Advertising, Authors, Business Models, Commerce, Marketing

What We Talk About When We Talk About Business Models: A Bestiary of Revenue Streams

Mental Model

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With so much talk about business models nowadays, it may be useful to say what we mean by such a model.  Granted, that most people who talk about new business models do not themselves have a business, but the question is not idle because even long-established publishers review their models continually.

  • If the cost of paper rises, how will that flow through the income statement?
  • How do we map that cost against a series of price increases for our publications and overall inflation in the economy?
  • If electronic subscriptions rise by 10% per year, and print subscriptions decline by 5% per year, how will this affect overall free cash flow?

The tweaking of the model — the set of dynamically arranged components whose values vary with one another — is endless and, if it is done properly, can provide enormous management insight for setting priorities and identifying trends. For example, a model that shows disproportionate overhead allocated to a print business in the years ahead may drive a publisher to develop marketing plans to migrate more aggressively to an all-digital business; and a model that shows strong advertising revenue for a print business but meager advertising for an electronic one (a common phenomenon) will motivate a publisher to hold onto the print format for many years.

Business models have lots of moving parts — the more complex the business, and the greater the amount of capital required to run it, the more parts that have to be tracked.

What I would like to do here is to focus on just one of those parts, the revenue streams, and to categorize the different sources of revenue available to publishers.  The point to be made is that  revenue streams are not all that exotic.  They fall into a small number of categories, all of which have been with us for decades.  For some oranizations, hybrid models combine two or more categories (some examples below).  Indeed, any innovative publisher will always be looking for ways to open up as many revenue streams as possible.

Traditional Publishing. This is a terrible name for a venerable and excellent means of managing a publishing business.  In an era of Open Access, traditional publishing is sometimes called Toll Access, a term whose bias shows.  Somewhat inelegantly,  I prefer to call it “user-pays” publishing, where the revenue stream derives from the person who actually reads a document or that individual’s proxy, e.g., a library.  In publishing today, this is the most prevalent model.  A bookstore is part of the user-pays ecosystem, whether the store is on Main Street or in the Internet Cloud.  The virtue of traditional publishing is that it aligns payment with demand.  It is also subject to the influence of dominant market players; nor does it have much of a story to tell for publications where there is no or little demand or when that demand can  not be met profitably (e.g., some areas of academic monograph publishing).

Author-pays Publishing. Pioneered in scholarly communications by BioMed Central and then  copied by PLoS, Hindawi, and now many others including Sage, Wiley, BMJ, and AIP, the author-pays model turns traditional publishing on its head and develops a source of revenue upstream, where the intellectual property is created. From an economic point of view, vanity publishing is a form of author-pays publishing, but the term “vanity publishing” is not apt when talking about rigorous editorial policies for some author-pays services (the flagship journals of PLoS are a case in point).   Author-pays publishing does not address a market demand, at least not the demands of the same market as traditional publishing.  When the author becomes the customer, organizations shape themselves to satisfy that customer. We are still watching this drama unfold.  The launch of PLoS One, for example, represents an adjustment of the methods of peer review to accommodate the needs of a different class of authors.  We will see more such accommodations in the future.  The “post-publication peer review” of The Faculty of 1000 is perhaps a harbinger.

The author-pays model is not the same thing as Open Access.  OA is not a business model; it is a property of a publishing service.  While author-pays publishing may in fact embrace the property of OA, a service can also be OA without requiring that authors pay for publication.  The most common form of OA content is supported by media advertising; the SuperBowl is the world’s largest OA event.

Institutional Sponsorship. Often the revenue for a publishing service simply derives from the sponsorship of an institution.  The many repositories at colleges and universities  are examples of this.  So, for example, MIT’s DSpace repository is paid for out of MIT funds, and the California Digital Library’s eScholarship service is a budget line for the University of California.  Any institution (e.g., a governmental agency) may decide to sponsor a repository or publication program.  Many such repositories are OA, but they don’t need to be:  a university, for example, may choose to create a repository that is only accessible to members of that university’s community.  My impression is that  the institutional model has not proven to be as successful as many of its advocates had hoped, but there are no signs of it disappearing.  It may be that institutional repositories will evolve to complement the many OA repositories now being established by organizations without a direct institutional affiliation, some of which are commercial in nature (e.g., Sage, Wiley).  With the current budget strains at universities today, institutional repositories may have to struggle to win administrative support.

Marketing Services. Marketing services that support content cover a lot of territory.  The best-known marketing service of course is advertising, whose revenues can in some instances dwarf what is forthcoming from paid content.  But marketing services go beyond advertising.  For example, some content-based services are used as promotional material to drive traffic to specific Web sites; others capture fields of data that can be converted into sales leads.   An increasingly common marketing service is the use of free versions of content on the open Web to drive sales for print on demand. The strength of marketing services is that when they work, they can generate huge amounts of money (the SuperBowl example again) and such services seem relatively painless, as neither the producer nor the end-user has to pay for them–although some would say that the demands marketing services make on our attention is a high price to pay.   For scholarly publishers, there are inherent problems with the marketing services revenue model.  For one, marketing services can be corruptive, as the solicitation of such revenue could pressure a publisher to alter the content in some way.  Another problem is that publishers of scholarly material often work with audiences that are too small or too highly specialized to attract much interest from marketers.

In addition to these four categories of revenue streams, two others are often cited, though I believe they actually fit into the categories above:

“Freemium” Publishing. This ugly word is a conflation of “free” and “premium.”  The notion is that some portion of a service can be made available for free, but other parts will require payment.  The freemium model is in use just about everywhere.  Sign up for a free account at LinkedIn, but if you want additional features including broader access to other LinkedIn members, you must subscribe to the professional (meaning paid) version.  You can store your files and share them with DropBox, but once the files stored exceed a limit, you will be charged by the amount of storage you require.  You may read abstracts of scientific articles as much as you want without cost, but if you want to read the entire article, you either have to purchase the article or subcribe to the journal.

Freemium services are really a hybrid of two or more of the categories listed above.  A service that provides free content as a mean to “upsell” a user to paid content is, first, a marketing service (free content as promotional tool) and, second, a traditional publisher (pay for the really good stuff).   With Web publishing, just about all services have a freemium dimension:  use free content (e.g., abstracts) to bring users to a site and then attempt to convert those users to paying customers.

Licensing. By “licensing” I am not referring to the licenses that librarians execute to get access for their patrons to digital materials but the business arrangement that one publisher makes with another.  Thus an American university press may work exclusively in English, but may license rights to selected titles to publishers working in German or Japanese.  In some instances a licensee may use the content in a way that is invisible to readers.  For example, search engine companies have licensed a great number of reference works, dictionaries in particular, to enhance search functions.  Thus the word “slow,” licensed by a dictionary company to a search engine, may be used for stemming, the creation of legitimate variant endings (e.g., “slowly,” “slowest”).

As a revenue model, licensing is a special subset of traditional publishing, where the recipient publisher pays for the content from the first publisher and then resells the content into the second publisher’s own market.

Much content is available in hybrid models, though what the hybrids “hybridize” all derive from the four primary categories above.  The hybrid textbook publisher FlatWorld Knowledge hybridizes marketing services (the availability of the full text of a work online for free) with traditional publishing (the sale of PDFs and print-on-demand editions).  A movie studio can travel across a couple categories over time.  Thus the initial release of a film is almost always in the traditional model, with viewers paying for content at theaters.  Later the same film may show up on television, where it is used as a marketing service to attract viewers for the benefit of advertisers.   I expect that we will be seeing author-pays publishing develop a modest revenue stream from traditional publishing, with articles originally appearing in OA (author-pays) repositories being collected and edited for publication in books (traditional model).

So, four categories of revenue streams, which can be mashed together at times or can, for certain properties, stand alone.  Not all of these models work equally well with all kinds of content, however.  To offer an extreme example, you would never attempt to make a feature film on the author-pays model, nor would you use the traditional model of user-pays for highly specialized scholarly material where there is literally no market.

Matching the revenue model with the type of content is important.   The author-pays model, for example, works well for narrowly defined communities, where authors and readers work in close collaboration. The publisher of content that attracts large audiences (this is true for no aspect of scholarly communications) can analyze and package those audiences for advertisers, but some specialized publications (for example, in the medical area) can also derive revenue from advertising provided that the audience is precisely the right one for the products advertised.  There are many kinds of publications for scholars (e.g., highly specialized reference works) that can only be supported through institutional sponsorships, as the costs are too great for the author-pays model and the market too small to earn enough revenue through the traditional model.

When we talk about business models, we have to be clear that there are only a few ways to derive revenue and that digital technology and appealing to organizational mission do not change that.  Whether a publication is the product of a commercial publisher or a not-for-profit educational institution, the publisher must determine how it will generate revenue and align its cost structure appropriately.

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About Joseph Esposito

I am a management consultant working primarily in the world of digital media, software, and publishing. My clients include both for-profits and not-for-profits. A good deal of my activity concerns research publishing, especially when the matter at issue has to do with the migration to digital services from a print background. Prior to setting up my consulting business, I served as CEO of three companies (Encyclopaedia Britannica, Tribal Voice, and SRI Consulting), all of which I led to successful exits. Typically I work on strategy issues, advising CEOs and Boards of Directors on direction; I also have managed a number of sticky turnarounds. Among other things, I have been the recipient of grants from the Mellon, MacArthur, and Hewlett Foundations, all concerning research into new aspects of publishing.

Discussion

18 thoughts on “What We Talk About When We Talk About Business Models: A Bestiary of Revenue Streams

  1. Thanks for the overview.
    This line: “…with articles originally appearing in OA (author-pays) repositories being collected and edited for publication in books (traditional model).” struck me.
    A colleague of mine pointed out that Wikipedia content is being sold as books. See Sue Waterman’s post.

    Posted by Robin Sinn | Feb 14, 2011, 10:03 am
  2. Hi,

    What makes you say “the SuperBowl is the world’s largest OA event”?

    How does the SuperBowl fit the definition of OpenAcces – eg. as found in the Berlin Declaration?

    http://oa.mpg.de/lang/en-uk/berlin-prozess/berliner-erklarung/

    Best
    Anders

    Posted by Anders Norgaard | Feb 15, 2011, 6:23 pm
    • The Berlin Declaration provides but one of many definitions of open access. I use the term as it is most commonly used, simply to mean “free to the user.”

      Posted by Joseph Esposito | Feb 15, 2011, 6:41 pm
      • How does the SuperBowl fit “free to the user”??

        And since you publish on a blog established by the Society for Scholarly Publishing, might it not be a nice idea to use the definition of OpenAccess most relevant for – you know – scholarly publishing? Eg. the Berlin Declaration with hundreds of universities and research libraries as signatories

        Best
        Anders

        Posted by Anders Norgaard | Feb 16, 2011, 2:36 pm
        • If the “you” in Anders Norgaard’s comment is directed to me personally, I would hope it was understood that I do not publish the Scholarly Kitchen. The publisher is SSP; the editor is Kent Anderson. I am a contributor.

          As for using the definition of Open Access that is most relevant for scholarly publishing, that is what I did and always do: free to the end-user. I don’t see what the number of signatories to any document has to do with anything. Next you will be telling me that there is a “real” Webster’s dictionary.

          Finally, the definition of OA is not relevant to the thrust of my post, which was about business models. OA may be great or terrible, but it is not a business model. It is a property of a publishing service, and that is true for any definition of OA that I am aware of.

          Perhaps what is at issue here is the definition of a business model.

          Posted by Joseph Esposito | Feb 16, 2011, 3:13 pm
          • Hi Jose,

            Yes yes. However, I did write “publish on” – as in you put your contribution on a blog related to scholarly publishing.

            And yes, I can see that your post was mostly about business models. And it is an interesting post with a solid “publishers perspective”.

            So my original question was basically just there to point out.

            1) If you think of it again, don’t you think that the statement “the SuperBowl is the world’s largest OA event” is off-target wrt. OA? To me the SuperBowl seems like a pretty standard commercial event.

            2) To avoid the confusion in 1), why don’t you use a good definition for OA such as the Berlin Declaration?

            Best
            Anders

            Posted by Anders Norgaard | Feb 16, 2011, 4:57 pm
  3. I am responding to Anders Norgaard’s most recent comment. I believe that the definition of “open access” in the Berlin Declaration is not useful. The SuperBowl is a perfect example to illustrate open access as I defined it: free to the end-user. Scholarly media is media first, scholarly second. I discussed this in an earlier post on the Kitchen, “The Editorial Fallacy.”

    Posted by Joseph Esposito | Feb 16, 2011, 6:22 pm
    • Ok, it is interesting that you don’t believe that the definition of “open access” in the Berlin Declaration is useful. Why not?

      It is a bit wierd that you don’t just use some other phrase than OA – “no cost” seems to cover what you mean. It makes it a bit tricky to discuss your opinions.

      But even then your SuperBowl example seems strange, but maybe you know something that I don’t know.

      Am I free to walk into the stadium and attend SuperBowl? No cost to me as an end-user? (or does your “corrections” comment to Martin below mean that you agree with me that SuperBowl is not an example of OA?)

      Does the existence of public libraries turn all publications (found in at least one library) into OpenAccess publications, in your view?

      -Anders

      Posted by Anders Norgaard | Feb 18, 2011, 12:24 pm
      • This is my last comment on this particular thread. I don’t find the Berlin Declaration to be a useful document. Calling attention to it simply perpetuates its currency. Furthermore, OA is simply a tiny and insignificant part of the post that started this thread. Others are free to discuss OA to their hearts’ content, but I think it inappropriate to have OA dominate all aspects of discussion concerning scholarly communications.

        Posted by Joseph Esposito | Feb 18, 2011, 1:26 pm
        • Hmm, now you have posted 4 times where you have gone from trying to claim that the Berlin Declaration “but one of many definitions of open access” to stating that you don’t think the Berlin Declaration is useful. But you haven’t stated a single argument against the usefulness of the Berlin Declaration. And your statement about the Berlin Declaration (with its support from hundreds of universities and research libraries) being “but one of many…” is about as convincing as if you claim that the SuperBowl is “but one of many” football matches during the year :o)

          So if you don’t like discussing OA in a serious and meaningful way, then maybe you shouldn’t mention it and just stick to discussing “toll-access” publishing?

          Posted by Anders Norgaard | Feb 19, 2011, 4:27 am
  4. Superbowl is freemium arguably? Free to the many to ‘use’ but you pay a premium (a very big one at thayt) for the privilege of being there, soaking up the atmosphere, watching the trophy being lifted and the winning coach being soacked etc.

    Of course the real arguement is whether the Football (as the rest of the world uses the term) World Cup is really the world’s largest open access/freemium event…

    Posted by Martin | Feb 17, 2011, 6:32 am
  5. A useful typology, Joe, thanks. I have a quibble only with this comment: “For scholarly publishers, there are inherent problems with the marketing services revenue model. For one, marketing services can be corruptive, as the solicitation of such revenue could pressure a publisher to alter the content in some way. Another problem is that publishers of scholarly material often work with audiences that are too small or too highly specialized to attract much interest from marketers.” But surely you are aware that scholarly journals in print have long carried advertising, and that it constituted a significant, if not primary, revenue stream. Most of this advertising is for books, but there are also exchange ads between publishers, which don’t produce revenue directly but may indirectly by leading to new subscriptions. All this has been changed by the transition to e-journals where, usually, no ads appear. Books also used to carry advertising, and now that e-books offer greater possibilities for timely and constantly updated ads, this may return as an important revenue stream for publishers.

    Posted by Sandy Thatcher | Feb 17, 2011, 5:59 pm

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