Recently the Nature news group published a piece by Richard Van Noorden concerning PLoS ONE on peer review and the pricing of Gold open access services.  I was interviewed via email for that piece (Van Noorden very graciously cited me) and I want to elaborate on what I had to say there.  The matter that interests me is how the Gold OA market can and will develop and what the basic economic drivers will be.

Before turning to PLoS ONE specifically, we should think about how established publishers using the traditional user-pays model are reacting to the rapid growth of PLoS ONE and its kin at Hindawi and BioMed Central.  The basic revenue model for most journal publishers consists of sales to academic libraries, some individual subscriptions, subscriptions to government agencies and corporations, and advertising where applicable.  It’s increasingly common for library subscriptions to give way to consortia sales and for smaller publishers to join forces with the largest to get access to library and consortia budgets, especially where there is an opportunity to address a global market.  These revenue streams are supplemented for some publishers with single-article fees (PPV) and page charges.  There is also a little bit of money sloshing around in hybrid journals, where the journal as a whole is sold on a toll-access basis but individual articles are OA.

Whatever one may think about the relative merits of Green and Gold OA (a matter that my colleagues on the Kitchen and myself have discussed numerous times) or the economic implications of embargoes of various lengths, what is clear is that Green OA has no promise of delivering augmented revenues to the publisher, but Gold OA opens up a new customer, the author him or herself, who in many instances pays for the article to be OA.  Gold OA, in other words, represents a business opportunity, whereas Green OA represents a business problem.

So the question for the traditional publisher is, how to get some of that Gold OA money?  And that money is sought with the hope and expectation that the revenues from the traditional publications will hold steady.  There are some natural strategies for this.  For example, the publisher of a toll-access chemistry journal may decide to set up a noncompeting Gold OA physics journal, or the publisher of a medical journal may decide to steer rejected articles from a traditional journal into a Gold OA sister publication (so-called cascading peer review).   When this works, it’s plus business.  What is certain is that traditional publishers are studying the articles that appear in PLoS ONE and asking themselves, What can we do to get some of those articles onto our own roster, along with all the author fees they provide?

Thus we have the emergence of a relatively new market, where publishers fight to collect fees from this new class of customers:  authors.  How to compete is another matter.  Most traditional publishers rely on the strength of their brands to bring the articles in.  This is most obvious in cascading peer review, where the established publication represents the wide end of the marketing funnel and the Gold OA venues sit at the narrow end.  (It’s worth remembering that this model works for purely toll-access publications as well, as the enormous success of Nature’s line-extension proves.)  Other publishers focus on metrics of different kinds and boast of their Web-friendly tools for submission, discovery, and dissemination.  As one would expect, wherever there is competition, the matter of pricing comes up.  And here the established publisher may have a problem.

All publishers calculate how much revenue they earn for every article they publish; the average across all publications is around $5,000.  Since that figure is an average, some publications earn more, some less. A publisher whose revenue per article is modest—say, $1,350, the same amount charged by PLoS ONE—will look to Gold OA and see a real opportunity.  I know of one publisher whose revenue per article is lower than PLoS ONE’s; for this publisher a switch to Gold OA could be a (groan) gold mine.  But for the publisher that earns more than $1,350, competing on price could challenge the overall revenue picture.  I reiterate that traditional publishers embrace Gold OA usually with the simultaneous goal of maintaining their traditional revenues.  So if a publisher now earns $3,000, $5,000, or more per article, coming up with an effective Gold OA pricing model could prove to be very challenging.

Thus publishers contemplating the launch of a Gold OA service study pricing with the goal of getting as much as possible per article, with the hope that they can charge more than PLoS ONE.  Well, we have an established brand, the argument may go, therefore we can charge more.  Or, PLoS ONE does a scaled-down form of peer review, but we are going to use the traditional model, and authors will be willing to pay more for that.  Let’s hope so.  The fact is that the open access price wars have begun and established publishers, with traditional revenue streams they hope to protect and overhead that was built for the legacy print business, are at a disadvantage.

Which brings us back to PLoS ONE.  At $1,350 per article, they are irritating the established publishers, but the fact is that journals publishing has not been disrupted.  The question is, what will be PLoS ONE’s marketing strategy going forward?  Will it view its success and say, We are now established; we could probably push through a price increase and increase our profitability without seeing a decline in the number of submissions?  Will it stand pat, holding its prices, and allow traditional publishers to get a beachhead in Gold OA publishing?  Or will it go for the jugular and try to take the whole thing–all of it, the whole of STM publishing?

In the era of traditional publishing, with its reliance on the budgets of academic libraries, PLoS ONE’s first option, trading on prestige and increasing prices, was the tried and true strategy:  establish a journal in the marketplace and as its reputation grows, have the price grow along with it.  Since there are only so many academic libraries in the world, there is a limit to growth through the addition of new customers. Hence the core of the traditional model, which is anchored entirely in the editorial effort:  Get the very, very best authors, who produce the very best articles, identify those articles with a brand, and increase pricing as that brand shines brighter and brighter.  Welcome to The Lancet and Brain.

But PLoS ONE is not an editorial shop.  In fact, it brags that it does not make judgments about the quality of its articles.  Whether or not PLoS ONE’s claims about the value of its peer review system—and by implication, the dubious value of the peer review systems of traditional publications—are true, the fact is that thousands of authors believe that they are true and continue to plunk down $1,350 for what is perceived to be a good deal.  Presumably if PLoS ONE’s fee was lower, more authors would jump on board; and if it were lower yet, even more would join the lists.  As that price drops, we begin to approach a situation where PLoS ONE becomes truly disruptive.

What we don’t know is what PLoS plans to do with its money.  It has a number of options.  It could simply lower its fees as a service to authors; this would be in keeping with its mission.  More likely, I would think, is that it would find a progressive way to lower fees, with authors with means paying higher fees (PLoS is already doing some of this already).  This could get very complicated and begin to rival the U.S. Tax Code–which would increase the administrative costs and reduce profitability.  PLoS could also invest the money in new services or even acquisitions, or it could begin to provide services unconnected to publishing, just as professional societies do, e.g., lobbying in Washington, assistance for young scientists, conferences, etc.  All of this would be in keeping with its mission, which is not, after all, to destroy the traditional publishing paradigm in itself but to make research materials more easily accessible.

Or it could go another way, taking a cue from the many tech businesses located near it in the Bay Area, and think about what economists call the Law of Increasing Returns  and network effects.  PLoS ONE becomes more valuable the bigger it gets; as it pulls ahead of competing services, it begins to grow faster and faster.  Right now no one can match it; in time no one will even be able to dream of matching it.  This is why, for example, there will never be another Amazon, another Facebook:  the rich get richer.

For PLoS the tantalizing option is to begin to lower its fees as much as possible, which will make it harder and harder for established publishers to compete with their nascent OA programs.  PLoS can do this because of scale.  It is already the world’s largest journal, giving it a unique opportunity to spread its fixed costs over a large and growing base of articles.  The bigger it gets, the lower the allocated overhead per title, untill it reaches a point where the overhead is negligible.  I repeat:  no one else can do this competitively because no one else is operating at PLoS’s scale.

What will John Wiley, Elsevier, ACS, and their ilk do if PLoS ONE begins to charge a mere $1,000?  What happens at $900?  How about $500?  At what point does PLoS ONE go from thousands of articles to tens of thousands?  How about a million, half of all research output in a year?

This could happen, though there is no indication that PLoS is thinking this way.  The prospect is there, however, and it should make traditional publishers think carefully about what their value proposition is and whether they want to chase PLoS, Hindawi, et al into Gold OA publishing.