Judging from the general response, last week’s rumor of an Elsevier purchase of Mendeley didn’t really come as a surprise to most. Mendeley has long been an intriguing set of services in search of a business model. Should the sale go through, Mendeley’s path mirrors that of many startups from was once called “Web 2.0,” and provides a cautionary tale for those relying on free services and a vision of an open access (OA) future that may result in a reshuffling of economic resources.
Competing against “free” has been the greatest business challenge of the social Internet era. From one side of the equation, it has massively reduced the music industry and continues to push newspapers into nonexistence. People like getting things for free, and if someone offers essentially the same product as yours without charging, you can rapidly be replaced.
But it also creates problems from the free side as well. “Free” is a bad business model. There’s a point where any startup has to begin turning a profit. Investor patience is limited. Initial focus for free services always seems to be about driving usage, with the idea that once a service is popular, you can figure out a business model later on. Even behemoths like Facebook and Twitter continue to struggle with monetizing their popularity. For the user, Ben Brooks refers to the problem as the “fragility of free”:
The fragility of free is a catchy term that describes what happens when the free money runs out. Or — perhaps more accurately — when the investors/founders/venture capitalists run out of cash, or patience, or both. Because at some point Twitter and all other companies have to make the move from ‘charity’ to ‘business’ — or, put another way, they have to make the move from spending tons of money to making slightly more money than they spend.
It’s at this moment that we begin to see the fragilities of the free system. Things that never had ads, get ads — things that were free, now cost a monthly fee. We have all seen it before with hundreds of services — many of which are no longer around.
Mark Cuban pioneered the only sure-fire way of making money on the internet back in 1999 with the broadcast.com sale to Yahoo: build a service, gather as much attention as possible, give the product away to as many users as possible, and then, at the peak of its hype cycle, sell the company off to someone else, and let them worry about the business model.
If Mendeley aligns with a new corporate owner, that will leave Zotero as the last of the major reference management services not connected to a large for-profit publishing house. CiteULike and Papers are already aligned to Springer, and while the Nature Publishing Group is shutting down Connotea, they seem to be replacing it with the stake they own in ReadCube.
Looking back on it, there may not have been any other conclusion for Mendeley. Online ad revenue, particularly in niches like academic research, remains sparse. And Mendeley faced the same sorts of member monetization problems as those faced by Facebook.
While these services have a loyal base of users, if one asked those users to pay a monthly membership charge for the service, odds are most would quickly shift to a competitor’s free service. Since much of the service’s value comes from having a large pool of fellow users to create a social graph, the loss of freeloaders would hurt in ways that don’t hurt a content provider. If the New York Times goes behind a paywall and loses most of its readers but retains enough subscribers to turn a profit, that doesn’t affect the quality of the news reporting. If a social network loses most of its users, the network is vastly less informative and functional.
Mendeley’s embrace of an open science ethos further complicates matters. By appealing to those on the cutting edge of social media use and sharing in science, Mendeley built a loyal following and gained a great level of reputation and publicity. But in order to gain that loyalty, they had to make their service as open as possible, allowing users to easily export their profiles and data and thus lowering the barrier to moving off Mendeley to a competitor (though it should probably be noted that Mendeley is not, as reported in TechCrunch, a proponent of open source software, and has never made the code behind the site publicly and freely available).
Really, they were caught between two different worlds. As one of our commenters noted:
Rumor had it that Mendeley would show up at publisher meetings and talk about wanting to be a partner and would show up at scientific meetings and talk about putting journal publishers out of business.
They were bound to upset at least one of the groups to whom they were appealing. The user who is dependent on Mendeley, and was apparently always the product being sold rather than the customer, may now be left in the lurch.
The fate of Mendeley and Connotea should serve as reminders of the dangers of relying on free services. The users’ needs and desires come secondary to the real customers — in Google’s case, the advertisers; in Facebook’s case, those purchasing data and access to users. When a company has no business model, then the terms of service they provide can turn on a dime when one comes along. Think of the recent Instagram furor, or all the companies built around providing services for using Twitter, and how doomed they are now that Twitter is shutting down the very openness that made them what they are today.
It’s far better to pay for a service that’s critically important to you than to rely on one where you are not the sole focus of the company providing that service. If you’re the paying customer, then the company’s health is based on keeping you happy. Mendeley and Connotea are showing us that a free service can at any point be shut down or suffer drastic changes with little regard for the user’s best interests. If you’re an altmetrics startup that was planning on building a business around Mendeley or Connotea bookmarking as a key measure of researcher interest, what do you do now?
Sean Takats suggests that indeed, a sell-off was always the business model for Mendeley, and that these types of software products simply don’t make enough money to exist on their own:
Individual researchers, in the aggregate, never paid for the software. EndNote’s bread and butter isn’t the poor sap who shells out $300 for a boxed copy. It’s the research institution (e.g. university library) that signs multi-year site licenses for tens of thousands of dollars each. RefWorks relies — though it feels odd to continue to use the present tense — nearly exclusively on these deals. So if Elsevier does acquire Mendeley, researchers won’t be getting it for “free” any more than university students get RefWorks or EndNote “free” at subscribing institutions. The software will be bought effectively via library subscriptions to Elsevier content. It’s just more wealth transfer from research institutions to for-profit publishers.
These economic realities stand in stark contrast to the notion of the “decoupled journal,” a vision of the future where each aspect of academic publishing is separated out and purchased by the author in an a la carte fashion. So far these services are not providing much evidence that they are viable standalone businesses. Aside from the factors discussed by Takats, many are competing with “free” and have that hurdle to overcome. Why would a researcher pay Rubriq $700 for a round of peer review when Peerage of Science, or pretty much any journal on earth (other than F1000 Research) will provide one for free?
Rather than breaking things down into individual components, perhaps we’re instead looking at a different sort of decoupling — a separation instead between services aimed at separate customer bases: authors and readers.
For any selective journal with a high rejection rate, balancing a budget in an author-pays OA economy is problematic. The three options available to improve one’s financial situation are to raise author fees, to lower one’s standards and publish more, lower quality articles, or to cut costs. And since the author will have replaced the reader as the primary customer for the journal, reader-centric functionality will be a prime target for cost savings. This comes at a time where we’re just on the verge of a revolution in new tools, in semantic technologies, API’s, alt-metrics and text-mining.
These approaches offer great promise, but also require significant investment in development, implementation, and maintenance. The only path to growth for these technologies may indeed require a decoupling, with the needs of authors paid through article processing charges (APCs) and the needs of readers (and others looking to reuse the articles) through site licenses to suites of tools.
With the acquisition of Mendeley and so many other reader service startups, the large commercial publishing houses may have already started down this path. Many see a lateral move taking place, with revenue streams merely shifting directions within the same company, from journal subscriptions to a combination of author fees and service fees.
This serves as yet another area where the OA movement is unintentionally reinforcing the dominance of the larger commercial players in the market. The smaller, not-for-profit publishers simply don’t have the capital to fund technology development and acquisition on this level. In the long run, though, market consolidation may not be such a bad thing.
A comprehensive package of integrated tools may offer better functionality than purchasing them piecemeal, and as research funding continues to dwindle, bulk approaches may offer some relief. As we know from both sushi restaurants and cable television, a la carte is almost always more expensive than a package deal.