The cost of EMS

35

The Cost of EMS

Raymond R. Panko College of Business A dm inistra tion, University of Hawaii, 2404 Maile Way, Honolulu, Hawaii 96,~22, USA

Today, the cost of a typical electronic message system (EMS) is uncomfortably high. But EMS should soon become cost-competitive with postal delivery. Three main factors will contribute to this rapid cost decline: 1) the use of local computers for most interactive work, 2) the use of low-cost terminals, and 3) falling computer harware prices.

Dr. Raymond R. Panko is an assis- tant professor at the University of Hawaii. He is currently in the marketing department, where his specialties have been 1) marketing research and 2) the application of marketing and marketing research techniques to the office automation industry. In late 1981, he will transfer to the decision sciences department, in order to focus even more heavily on office

Mm~:p ,1~v ~ automation. He began his career in office automation at SRI International in 1973. There he worked on EMS, teleconferencing, cable television, pay television, and legal aspects of office automation services. He worked on the first integrated office system, NLS. He also conducted the first major market analysis of EMS. Since moving to Hawaii, he has continued to do consulting and research on office automation. Among his clients have been AT&T, Xerox, Bell Canada, the National Bureau of Stand- ards, NASA, the U.S. Army, Auerbach Publishers, The Die- bold Group, and DATAQUEST. He received his B.S. in physics and his MBA from Seattle University. He received his Ph.D. in communication from Stanford University.

* The work described in this paper was supported in part by the U.S. Army Materiel Development and Readiness Com- mand.

1. Introduction

Not too long ago, a Xerox commercial portrayed

the story of a cherubic monk who had just produced, after long work, a single copy of a manucript. His

superior, immensely pleased with the borther's work,

smiled and asked for 500 copies. The brother needed

a miracle. He found it in his Xerox copier. Soon afterward, Addressograph Multigraph created

a neat riposte. In a magazine advertisement, it showed

a smiling monk, looking very much like the Xerox

brother, standing next to a despairing older monk.

The caption read, "Brother Timothy runs the 'miracle' machine. Brother John loots the bills."

Some analysts say that we are about to see many

office automation "miracles," of which electronic message systems (EMS) may be the brightest of all.

Yet few writers have spoken about the costs of EMS, and what has been written has been mostly based on

speculation, rather than on hard data. The Brother

Johns of this world, who control the corporate purse

strings, will not find this glib attitude toward costs satisfactory. High costs can sometimes be tolerated, but a lack of cost information usually generates fierce

corporate resistance. Ttzis paper attempts to summarize what we do

know today about EMS' current costs and can foresee

about future costs. It surveys actual costs for existing systems, to show what real users now pay. The paper

then goes on to project costs into the future, specifi-

cally to 1981 and 1985. Because computer and transmission costs are falling rapidly, future costs will be

much lower than present costs. We generally cite costs in terms of a system's "cost

per originated message." or CPM t . Using cost per

message as a measure of expense can be criticized.

Nevertheless, CPM has been selected, first because it

is an intuitively graspable and generally useful figure, and second because it can be computed for all of the

systems from which we have data. When speaking of cost per originated message, we

must make a fundamental distinction between

© North-Holland Publishing Company Computer Networks 5 (1981) 35-46

] Based on actual use statistics, it appears that the average originated message goes to about three people, so the cost per received message is roughly a third of the costs stated in the text.

36 R.R. Panko / The Cost of EMS

systems designed to transmit messages and systems designed to help users process messages before and after transmission.

Transmission-oriented message systems are optimized to reduce the cost of getting a message from Point A to Point B, in the spirit of traditional electronic mail services (Telex, TWX, facsimile, communicating word processors, and private corporate teletypewriter networks). A good example of a transmission-oriented message system is Hewlett-Packard's HP-2026. Hewlett-Packard now sends about 25 million messages each year over its internal world-wide EMS. The cost per message is only $ 0.05.

This low cost per message is a rather startling fact, because it means that EMS is already cheaper than postage, if one is concerned about bare composition, transmission, and printing on receipt (actually, the HP 2026 does somewhat more than that).

Nor is the Hewlett-Packard system in any sense unique or unprecedented. Texas Instruments' MSG message system, for instance, costs less than $ 0~07 per message, and even the old SITA international air- line message network can deliver messages for about $ 0.20 [1].

If bare transmission is your goal, than EMS is already cheaper than postage, and has been for several years. For this reason, the "Brother Timothy/Brother John" syndrome will not apply to transmission oriented EMS.

But if bare transmission is so inexpensive, it may be that EMS can play an even more important role in the organization, namely reducing the high labor

costs of communication. Table 1 summarizes a few studies that have looked at the manager's work day. Table 2 summarizes three studies that have looked at the professional's work day. In both tables, communication is the dominant activity. For managers, communication averages 80% of the work day. And even technical professionals spend 63% of their day communicating.

A manager, including overhead expenses, typically costs a company around $ 30 per hour. If 80% of an 8-hour work day is spent communicating, this communication costs $192 per day (0.8 X 8 × $ 30).

Turning to cost per message, then how much does the average business letter cost? Given total communication costs, we would expect letters to be rather expensive, and everyone agrees that they are. But different authors give different estimates for the cost of a letter. The most widely quoted estimate comes from the Dartnell Institute [13]. Its 1977 estimate is shown in Table 3.

But the Dartnell estimate, as high as it is, may be too low by a good margin. First, and most importantly, it ignores the cost of reading the letter and dis- posing of it or filing it at the receivers' end. Assuming that the average business letter goes to about three people (as does the average computer message), a closer view of reality may be found in the time and dollar estimate shown as Table 4. This is our own estimate, not based on any time and motion study.

It would be all too easy here to become bogged down in file details of calculations that nobody can make for certain. But there is no argument that,

Table 1 Managers' Use of Time

Study No. of Subjects

Percentage of Working Day Spent in this Activity

Face-to-Face Telephone FTF p l u s Reading, Total Meetings Telephone W r i t i n g Communica-

tion

Stewart 160 Bums 76 Home & Lupton 66 Dubin & Spray 8 Croston & Goulding 6 Mintzberg 5 Palmer & Beishon 1 Notting 1 "'COMPOSITE"

54% 6% 60% 28% 88% - - 52 24 76% 54 9 63 24 87 55 6 61 5 66 56 7 63 18 81 64 6 70 20 90 54 6 60 15 75 - - 59 17 76 50% 6% 56% 24% 80%

Source: Refs. [2-9].

R.R. Panko / The Cost of EMS 37

Table 2 Scientists' and Technologists' Use of Time

Study No. of Subjects

Percentage of Working Day Spent in this Activity

Face-to-Face Telephone FTF plus Reading, Total Meetings Telephone Writing Communica-

tion

Case Institute 1500 - Hinrichs 232 29% Klemmer & Synder * 35 "COMPOSITE" - 30%

- - - 53% 6% 35% 26% 61 7 42 26 68 7% 37% 26% 63%

* 3132 Time samples. Source: Refs. [10-12].

under any assumptions, a business letter costs a good deal of money. If EMS can reduce the costs of human message handling, not just transmission, the potential payoffs will be huge; about 20 percent of all office work, by our estimate, is spent processing paperwork, and EMS may also substitute for face to face meetings and telephone calls.

Several message systems do concern themselves with human message handling. Two examples are Planet and Hermes, both of which will be discussed later. These two systems are reasonably expensive now, but as shown in Table 5, their costs are expected to fall very rapdily in the near future. (Details

of the calculations are presented later.) As shown in Table 6, the Hermes EMS is used

predominantly to handle messages after transmission, and so the time estimates in Table 4 seem particularly

relevant.

Table 3 The Cost of a Business letter: DartneU Business Research Institute Estimate: 1977 (Origination Costs Only).

Cost Category Cost if Face-to-Face Dictation

Dictator's time * $1.05 Secretarial time ** 1.26 Non-productive labor 0.35 Fixed charges 1.16 Materials cost 0.16 Mailing (13¢ postage) 0.28 Filing Costs 0.21

$ 4.47

In the very near future, then, EMS can pay for itself several times over, if it is capable of reducing message handling labor even slightly. The real cost

implications o f EMS, then, may relate to its ability

to reduce message handling labor, not just its ability

to reduce bare transmission costs. But this is not the end of the story. As important

as cost reduction is, real gains in office productivity

Table 4 ;rhe Cost of a Business Letter: Our Estimate, 1978 (Sender and Receiver Costs)

Category Cost ff Longhand Draft

Author preparation 9 min. drafting 10 reviewing after typing 2

Author's secretary transcription 6 min. filing and copying 3

Receivers {3 per letter} reading and considering 12 min.

Receivers' secretaries screening 3 min. tiding 6

Salaries secretaries $12,000 others/receivers 25,700

Labor costs * sending $ 9.13 receiving 5.97

$15.10

Source: Ref. [13]. Notes: * Executive's Time: 7 min; Note: Assumes 154 at-work hours each month and an over- ** Secretary's Time: 18 min. head rate of 60%.


Table 5 Cost for Two Electronic Message Systems. Cost per orginated message, excluding terminals and user labor, constant 1977 dollars

System 1977 1977 1981 1985 Actual State-of- Projected Projected

the-Art Estimate

Planet $1.34 $ 0.35 0.14 0.07 Hermes $ 6.72 $1.63 0.66 0.17

rally indicated that users intuitively perceive improvements in their productivity and other measures of effectiveness [15,16].

To put our cost analysis in perspective, then, the costs of message handling systems like Planet and

Hermes can be appreciated most easily in relationship to the $15 labor cost of a letter. In the long term,

however, EMS may be judged on its ability to stimu- late improvements in the way managers and other office workers spend their valuable time.

Notes: Costs of terminals and user labor are not included. Planet and Hermes costs are not strictly comparable for reasons discussed in the text. 1977 Actual figures are based on data taken from operating computer mail systems. 1977 State-of-the-Art figures begin with 1977 operating data, then estimate what the cost would be if a 1977 state-of-the-art computer were used and ff the computer were located near the user.

can probably come only if we increase the effectiveness of managers and professionals, not just their efficiency at doing individual tasks. Time and time again, justification studies have found that a given office automation system reduces the time to do a specific task, only to find that new work is generated (whose value cannot be measured easily) or that the task itself was an unwise one. So far, several analysts have suggested that EMS can increase the effectiveness of decision makers (e.g., ref. [14]), but no really satisfactory way has yet been found to verify increased effectiveness, although surveys have gene-

Table 6 Use of the Hermes EMS

Category Percent Of Commands

Mail reading 46% Discarding or •ing 18 Composing and editing 17 Ending a session 18

99%

Notes: Total does not sum to 100% due to rounding impre- cisions and because a few commands are not included. Single reading commands are often used to print several messages so the number of messages printed is probably much higher than the number of messages composed. Reading commands are used to read fried messages as well as messages in the user's inbox. Source: Raw data from 8,125 Hermes use sessions were supplied by Bolt Beranek and Newman.

2. Approach

We begin the analysis by describing the costs of three current message systems, namely Planet, Hermes and the HP-2026. In all three cases, actual use

data are employed to get a total cost estimate, which is then divided by the number of originated messages, to give a global estimate for cost per originated message or CPM. For Planet and Hermes, we find that both systems are about equally expensive when used in comparable ways, but the existing Hermes clients use the system longer for the average message than do existing Planet clients, perhaps to exploit Hermes' broader message handling capabilities. Hermes, then, is more expensive because it is used differently.

The next section extrapolates the actual 1977 cost of Planet and Hermes to a 1977 "state-of-the-art system architecture." Two things are done in the extrapolation. First, benchmark tests are used to estimate how costs would have changed had a modern computer been used in place of the obsolete 1960's - vintage computer that was actually used in the activities for which we had cost data. Second, it is assumed that future systems will place computers near users; in the activities during which our cost data were collected, users employed computer networks to communicate with distant host computers; this is very expensive.

Next, we project state-of-the-art 1977 costs to 1981 and 1985. To do this, we assume that computer hardware and software will fall about 20 per cent per

year [17], and that transmission will fall at 10 per cent per year, in constant dollars. We assume that the ratio of computer center labor costs and computer center hardware costs will remain constant, as they have, approximately, since 1974 [ 18,19].

Terminal costs are examined next. The cost per message for terminals depends very heavily on thorny assumptions. For instance, will the terminal be used


only for messaging, or should part of its cost be attri-

buted to other uses? We explore the implications of various assumptions.

In all that we do, we assume the system design will remain unchanged over time, except for the use of cheaper replacement hardware and the use of local computer. Of course, systems of 1985 and even 1981 will probably be very different from today 's systems. So our projection can best be viewed as a base estimate or, if you will, as a worst case. We know we can do about this well. Our own guess is that we will see evermore powerful message systems in the future as managers at tempt to automate more and more user labor.

3. Actual 1977 Costs

3.1. Planet

Planet is a relatively simple EMS. When our data were collected, Planet offered virtually no editing or user-controlled filing tools.

Planet is a teleconferencing system, so many of its messages went to several people. As a consequence, it might not be considered a "typical" EMS. However, in most mail systems, broadcast messages going to

lists of addressees are commonplace. Our personal judgement is that Planet costs will be reasonably close to the costs of "typical" simple EMS.

lnJbmedia, Planet's vendor, supplied us with data

Table 7 1977 Observed Planet Costs (Cost excluding terminals and user labor)

per originated message

Component Amount

Computer center hardware $ 0.45 Computer center labor 0.45 Transmisssion 0.44

$1.34

Notes: The average Planet message in our sample of 15,000 messages generated 5.1 minutes in connect time. The average charge for Planet use, including transmission, was $15.80 per connect hour. The average cost per originated message was thus $1.34. Several time-sharing vendors suggested that 1/3 of most time-sharing costs come from transmission. The remaining 2/3 of the cost should come about equally from computer center hardware and computer center labor, according to surveys by Datamation [ 18,19 ].

from a sample of 15,000 messages. Specifically, we

were given connect time per message and the total fees charged to users per connect hour. Details are shown as Table 7.

For our subsequent analysis, it was necessary to estimate how much of Planet's $1 .34 per message was due to computer center hardware, computer center labor, and transmission. For the reasons discussed in the notes of Table 7, we estimated that these three functions (hardware, computer center labor, and transmission) were approximately equal.

3.2. Hermes

Hermes is an advanced EMS created and offered by Bolt Beranek and Newman. Hermes offers powerful tools for text editing, filing, and interaction tailor- ing. There is even an optional "spell" command to check for typographical and spelling errors.

Bolt Beranek and Newman (BBN) supplied us with data on 4,354 messages. From this data, we calcu- lated both connect time per message and CPU (central processing unit) time per message, as shown in Table 8.

For packet transmissions and BBN charges, we estimated the total cost per message for Hermes.

3.3. Planet Costs vs. Hermes Costs

Our estimated cost per message is much higher for Hermes than for Planet. A quick look at Tables 7 and 8 indicates that Hermes' higher cost is due primarily to the fact that Hermes is used longer, per message, than Planet.

One plausible explanation for Hermes' longer use is that Hermes offers many more features than Planet, so Hermes users may try to automate more of their message handling (filing, etc.) than Planet users.

While we believe that that explanation is partially

correct, the whole picture is not quite so clear. First, Hem~es was a somewhat inefficient pro to type system when its data were collected.

Second, most Hermes users were "free" users, who did not pay for service, except very indirectly. When Planet switched from free use to paid use, its connect time per minute felt almost exactly in half, from roughly 10 minutes per message to 5.1 minutes. So Hermes' rather lengthy average connect time may be an artifact of the leisure offered by free service.


Table 8 1977 Observed Hermes Costs (Cost per originated message, excluding terminals and user labor)

Cost Item Rate Amount Component per Message Cost

Console charge $ 2.25/hr. 18.5 min.

CPU charge $ 6.75/CPU min. 35.8 CPU sec.

Network surcharge $1.50/hr. 18.5 min.

Telenet high-density fee $1.40/hr. 18.5 min.

Telenet packet costs at 4,000 packets/hr. $ 0.90 per 1,000 packets $ 3.60/h.r. 18.5 min.

$ 0.69

4.03

0.46

0.43

1.11

$6.72

Notes: In our sample of 4,354 messages, the average message generated 18.5 minutes of connect time and 35.8 CPU seconds. For packet transmissions, the rate of 4,000 packets per hour was derived from a separate empirical study by Brown (Ref. 20). Bolt, Beranek, and Newman charges $ 0.90 per kilopacket if it is billed for Telenet access. Computer rates are based on charges by Bolt, Beranek, and Newman; storage charges are bundled into the rate structure.

3.4. HP-2026

Hewlett-Packard created its internal message system in the eady 1970s. Table 9 gives a cost break- down for 1977. Note that the system is used not only for messaging but also for remote job entry (RJE) and other purposes. As discussed previously, the HP- 2026 is a .transmission-oriented system with only limited tools for message creation, reading, and filing.

Texas Instruments ' MSG is also a transmission- oriented system, but it does a t tempt to automate some message processing, using a trick borrowed from

Table 9 1977 Observed HP-2026 Costs

Capital cost of terminals, minicomputers, all other hardware, and software. $ 5.00 million

Annual cost (assuming a 36- month write-off) $ 1.67 million

Annual transmission costs $ 2.00 million

Total annual cost $ 3.67 million

Percent of annual cost attributable to messaging 29 percent

Annual messaging cost $ 1.06 million

1977 message traffic 23 million

Cost per message $ 0.05

Source: Data were supplied by Hewlett-Packard.

office automation. When an author wants to send a message, he or she can dictate into a recorder in a message center. Instead o f typing the message, an operator keys it into the computer system.

4. State-of-the Art Costs

While the costs given in the previous section are "real" costs, based on actual data, they were somewhat inflated because of two weaknesses in their specific implementations. This section provides a more realistic picture by extrapolating actual 1977 costs to figures that would be obtained in state-of-

the-art designs. Table 10 summarizes the extrapolation. As the

notes indicate, the extrapolat ion has two parts. First, the obsolete computer used in actual systems is "replaced" by a 1977-vintage system. Actual benchmark studies conducted at SRI International are used in calculations.

The second part of the extrapolat ion notes that current systems require users to access remote message-processing computers via rather expensive computer transmission networks like Telenet or Tyro- net. As volume grows, however, there will soon be enough users to spread message computers around so that they are very near users. Networks, then, would only be used to transmit messages. As shown in Table 11, transmitting a message to three remote recipients would cost only about $ 0.05 today.

R.R. Panko /The Cost of EMS 41

Table 10 Estimated 1977 State-of-the-Art Costs for Planet and Hermes (dollars per originated message excluding terminals and user labor: 1977 dollars)

1977 1977 Observed State-of-the-Art

Estimmate a,b

Hermes computer center hardware c $ 2.36 $ 0.79 computer center labor c 2.36 0.79 transmission c 2.00 0.05

$ 6.72 $1.63 Planet computer center hardware 0.45 0.15 computer center labor 0.45 O. 15 transmission 0.44 0.05

$1.34 $ 0.35

Notes: a To estimate costs for a state-of-the-art implementation, it was first assumed that the obsolete Digital Equipment Corpo- ration PDP-10 with a KA-technology CPU would be replaced by a DEC System 10 with a KL-technology CPU. Bench- marks indicated that the System 10 would support three times as many users as the 1960-vintage PDP-10, despite hav- ing the same purchase price. In fact, Continental Bank now operates a similar mail system on a DEC System 10 and reports costs of less than $ 0.50 per message, in 1979 dollars. b Transmission costs are taken from Table 11. c For Hermes, 1977 observed transmission charges were taken to be the Telenet charges and the network surcharge shown in Table 4. Remaining costs, for the computer center, were split equally into hardware and labor, following Data- mation (Ref. 18, 19).

Planet, by our est imate, would cost only about

$ 0.35 per message i f a local DEC System 10 is used.

To assess our est imate, we turned to Cont inental

Bank's message system, which is comparable in com-

plexi ty to Planet and uses a local DEC System 10.

The cost o f this system was under $ 0.50 per message

even during its development period in 1979.

5. Projecting Future Costs

Table 10 est imates what the costs o f Planet and

Hermes would have been in 1977, using a state-of-the-

art 1977 archi tecture. We now wish to est imate

future costs. Specifically, we wish to project costs for 1981 and 1985.

Our project ion technique is simple. First, we

assume that compute r system costs will fall by 20 per

cent annually [17]. Tota l system costs have been

falling by about this much for several years. In fact ,

prices may actually fall faster than 20% during the

next three or four years, thanks to the new genera-

t ion o f compute r and storage that is now emerging

and thanks also to fierce price compet i t ion that is

already shrinking the t radi t ional ly bloated mark-ups

of compute r systems.

For transmission, we assume that rates will fall

about 10% each year. Again, even more rapid price

decreases may appear if a new generat ion o f transmis-

sion technology emerges. Table 12 summarizes our

project ion.

Table 11 Cost for Telenet Transmission of a Completed Message

Assumptions about message: • 150 words (900 characters), plus a 200 character header • 3 copies are transmitted (3300 characters) • A message is prepared on a local computer, then transmitted at

1200 baud to 3 other local computers Telenet tariff:

$ 3.25]hour + $ 0.50/kilopacket Cost calculations:

3300 chars 1 Connect charge = $3.25/hour × × - -

120 char/sec 3600 sec/hr

= $0.024

3300 chars 1 = ×-- packing efficiency X Packet charge 128 chars/packet 5

= $0.026

Total = $0.05/message

$0.50

1000 packets

Source: Tariff of Telenet Communications Corporation.

42 R.R. Panko / The Cost o f EMS

Table 12 Cost Projections to 1981 and 1985 (costs per originated message, excluding terminals and user labor, constant 1977 dollars)

1977 1981 1985 State-of-the-Art Projection Projection Estimate

Hermes computer center hardware a $ 0.79 $ 0.32 $ 0.13 computer center labor b 0.79 0.32 0.13 transmission c 0.05 0.02 0.01

$1.63 $ 0.66 $ 0.17

Planet computer center hardware a $ 0.15 $ 0.06 $ 0.03 computer center labor b 0.15 0.06 0.03 transmission c 0.05 0.02 0.01

$ 0.35 $ 0.14 $ 0.07

Notes: a Computer hardware system costs are projected to fall by 20% per year (Ref. 17). b Computer center labor costs are expected to fall as rapidly as hardware costs, as labor-saving technology is introduced. In fact, since the mid-1970s, labor and hardware have maintained roughly equal percentages of the EDP budget (Refs. 18, 19). This assumption may be controversial. c Transmission costs are projected to fall by 10% per year. d For differences between the HP-2026 and other systems, see the notes in Table 1.

6. Terminals

Our discussion so far has omi t t ed terminals, no t

because terminals are un impor tan t , but because

terminal costs are very complex and require special

t rea tment .

Terminal costs are no longer a small part o f total

system costs. In the future, terminals will be even

more impor tan t . Unfor tuna te ly , to discuss costs we

must make several assumptions that are necessarily

cofitroversial.

First, should we assume that the terminal is used

only for messaging, or should we assume that its cost

should also be spread over management in format ion

systems, specialized analytical tools, personal

in format ion management systems, and o ther uses?

Table 13 Terminal Expenses

1977 Minimal Terminal a Standard Terminal

1977 1981 1985

Purchase price Cost per month b Cost per work day c

Cost per message 2 messages/day 5 messages/day

10 messages/day

2,000 $ 750.00 $ 500.00 $ 200.00 100.00 37.50 25.00 10.00

5.00 1.87 1.25 0.50

2.50 0.94 0.63 0.25 1.00 0.38 0.25 0.10 0.50 0.19 0.12 0.05

Notes: a These are the author's estimates of what a managerial desk-top terminal would cost. b Assumes 20-month write-off period, including physical wear, the cost of capital, and normal servicing and maintenance. c Assumes 20 working days per month.

R.R. Panko / The Cost of EMS

Table 14 Cost Projections to 1985, Including Terminal Costs a (cost per originated message, excluding user labor, constant 1977 dollars)

43

Current 1977 1981 1985 Implementation State-of-the-Art (Projected) (Projected) (Observed) Implementation

(Estimated)

Hermes 2 messages/day $ 9.22 $ 2.57 $1.26 $ 5 messages/day 7.72 2.01 0.91

10 messages/day 7.22 1.82 0.78 without terminal 6.72 1.63 0.66

Planet 2 messages/day $ 3.84 $1.25 $ 0.77 $ 5 messages/day 2.34 0.73 0.39

10 messages/day 1.84 0.54 0.26 without terminal 1.34 0.35 0.14

0.42 0.27 0.22 0.17

0.32 0.17 0.12 0.07

Notes: a It is assumed that the terminal is used only for messaging. This probably overstates the true cost per message, since terminals will probably be used for other applications.

For our purposes we will assume, conservatively, that the terminal is used only for messaging.

Another issue is how many messages a terminal will handle in a given day. As shown in Table 13, a standard 1977 terminal costs about $ 5.00 per work-

ing day. If a manager sends one message per day, the cost per message would be $ 5.00. At ten messages per day, the cost would be $ 0.50.

Different managers will have different amounts of traffic, so an "average" traffic volume would have little meaning, even if an average could be computed. In addition, managers may share terminals.

Overall, there seems to be no really good way to allocate terminal costs on a per-message basis. As a compromise, Table 13 lists costs for various traffic levels.

Existing terminals are expensive and offer more than a typical user needs. We feel that simpler technology should be used. An unintelligent terminal designed for light use would probably cost less than a basic home computer; in addition, cost can be expected to fall in the future. For 1977, we assume that a minimal terminal would have cost $ 750. We estimate, without analysis, that this cost will fall to $ 500 by 1981 and $ 200 by 1985. Given home computer costs, we consider our projections to be reasonable.

Table 14 shows that assumptions about terminal costs are very important in estimating future EMS. Even assuming very light terminal use, costs are not

too discouraging, yet really low costs will require both inexpensive terminals and relatively heavy use.

7. Labor Costs

Cost is always relative. In EMS, which at tempts to automate human communication labor, it seems reasonable to compare the costs of EMS with an organization's human labor expenses. Studies noted in Table 1 indicate that managers spend roughly a quarter of their days reading and writing. We have already noted managerial labor is expensive. A manager's daily written communication costs run about $ 60. A manager's total communication time

costs about $192 each day.

Compared to either $ 60 or $ 192, EMS costs in the 1980s will be very small (see Table 15). If computer mail can increase a manager's efficiency or effectiveness by even a few percent, it will be very attractive.

In fact, the EMS design assumed in this paper is probably too inexpensive, in the sense that more powerful (and expensive) designs may be more attractive if they can automate greater fractions of a manager's labor.

Professionals also spend a quarter of their day (see Table 2) reading and writing, while their total daily communication takes about half o f their work day. Although their daily communication costs are lower than those of managers, they are still high.


Table 15 Dally Cost of EMS Versus Total Communication Labor Costs (Dollars per day, including terminal, constant 1977 dollars)

1977 1977 1981 1985 Actual State-of-the-Art (Projected) (Projected) Implementation Implementation (Observed) (Estimated)

Hermes 2 messages[day $ 18.44 $ 5.14 $ 2.52 $ 0.84 5 messages/day 38.60 10.50 4.55 1.35

10 messages[day 70.22 18.20 7.80 2.20

Planet 2 messages/day 7.68 2.50 1.54 0.64 5 messages]day 11.70 3.65 1.95 0.85

10 messages/day 18.40 5.40 2.60 1.20

Manager's daily communication labor written communication a $ 60 $ 60 $ 60 $ 60 all communication b 192 192 192 192

Notes: a Managers spend a quarter of their work day in written communication (Refs. 2-9). The manager's time is taken at $ 30 per hour, including overhead. b Managers spend about 80 percent of their day communicating in all forms (Refs. 2-9). The manager's time is taken at $ 30 per hour, including overhead.

A basic conclusion of this paper that computer mail will soon be very cheap, relative to labor costs. Very small productivity improvements are needed to justify EMS. In fact, most administrative vice presi- dents should find EMS's future costs well within their "'accept-without-detailed-justification" range.

8. Assessing our Projections

A number of comments and caveats should be mentioned regarding our projections. For instance, our basic assumption is that system design will be frozen. Our techniques merely transport the system over time, replacing it with a slightly better architecture and successive generations of cheaper computers.

We do not believe that this working assumption will really be accurate. First, if systems were really to be frozen, they could be "production engineered" to virtually eliminate the computer center labor costs so evident in Table 14.

More importantly, however, future message systems will probably be more sophisticated, because user labor is expensive and computers are getting cheap. Using computers to reduce labor will make eminent sense.

In the same vein, users will probably demand much "nicer" systems than they have at present. Better spelling and formatting routines, multifont outputting, better online help functions, and many other perquisites will probably be added as a matter of course.

Costs should also change as the sizes of user communities grow. On the one hand, costs will tend to rise because of increased overhead, because addres- sing will grow more complex, because protocols to link networks of different hosts will have to be created, because directory assistance functions are added, and so on. On the other hand, there should be substantial economies o f scale in larger communities, as evidenced by efficiencies designed into the HP- 2026 system, which handles two million messages every month.

EMS should also change drastically in the future as it matures beyond its current role o f sending brief (50 to 250 words) narrative messages.

For example, the average narrative message in a firm is not brief. Results from Pye~ study [21], shown in Table 16, indicates that while most physi- cally-delivered messages in an organization are indeed less than one page long, there are many longer messages. The average message was 3.5 pages long. Sup-


Table 16 Distribution of Message Lengths at the General Electric Credit Corporation a

Pages No. of Percent Percent b In Length Items Of Items Of Pages

1 276 58% 17% 2 4 134 28 24 5 - 9 36 8 17

10- 20 11 2 8 21+ 17 4 34

475 100% 100%

Source: [21]. Notes: a Data were collected from a nonrandom sample of 25 managers and four secretaries, who each maintained diaries for one week. b Figures in this column are from our calculations based on data in the first two columns.

port ing Pye's s tudy was a Uni ted States Postal

Service's exper ience with e lect ronic mail; it found an

average message length o f 3 pages in one facsimile

exper iment [22]. Few message systems can now

handle longer messages, and we have no data on these

systems.

In addi t ion, business forms are more numerous

than narrative messages, as shown in Table 17. Busi-

ness forms have usually domina ted electronic mail

traffic in the past. We have no data wi th which we

can est imate the cost o f an EMS devoted to business

forms.

In general, EMS is l ikely to mature rapidly into a

service that will address the almost numbing com-

plexi ty of formal paperwork. Unfor tuna te ly , we

cannot assess either the costs o f EMS in such a role,

nor the cost o f the labor that it will au tomate .

Table 17 EStimated Organizational Flows of Written Communication in the United States, 1977 (billions of pages)

Category Narrative Forms Messages

Interf'mn 12 34 Interoffice 22-44 / Intraoffice 50-300 a I 160-800 a

)

Sources: refs. [23,24]. Notes: a Very rough estimate.

In stating the l imitat ions o f our analysis, we are in

danger o f losing sight o f the very posit ive things we

have found. Even today , a transmission or iented EMS

can be cheaper than postage. Very soon, organiza-

tions will enjoy bo th postage stamp prices and the

au tomat ion o f some user labor. Our caveats merely

state that we cannot predict how rapidly o ther uses

will become economical ly at tractive.

References

[1] Phil Hirsch, "SITA: Rating a Packet-Switched Net- work," Datamation, pp. 60-63, March, 1974.

[2] Rosemary Stewart, Managers and Their Jobs, Pan Books, London, 1967.

[3] Thomas Bums, "Management in Action," Operational Research Quarterly, Vol. 8, No. 2, pp. 45-60, 1957.

[4] James Home and Thomas Lupton, "The Work Activities of Middle Managers - An Exploratory Study," Journal of Management Studies, Vol. 1, No. 2, pp. 14-33, 1965.

[5] R. Dubin and S.L. Spray, "Executive Behavior and Interaction," Industrial Relations, No. 3, 1964.

[6] J.D. Croston and H.B. Goulding, "The Effectiveness of Communication at Meetings: A Case Study," Opera- rional Research Quarterly, Vol. 17, No. 1, pp. 45-47, 1967.

[7] Henry Mintzberg, "Managerial Work: Analysis from Observation," Management Science, Vol. 18, No. 2, pp. B97-Bl10, October 1971.

[8] A.W. Palmer and R.J. Beishon, "How the Day Goes," Personnel Management, 1970.

[9] Notting, reported in Sune Carlson, Executive Behavior, Stromber, Stockholm, 1951.

[10] "An Operations Research Study of the Scientific Activ- ity of Chemists," Case Institute of Technology, 1958.

[11] John R. Hinrichs, "Communication Activity of Indu- strial Research Personnel," Personnel Psychology, Vol. 17, pp. 194-204, November 1963.

[12] Klemmer and Snyder, cited in J.E. Carlin, "Human Fac- tors Research- Some Recent Findings and Future Problems," Proceedings of the 5th International Sym- posium on Human Factors in Telecommunications, 1970.

[13] Data are taken from the annual "Cost of a Letter Sur- vey," by the Dartnell Corporation, Chicago, Illinois.

[14] Ronald P. Uhlig, "Human Factors in Computer Message Systems," Datamation, Vol. 23, No. 5, pp. 120-126, May 1977.

[15] Raymond R. Panko, "A Cost/Benefits Study of Com- puter Mail at DARCOM," Final Report in Project 6859, SRI International, Menlo Park, California, August 1978.

[16] Gwen C. Edwards, "An Analysis of Usage and Related Perceptions of NLS - A Computer Based Text Process- ing and Communications System," Bell Canada, Mon- treal, October 1977.


[17] Business Week, "Computers: High Growth that Goes On and On," p. 39ff, January 8, 1979.

[18] Richard A. McLaughlin, "A Survey of 1974 DP Bud- gets," Datamation, Vol. 20, No. 2, February 1974. (Note: this was the f'trst in a series of annual surveys by Datamation).

[19] Philip H. Dorn, "1979 DP Budget Survey," Datamation, pp. 162-170, January 1978.

[20] David Brown, "Teleconferencing: The Summer of'76," University of Wisconsin, Madison Academic Computing Center, 1976.

[21] Roger Pye, "Analysis of the Data Collected by the Sur- vey of GECC," Report P/73280/PY, Communications Studies Group, University College London, 1973.

[22] "Facsimile Mail Service," The Office, January 1972. [23] Raymond R. Panko, "The Outlook for Computer Mail,"

Telecommunications Policy, Vol. 1, No. 3, June 1977. [24] Raymond R. Panko and Rosemarie U. Panko, "An

Introduction to Computers for Human Communica- tion," Proceedings o f the National Telecommunications Conference, Los Angeles, December 5-7, 1977.

Documents

The cost of EMS