Business Models, Commerce, Economics, Experimentation, Peer Review, Social Role, Technology

The Risks of Launching a New Services Business — Branding, Cash Flow, and the Fraught Start of PeerJ

Freemium : payer plus pour des services et fon...

Freemium : payer plus pour des services et fonctionnalités supplémentaires (Photo credit: louisvolant)

Two weeks ago, we learned of the Fall 2012 launch of PeerJ, a new proposition in the open access (OA) publishing space. Instead of per-article charges as part of an OA business model, PeerJ is proposing to allow researchers to publish as much as they want, all for the low, low price of one $99 lifetime membership.

After scooping my brain back into my skull once I’d absorbed this apparently foolhardy approach to cash flow and sustainability (a topic I’ll return to momentarily), it began to dawn on me that perhaps what PeerJ is headed toward is more akin to a freemium model, like WordPress, where you can publish for free if you accept limited functionality and some Google ads, or you can pay premium fees to get rid of the ads and get more robust functionality. Automattic, the parent company of WordPress, recently announced it expects to make $45 million this year with a robust version of this model. (WordPress also sells an enterprise version and many services that can be purchased separately.) PeerJ is hoping to collect cash up-front with its $99 lifetime membership fee. On the face of it, scalability would seem to be their main challenge.

Of course, this is all speculation, and my attempt to get Peter Binfield to tell me more about the PeerJ business model before I wrote this post was kindly rebuffed, with Binfield stating that things aren’t final or ready for primetime yet. There is already some skepticism that PeerJ, taken at face value, can work. And there are two interesting hedges in PeerJ’s admittedly scant description of its business model:

Researchers will be able to purchase Lifetime Memberships, starting at just $99, giving them the rights to publish their articles in our peer reviewed journal.

The first hedge is “starting at,” a classic indication that up-charges are headed your way. The second hedge is that the Lifetime Membership grants researchers “rights to publish,” but nothing more.

So what could come after the “starting at just $99″ price? I could imagine peer-review fees, formatting fees, search engine optimization fees, press release fees, data storage and hosting charges, syndication fees, and so forth. The list could be impressive, and the ala carte final charge could be significant and recurring.

As Chris Anderson outlined in 2009, freemium is usually enabled by restrictions:

  • Feature limited
  • Time limited
  • Capacity limited
  • Seat limited
  • Customer class limited

The freemium model only works as well as the balance of free and premium services works. That is, you have to offer enough initially to hook the customer, then hold back enough things — service omission or the prospect of service provision — so that the customer is compelled to pay for more. If I had to bet, I’d wager on PeerJ adopting feature, capacity, or customer class limits in the freemium model I’m imagining.

For this blog, we pay every year to rid the site of ads, have a custom domain, and have advanced CSS editing capabilities. Certainly, WordPress could provide all this for free, but they have struck a reasonable balance for their freemium model, one I have a hard time complaining about. We could blog here without all those extra features. What we pay for are “nice to haves,” not “need to haves.”

Also, notice that I said that “we pay every year” — that’s an important part of the freemium model, and crucial to the cash flows of an organization. Without predictable cash flows, an organization risks problems with payroll, health insurance premiums, lights, heat, and all those other regular payments that underpin its infrastructure. However, PeerJ has stated that it will not stoop to subscriptions:

Subscription fees made sense in a pre-Internet world, but now they just slow the progress of science.

Yet, continuing the freemium assumption and the comparison to Automattic, if I want to keep this blog free of ads, the domain linked to SSP, and the CSS customizable, I have to pay every year. Automattic even allows the much-vaunted “auto-renew” feature, so my credit card is just charged, saving me the annoyance of a renewal notice. Automattic also refers to service continuity as a “subscription” once renewal time comes. There is no shame there about the subscription model.

Cash flow drives a lot of behaviors in businesses.

For example, when PLoS first emerged, it focused on two high-quality journals possessing familiar peer-review and publication practices — an editor at the helm of each, small issues, selective editorial control, and monthly publication. However, this model didn’t provide sufficient cash flows using OA publication fees, so PLoS created PLoS ONE, a high-volume mega-journal that allowed the organization to publish more papers without singular editorial oversight or a filter that added novelty or interest criteria, allowing the publication to settle for methodological soundness.

Around the same time, BioMed Central fully embraced article-processing charges and began launching dozens of OA journals, creating a high-throughput article publication environment but parceling it out through multiple titles rather than one main mega-journal.

Since then, “predatory” OA publishers have emerged time and again, with a common thread linking them — namely, every one seems to launch dozens or hundreds of journals simultaneously.

There is a reason for OA publishing taking on this high-throughput aspect — namely, cash flow.

OA publishing’s model differs significantly from traditional subscription publishers’ in that every paper has a single payment event associated with it — paid upon publication. This is essentially the only financial transaction the OA publisher can rely upon, since Creative Commons licenses are typically non-commercial in nature, the authors retain copyright, and advertising is at best a small secondary business. For the OA publisher, each article is sold once and only once.

This places significant cash flow restrictions on the OA publisher. For the (dare I say it) traditional OA publisher, the obvious answer to the question of how to increase cash flow and revenues has been and will continue to be, publish more articles more frequently. There is no clear alternative, even with supplemental revenues from institutional memberships and other secondary revenue streams, like ads. The main thrust of the OA model dictates this financial reality.

The side-effects of this simple financial model are legion — the lowering of standards to accommodate bulk publishing practices; an emphasis that publishing is just a technology business in order to strip away the costs of legal, editorial, and custodial work; and advocacy to make OA publishing as prevalent as possible to further increase throughput.

At some level, it’s all about cash flow.

Other aspects of the OA business model smack of this same cash flow mechanism. After all, the best cash flow is the most predictable cash flow. The subscription model is a masterpiece of predictable cash flows, which is why it’s been embraced by DVD rental companies, cable companies, and contact lens mail-order companies. It’s also why OA publishers have been trying to find a way to incorporate the subscription model or something quite similar to it. They’ve done this through institutional and corporate “memberships” which provide discounts to published authors or other benefits.

PeerJ has an intriguing proposition to steal customers from PLoS and BMC using a potentially novel business model — a low initial “lifetime membership” PeerJ can then upsell. By getting initial commitment from researchers, PeerJ creates a small but real switching cost if member researchers decide to try publishing at PLoS or BMC. PeerJ also gets some fast cash in the door. And if PeerJ adopts a freemium model — which I believe they will scrupulously avoid calling a subscription model — cash flow will be their main motivator, and many of their services will likely have renewal elements.

Should PeerJ adopt a freemium model, it will be a new variant of OA publishing, and possibly one that could be more selective than traditional OA — that is, if the services and inherent subscriptions around ongoing publication services take hold, PeerJ may not have to publish more papers to thrive, just provide better service over time.

There is a major risk to starting a services company in the freemium mode. Service companies — and I’m putting most OA publishers in this camp — run the risk of having a fairly transparent and reproducible set of value propositions on the market, with little to no protection. Hence, the publisher of PLoS can leave PLoS and take the same service to market at a much lower price point. There is nothing PLoS can do about it. (Because PLoS doesn’t protect its content, I’m wondering why PeerJ doesn’t also take all the PLoS content, but that’s a more nefarious plot by a long shot — and the fact that it would create no real value for PeerJ underscores that OA publishers are services businesses, not product businesses.)

In any event, PeerJ is essentially “service replication at a lower price,” which reveals the fatal flaw of any service business — if someone can do essentially the same thing more cheaply or scalably, you’re dead.

Of course, one service a publisher arguably provides is branding — by building, sustaining, and extending a brand wisely over time, a company can lend brand equity to affiliated parties, be they authors or readers in the case of publishers. Perhaps the brand is a journal brand, an author’s name, or a book series.

The PeerJ branding start isn’t promising, I have to say. I started thinking about this when I came across this link on their Twitter stream — a link to an article wishing there were more prestige associated with OA publishing, but sent from an OA publisher that currently has a blue monkey as its branding element and a name I don’t quite know how to pronounce. (Apparently, the blue monkey’s days are numbered, but this is what we have today.)

I’ve long worried about the branding of PLoS, which has veered from “you say you want a revolution” audacity before any journals appeared, to fairly staid branding with PLoS Medicine and PLoS Biology, to a weed-choked brand now with PLoS standing for . . . well, it’s unclear. PLoS ONE doesn’t quite match up with the others, the umbrella PLoS brand is disassociated and free-floating, and the other PLoS brands don’t mesh well.

Such branding problems are not unique to PLoS. Nature is a brand that has struggled to pull off the “brand the house” approach. Outside of publishing, Infiniti is an auto brand that is often tagged with being vague in what it’s trying to convey — sport, luxury, power, style, entry-level luxury, high-end Nissan? Compared to its competitors (Lexus, Mercedes-Benz, BMW, and Acura), the Infiniti brand is murky and pliable.

But these are relatively subtle branding issues. The problems with the PeerJ brand are obvious and easily fixed. Here’s the prescription:

  • No silly blue monkeys.
  • Teach us how to pronounce the name, and exactly what it’s intended to convey. Is it “Peer-juh” or “Peer-jay”? (Scribd has/had the same problem with pronunciation — Is it “scribed” or “scrib-duh” or “scrib-dee”?)
  • Tell us what the “J” means? I’ve seen some indication that “PeerJ” stands for “Peer Journal,” but nothing definitive. Have I missed something? Or did you mean it to be a smiley and your email client botched it for you?

Branding, cash flow, service distinctiveness, and competition — with all these elements in play, it seems like PeerJ has a hill to climb. It will be interesting to see how their initial business model, offerings, and market stance contend with vital elements that will determine their fate.

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About Kent Anderson

I am the Publisher at AAAS/Science. Previously, I have worked as CEO/Publisher of the STRIATUS/JBJS, Inc., a publishing executive at the New England Journal of Medicine, and Director of Medical Journals at the American Academy of Pediatrics. Opinions on social media or blogs are my own.

Discussion

17 thoughts on “The Risks of Launching a New Services Business — Branding, Cash Flow, and the Fraught Start of PeerJ

  1. Richard Hooper and the IPO in the UK should read this.

    Posted by Bob Bolick | May 22, 2012, 6:19 am
  2. I think it’s only fair to wait until PeerJ releases details on its business model before you attempt to analyze, criticize and editorialize on their model.

    Posted by Phil Davis | May 22, 2012, 9:16 am
    • Yes, I tried to get information straight from PeerJ, but they weren’t ready to share. Given that, and the intriguing possibility that this isn’t just another pay-per-paper model, I wanted to think it out. Writing is my way of thinking things through.

      Ultimately, what PeerJ will have to do to succeed isn’t entirely clear, but cash flow will be a vital element, as will branding and its service model. Whether they pursue a “freemium” model remains to be seen. But I sense something new is coming with PeerJ, something that will actually create real innovation. If ala carte “freemium” services become the norm, that’s a model that doesn’t lend itself just to OA publishers.

      In fact, subscription publishers have already employed the “freemium” model, come to think of it — page charges for extra pages beyond a minimum, color charges, and so forth. I should have worked that into the post. If PeerJ borrows this model and makes it work in the OA space, it may breathe new life into it overall.

      It will interesting, but I couldn’t wait to make my guess based on a combination of limited options, real cash flow requirements, and hints in the sparse pre-launch language.

      Posted by Kent Anderson | May 22, 2012, 10:05 am
      • Kent, you’ve outlined some thoughtful issues, particularly about how this new journal will attempt to manage cash-flow. Peter Binfield is bright and shows a lot of business acumen without the ideological baggage that often comes along with new ventures. While people have been talking about disaggregating the functions of publishing for a decade, no one has come up with a workable model. PeerJ may be that model.

        BMC pioneered the OA-APC model as we know it, but they were also the first to offer annual memberships to institutions to help pay the freight. As I argued years ago, these were simply library subscriptions by another name. The arXiv also relies on annual institutional support, but was leery with using the word “subscription,” dropping it for “collaborative support model.”

        So, while PeerJ is offering a $99 individual membership, they may ultimately go after an institutional membership model where an organization (or more likely its library) pays a set fee so that any of its authors can publish for free. These institutions will likely negotiate for additional services on top of their basic membership price.

        But, let’s not get ahead of ourselves, and wait until PeerJ releases news of its business model…

        Posted by Phil Davis | May 22, 2012, 10:37 am
        • We have no choice but to wait. From a pure communications standpoint, if you don’t want someone speculating about what you’re going to do, tell them what you’re going to do. Otherwise, speculation is to be expected. In fact, speculation may be part of the buzz PeerJ is hoping to create. I see no downside, and maybe this is all giving them some ideas or extra perspectives to chew on, assuming someone there follows this blog. I don’t think we’re under any solemn oath to hold our collective breath, and we charge a reasonable price for our advice and opinions.

          Posted by Kent Anderson | May 22, 2012, 10:47 am
  3. Awesome post. The “starting at 99$” is an obvious catch that has me interested. It is an obvious indicator that more expenses are in the offing. But then again, a life-time, one-time payment sort of thing is indeed interesting from the sustainability point of view. While some may think its too early to criticize or editorialize PeerJ (in my mind I pronounce it as “peer-jay”), they have come out with their plans and must face some discussions about it…

    P.S. Interesting take on branding!!!

    Posted by Pranab | May 22, 2012, 12:29 pm
  4. Good analysis. You make a key point: “At some level, it’s all about cash flow.” Subscription models bring in a stream of cash over the years. But an OA model brings in cash only when a paper is first published. What author will continue to lay out cash to make their paper available? And, even if they do, what happens when the author retires or no longer cares?

    Posted by Ken Lanfear | May 23, 2012, 6:06 pm
  5. I wonder if one of the fallouts of this model is that it would sound the death knell for the peer review process? By paying $ 99 you have the right to publish in a journal. This would obviously make a mockery of any “peer review” process that might be put in place.

    Posted by Payal Kumar | May 24, 2012, 2:50 am
    • Don’t forget publishers don’t pay for peer review – they just coordinate!

      Posted by hgmorrison (@hgmorrison) | Jun 4, 2012, 7:37 pm
      • And coordination costs money — staff, systems, meetings for editors. And reviewers review because they have indirect incentives to do so. Are you really proposing publishers start paying peer-reviewers, and pass along those unnecessary expenses to libraries and readers?

        Posted by Kent Anderson | Jun 4, 2012, 8:37 pm
  6. One clear problem that OA publishers of all kinds face is that as they become more successful in attracting submissions, their costs for handling and reviewing those submissions increase, and they face the problem of raising upfront fees to cover those increased costs. The PLoS ONE approach is to cut back on the type of peer review offered. I wonder how PeerJ will deal with this problem given its initial flat-fee offering? Can it be considered an additional service to any one author to charge an additional fee covering the extra costs of reviewing more articles that make acceptance of that author’s submission more prestigious by lowering the overall percentage rate of acceptance?

    Posted by Sandy Thatcher | Jun 4, 2012, 2:00 pm
    • Costs for handling and reviewing submissions increases with growth, of course – but only in total, and not necessarily on a per-item basis. The latter should decrease on a per-article basis with economies of scale, given an efficient publisher.

      Posted by hgmorrison (@hgmorrison) | Jun 4, 2012, 7:36 pm
      • Where you get the idea that peer-review and manuscript handling scales is beyond me. There is no evidence of this. Each paper requires about the same amount of work, with some latitude for efficient or inefficient authors. There are no economies of scale really in handling manuscripts.

        Posted by Kent Anderson | Jun 4, 2012, 8:32 pm
  7. Seeing as how Binfield led PLoS ONE as it grew from a new and somewhat experimental journal to a publishing innovation award winner and the world’s largest scholarly journal (by far), it’s no surprise that we’re all excited to see what he comes up with next! Judging a journal or publisher before the venture is even started does seem a little silly, though.

    Posted by hgmorrison (@hgmorrison) | Jun 4, 2012, 7:33 pm
    • Evaluating a new business venture as soon as it’s announced isn’t “silly” — it’s part of what business people do. There are only so many options. Even PLoS ONE isn’t innovative in a business sense — it merely lowers the quality and relevance standards far enough to enable bulk publishing, so it competes on quantity, not quality, which yields the world’s LARGEST scholarly journal, but not the world’s BEST or MOST USEFUL scholarly journal. It’s not competing on quality or relevance, but quantity. That’s not innovative.

      Posted by Kent Anderson | Jun 4, 2012, 8:30 pm

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