
2–8 simultaneous 2–6 simultaneous 750 hours
Line extension users users connected
Price $3,713 $5,000 $27,000
9–16 simultaneous 7–12 simultaneous
Line extension users users
Price Not listed Not listed
Up to 20
Line extension simultaneous users
Price Not listed

Source: Company documents.

MEDLINE Platter had cause for concern. Only 2% of Sil-

Over 6,000 medical and health science libraries
now subscribe to SilverPlatter databases. We
estimate that subscriptions to MEDLINE on
SilverPlatter represent approximately three-
fourths of the CD-ROM subscriptions to MED-
LINE worldwide.
—Bela Hatvany
Competitors
SilverPlatter competed with a number of ven-
dors across product lines, though in the medi-
cal area, CD1 was the most prominent. (See
Exhibits 9 and 10 for details.) Despite holding
what it believed was 75% market share, Silver-
verPlatter’s MEDLINE subscriptions were net-
worked licenses, while 65% of CD1 were
networked licensed. For SilverPlatter as a whole,
networked licenses accounted for 13% of all
subscriptions. The lag in MEDLINE was even
more troubling because as a highly used, data-
intensive database it was a leading candidate for
networking.
Vice President of Corporate Marketing Ste-
phen Rhind-Tutt believed that SilverPlatter cus-
tomers utilized MEDLINE on computer net-
works at the same rate as those of CD1 but they
did so in violation of their licenses: “Many Sil-
verPlatter customers simply put the CD-ROM

EXHIBIT 10
Information spectrum

JOURNAL OF INTERACTIVE MARKETING ● VOLUME 13 / NUMBER 2 / SPRING 1999

44
 SILVERPLATTER INFORMATION
on their network server and use it illegally. Ac-
tual network usage is undoubtedly far greater.
We’re simply leaving money on the table.”
Rhind-Tutt explained that SilverPlatter had not
acted on these violations because it was not in a
position to monitor usage.
CD1 CD1 had robust search software which
was generally thought to be stronger than Sil-
verPlatter’s SPIRS. It had been specifically de-
signed to run medical databases like MEDLINE
and offered a medical terminology thesaurus
and medical reference tools. Consequently,
CD1 commanded a 30% price premium for its
products in the medical market. The targeted
strategy had its limitations, however, as CD1
was restricted in its ability to provide competi-
tive products in nonmedical markets. CD1 fo-
cused primarily on the hospital segment, gain-
ing over 50% market share. While the overall
number of hospitals was small in comparison to
academic institutions, the systemwide licenses
were quite lucrative for the company. CD1 was
a strong proponent of using simultaneous users
as the basis for pricing, though it was unclear to
what extent the company was able to enforce its
licenses. The pricing that accompanied these
licenses was on a steeper grade than SilverPlat-
ters’, providing yet another indication that
CD1 was well-positioned in the fast-growing
networked end of the market.
Dialog Dialog, a Knight-Ridder subsidiary, was
by far the dominant provider of on-line data-
bases in 1992, having virtually founded the in-
dustry in the 1960s. Until CD-ROM became
available, Dialog had a near monopoly on elec-
tronic publishing, amassing over 400 titles and
$200 million in revenue. As CD-ROM sprung up
in the 1980s, however, Dialog failed to recog-
nize the challenge to its business. The company
continued a pattern of consistent price hikes
until it became apparent that CD-ROM repre-
sented a credible and in some cases superior
substitute to on-line offerings. Dialog subse-
quently launched a CD-ROM division, and with
deep financial pockets, firm contacts with hun-
dreds of information providers, and a consistent
JOURNAL OF INTERACTIVE MARKETING
software interface, it posed a serious threat to
SilverPlatter and CD1.
The Information Spectrum: Substitutes
for SilverPlatter Services
SilverPlatter had to contend with CD-ROM sub-
stitutes as well as with substitutes in other me-
dia. In the professional markets, the decision to
purchase CD-ROM was usually based on an as-
sessment of the performance of the product in
relation to its price. For most institutions, and
certainly for those considering MEDLINE, this
decision would also include a similar evaluation
of print, on-line, and magnetic tape. For basic
services, print was frequently the answer, while
increased functionality was sought elsewhere.
Each of the media had evolved largely in isola-
tion, but with the convergence of information
technologies, they now competed for many of
the same customers and applications. For Silver-
Platter, an understanding of the pricing strategies
in each medium and the resulting price/perfor-
mance relationship was essential to determining
its pricing strategy. (See Exhibit 10.)
On-line In billing by the number of hours a
user connected to the service, on-line vendors
followed the telecommunications industry price
model. On-line vendors focused on customers
who had low or highly time-sensitive data needs,
making it attractive for the occasional user to
search electronic databases, while providing
time-sensitive data to moderate, less cost-sensi-
tive users.
CD-ROM With the advent of CD-ROM, the
information services market expanded dramat-
ically to include moderate-use customers who
could not afford on-line fees for the electronic
data they wanted. Large and unanticipated ben-
efits were realized in having the database “free”
to browse through; data-hungry professionals
migrated from print to CD-ROM once it was
clear that the medium offered unlimited use of
data for a fixed-fee (subscription). In response
to the recent trend towards networking, CD-
ROM vendors followed the software industry’s
lead in adopting simultaneous use as the means
● VOLUME 13 / NUMBER 2 / SPRING 1999
45
 JOURNAL OF INTERACTIVE MARKETING
for approximating value delivered to the cus-
tomer.
Magnetic tape Historically, magnetic tape had
been sold through a negotiated agreement to
allow full and unrestricted use of data. Usually
direct from the original information providers,
these arrangements represented sizable fees
and involved a simple transfer of magnetic tape
that the customer transferred to a mainframe
computer. Because the customer had to buy or
build a separate “search engine” to use the da-
tabase, end users frequently complained of low
functionality. Maintenance and compatibility
between magnetic tape databases led many in-
stitutions to look for alternatives to tape. How-
ever, the set-fee, unlimited-use feature of tape
kept some customers from pursuing other op-
tions.
THE NEED FOR A PLAN
Recognizing that NLM could profoundly
change SilverPlatter’s financial and strategic po-
sition, executives at the company convened a
cross-functional team in early 1993 to evaluate
competitor and substitute pricing and to de-
velop a paradigm that would meet SilverPlat-
ter’s goal of expanding the market and earning
a fair return on services provided. Headed by
David Mirchin, legal counsel and a member of
the executive team, the task force also included
Stephen Rhind-Tutt, vice president of corpo-
rate marketing; Nancy Knight, vice president
for information provider relations; Pete
Ciufetti, software program manager; and Susan
Kesner, U.S. sales manager.
The group surveyed customers and informa-
tion providers at length, conducted literature
searches, and talked with leading competitors
to define the issues at hand. From this research,
it seemed to suggest that the solution existed
somewhere along the so-called information
spectrum. Three plans, each representing dif-
ferent perspectives, emerged:
1. Search Sessions: Like on-line services, this
would be a time-based measure of usage. It
would be structured so that customers
JOURNAL OF INTERACTIVE MARKETING
would not feel the pressure of being “on
the clock,” although, over the course of
the year, they would pay for the data that
they used.
2. Simultaneous Use: With this plan custom-
ers could select the number of simulta-
neous users they wished, in a continua-
tion of standard industry practices.
3. Site License: A set price, determined by
the size of the institution, would combine
the benefits of magnetic tape and CD-
ROM.
In evaluating these options, the group recog-
nized that any successful strategy had to be easy
to understand and to explain to customers. It
had to be capable of responding to the rapid
changes in technology. It could not be too rad-
ical, lest the company lose its valuable customer
base, but it should elevate SilverPlatter to the
forefront of the market.
Option #1: Search Sessions
We need to focus our pricing on value. Our
customer surveys indicated that networked
MEDLINE customers use the database an aver-
age of roughly 10,000 hours a year. At $3,713
per license, this translates into $0.37 for each
hour of database use—far less than the $36
charged by Dialog for comparable on-line ser-
vice. Once customers see these numbers and
understand the value they are getting, we
should have no problem in increasing the
price. And after all, the fairest way to price is
based on usage.
—David Mirchin
While such value pricing might be desirable
from a company standpoint, it raised significant
objections from vocal customers who felt that it
implied a return to the days of on-line. It was
argued that variable cost pricing would deter
novice or inexperienced users from experi-
menting on the system; this ran contrary to the
prevailing trend of pushing information use
down to the user. Perhaps more significant,
though, was the fear that variable pricing would
make budgeting for electronic products ex-
tremely difficult. Stagnant budgets were already
blamed for deterring the pace of CD-ROM
● VOLUME 13 / NUMBER 2 / SPRING 1999
46
 SILVERPLATTER INFORMATION
adoption. Making this category variable might
lead many users to pull back on licenses, focus-
ing just on the main products.
To combat these objections, advocates of
search session pricing came up with the follow-
ing plan. Users could buy blocks of 500
searches, with each search lasting 30 minutes, a
period estimated to cover 92% of all customer
queries. Initially, as customers decided how
many blocks they wished to purchase, SilverPlat-
ter salespeople would help them to estimate
usage. For example, a hospital with 200 beds or
a university with 10,000 students should fall in
the median usage range.
Beyond the benefits of value pricing, search
sessions would allow SilverPlatter to develop a
low-cost entry option for new, novice, or cost-
constrained customers. With just one block of
500 search sessions, a customer could provide
enterprise access for less than the cost of a
single workstation license. It was hoped that this
would stimulate demand for less-popular titles,
though it was unclear what impact it might have
on existing licenses in which usage levels could
be low.
Option #2: Simultaneous Use
No, I don’t like it, but this is what customers
want and what CD1 will give them. I under-
stand perfectly well that we are giving the data
away in many cases, but what choice do we
really have? In the mind of the librarian, a
simultaneous use license is exactly the same as
having a copy of a book. As demand for that
book increases, you add books. We should be
doing the same with CD-ROM products: It
makes the librarian comfortable and it is a
competitive necessity.
—Susan Kesner
Opposition to simultaneous-use pricing
claimed that it was too broad in scope to
capture value delivered, and that at its essence
simultaneous use was the wrong way to price
data. Based on queuing theory, it was argued,
as the number of simultaneous users grew
arithmetically, the serviceable population
grew geometrically. By analogy, one tele-
phone could serve two people, two could
JOURNAL OF INTERACTIVE MARKETING
serve four people, three could serve eight,
four could serve sixteen, five phones could
serve thirty-two. While the actual progression
for databases was unclear, it was thought that
six simultaneous users could serve a tremen-
dous population—perhaps the majority of
networked customers.
Advocates argued that by moving to a struc-
ture of incremental simultaneous users with
scaled pricing, SilverPlatter would get the value
pricing it coveted and lead the market with a
policy that most customers wanted. Starting
with one simultaneous user at perhaps a 25%
markup, the company would quickly surpass
current pricing policy in terms of re-aligning
the price/value relationship. This would also
encourage users to put disks on LANs because
the advantage of accessibility at any time was
certainly worth an added 25%.
Option #3: Site License
Setting an enterprisewide price, determined by
the size of the institution, would be the best
way to remove all the nitty-gritty and just let the
customer use data the way he or she wishes. It
is full-service and technologically independent
delivery of data. We can give the access of
magnetic tape, SPIRS search capability, and
hassle-free service. Because it’s like magnetic
tape, it would compete with tape sales— but
information providers are not sales focused,
and there is no question that we would do a far
superior job selling at the high end of the
market. This would be a great opportunity,
particularly with MEDLINE, where we’re losing
all those large sites.
—Nancy Knight
Site licensing might be the easiest plan to
implement, but opponents argued that it bore
little reality to what data was being used. For
customers who wanted to license titles for use
on LANs or WANs, pricing would be based on
how big they were, not on how many terminals
were on the system or how much they used the
data. And librarians often became agitated
when they believed they were being presented
with a large bill for something intangible.
At the same time, SilverPlatter could gain
several important advantages with this option.
● VOLUME 13 / NUMBER 2 / SPRING 1999
47
 JOURNAL OF INTERACTIVE MARKETING
First, it would provide the impetus for many
heavy-use LAN customers to migrate to a wider,
technologically independent structure. For
those who had operated above their licenses,
they could legitimize their data use. Second, site
licensing required very little administration,
thereby allowing librarians and administrators
to provide full access with little hassle. Third,
site licensing was predictable, easy to manage,
technologically independent, and compatible.
It was also aligned with customers’ expectations
of how information should be bought, sold, and
used.
JOURNAL OF INTERACTIVE MARKETING
The Quarterly Meeting
After three months of intensive work by the
cross-functional team, it was time for the exec-
utive committee to come to a decision on these
options. There were competitive factors to con-
sider, the economic benefits associated with
each customer as an annuity stream, and the
opportunity cost of lost revenue on all those
unlicensed networks. What kind of price in-
creases were realistic? What would be the
tradeoffs? What were the long-term implications
of the final choice?
● VOLUME 13 / NUMBER 2 / SPRING 1999
48