What I recently learned about OCLC

For many of you who might not know me, I have an ongoing interest in entrepreneurship. However, I am awakening to the fact that a for-profit entity is but one of the varied options of entrepreneurship that someone can pursue. Alternate to the profit-driven enterprise, is the social enterprise (or socially-conscious entrepreneurship) as well as the non-profit entity. In this blog post, I want to share what I learned about the financial model of one of the largest non-profit entity in the library field, the OCLC.

If you are the library field, chances are, you have come across the name OCLC. If not, you may wish to read more about it on its website's About page. In short, OCLC is a large globally-spanning non-profit library cooperative (like a union of libraries) that has as its mission to share and organize library resources.Well, in summer 2014, I blogged about a conversation I had with technology vendors that got me to question the financial model of OCLC as a non-profit as opposed to a social entrepreneurial venture.  From that conversation, I realised that I had a gap in my understanding of the difference between a social entrepreneurial venture versus a non-profit entity. Hence, on Friday, December 12, 2014, I accessed the newly released OCLC annual and financial report to discover for myself the answers to two questions.

Question 1: 
My first question was that OCLC refers to itself as a non-profit, yet charges for services. My question was what does OCLC do with the fees it charges?

According to the financial report, the OCLC

is a nonprofit, library cooperative. We operate in a business-like manner and are driven by our public purposes of furthering access to the world’s information and reducing library costs—providing shared services, research and advocacy programs to deliver on these purposes.

Also, if I am interpreting the report correctly, the OCLC reinvests its "profits" (fees, earnings or incomes) into research and development so that it can develop new products and services that meet the needs of libraries and their clients or users. According to the report, OCLC's:

operations and research initiatives are funded by revenues generated by services provided to participating libraries. Unlike alternative library services organizations, OCLC invests resources into new services and programs rather than distributing funds to shareholders. OCLC also maintains an investment portfolio, or Sustainability Fund, that is managed in a manner similar to an endowment.

Question 2: 
My second question was how does OCLC make money? The above quotation to a great extent answers that question. In short, the report indicates that OCLC makes money from:

- fees or "revenues generated from services provided to participating libraries" and
- capital investments that are managed "similar to an endowment"

Currently, the report indicates that OCLC is operating at a loss from fees charged to libraries, but is earning from its capital investments. Further, OCLC points out that it did not increase the prices for its products and services for X number of years. As the report states:

OCLC has historically operated at break-even, with revenues that approximate the costs to deliver services and programs. However, for the past four years, OCLC has consciously operated at a loss. This loss is attributed to: [t]he decision to support the membership during a challenging economy with three years (2010–2012) of no price increases in the Americas and only modest price increases outside the Americas. In FY14, we increased prices by a modest 3% on average following a 2.75% increase in FY13....

So, with these questions answered, my next question is what is the social entrepreneurial model and how does it differ from OCLC's non-profit financial model?

References:

OCLC. (2014). About OCLC: Our story. Retrieved from http://www.oclc.org/en-CA/about/story.html

OCLC. (2014). Annual report. Retrieved from http://www.oclc.org/en-US/annual-report/2014/home.html

OCLC. (2014). Financial report. Retrieved from http://www.oclc.org/en-US/annual-report/2014/financials.html