Editor’s Note: Today’s post is by William Park, CEO of DeepDyve, the online rental service for scientific and scholarly articles. Before DeepDyve, he ran the Data+Digital organization, a 600-person, $250M global business unit of Acxiom Corporation. Previously, he founded and took public Digital Impact (NASDAQ: DIGI), an online marketing technology company for enterprise clients.
There has been much discussion about “leakage” within academic publishing, the concern being that users abandon publisher sites in favor of alternative sources. Leakage is believed to have originated from the many stumbling blocks legitimate users faced when trying to access licensed content, and the many easier options available to them across pirate sites, scholarly collaboration networks, and open access repositories. As users become more accustomed to finding content elsewhere, and as usage declines, there is less pressure for academic libraries to renew their Big Deal subscriptions, leading to more leakage and a potentially dangerous downward spiral.
For researchers in small to medium-sized enterprises (SME), the issue is not leakage but access. Unlike their academic counterparts, SMEs lack the scale to financially justify traditional subscriptions but must instead rely on a patchwork of ‘free’ content sources that may or may not be legitimate. Their challenges are further exacerbated by a lack of enterprise-wide tools to organize and manage this fragmented content, making team-based collaboration virtually impossible. While SME budgets are not at the levels that meet traditional publisher products, they do have budget to spend. They simply need solutions designed for their requirements in order to spend it.
Based on our analysis, we believe there is a significant, untapped $1-2 billion opportunity within the SME market. For publishers, the SME market represents not a leakage of usage but rather a leakage of opportunity for usage that has never been captured, and for budget that is pent up and ready to be deployed, waiting for a solution that would meet its needs. To capture the SME market, a new type of relationship is required between publishers and their ‘channel partners’, one that may be uncomfortable at first, but could lead to substantial benefits for everyone involved.
The SME Market
In the US alone, there are over 6 million businesses with fewer than 500 employees. Naturally, there is publisher skepticism about the overlap of these businesses with academic research efforts. And, certainly, some SMEs will be tiny businesses or sole proprietorships with minimal budget for research. There is no dispute, there are challenges in engaging with the SME market.
However, let’s look a little closer. When we compare just three sub-industries, which fit squarely in the academic publishing target market, there is quite a bit of opportunity. Even if we narrow this view to only those firms with 20-500 employees, the numbers are quite astonishing — we find that there are nearly 160,000 businesses in the US that most likely consume scientific and scholarly literature.
In our work with hundreds of these businesses, DeepDyve has come away with several insights:
SME – Demographics and Profile
- Industries: biopharma is the most common, but there is substantial demand from many other industries such as high tech/engineering, professional services, non-profits, manufacturing and more.
- Number of users: 5-25 researchers
- Geography: ½ US, ½ outside the US
- Usage: each user will typically read 50-100 articles per year
- Highly price sensitive
- Sample client profile: US-based startup targeting novel delivery of biologics
- 10 scientists
- Research areas: pharmacology; physiology; chemistry and engineering
- Prior solution: university library; OA; occasional pay-per-view (PPV)
- Budget: $5000
SME – Requirements
- One stop access
- Broad, deep coverage across dozens of journals representing multiple disciplines
- Power user tools: platform to search, access content seamlessly; and tools to organize their findings and collaborate with their peers
- Annual budget: $5-10K; however, as you shall see below, it is rarely spent
SME – Market Problem
- Existing solutions do not address their requirements
- Journal subscriptions far too expensive given the breadth of content they require
- Bundled and one-off PPV too expensive and fragmented
- Document delivery is even more expensive
- Actual spend: zero — a majority of the businesses we encounter rely on their prior academic libraries, OA sources, scholarly collaboration networks, and other ‘free’ resources
SME Opportunity – $1.2 – $2.4 Billion
Starting with the above US Census Bureau statistics, we can begin to calculate the so-called “Total Addressable Market” (TAM) for SMEs:
- 160,000 ‘addressable’ SMEs in US
- Assume 80,000 (50%) more SMEs outside the US
- 240,000 total addressable SMEs worldwide
- Assume $5-10K budget opportunity per SME
- $1.2 – $2.4 Billion TAM
Rental Solutions as a Model to Address this Market
The “rental solution” is an approach that we suggest works well for researchers in SMEs, operating outside the traditional academic and Fortune 500 market sectors. We have put this into practice at DeepDyve, serving these businesses with individual subscriptions (for the tiny/sole proprietorships) and Group Plans (which bundle our offerings for teams of 5 or more). An important principle in designing this type of model is the strict targeting of customers outside of academia in order to avoid cannibalization of existing sales for publishing partners. For similar reasons, one must take care not to offer the service to businesses with existing subscriptions.
Over the past 5 years, DeepDyve has experienced steady growth across both its Individual and Group Plan businesses. However, in the past 18 months, as our combination of 20M+ articles and workflow tools began to meet the needs not just of an individual researcher, but an entire team, DeepDyve has seen a significant surge in demand for our Group Plans. As we further explored this demand, we gained a unique perspective on the characteristics of the SME market, and how we might improve our collaboration with publishers to more effectively capture this untapped market. In our estimation, SMEs need an affordable platform that seamlessly connects content with tools and workflow collaboration capability across their teams and departments.
Winning the SME Market – A New Type of Partnership
Considering the size of the academic publishing industry ($10 billion), outside of the publishers themselves, it is served by a relatively small ecosystem of aggregator partners, representing perhaps just 5% of the market. Given the finite number of academic libraries and Fortune 500 companies, this small ecosystem makes sense as publishers can serve these clients with a direct sales force and a small portfolio of big-ticket products. In this market, partners are primarily reselling content, and their value-add is in aggregating this content for niche markets and copyright sensitive use cases. Because the PDF is identical whether it comes from the partner or the publisher, to avoid channel conflict, publishers naturally hamper their partners with embargoes, lack of full text content, and licensing terms that require partners to mark up the price of the article rather than discount it.
For the new SME market, this playbook will not work. The SME client’s needs are not niche but comprehensive and cannot be met by any single publisher alone. It is also a market where the budgets cannot justify a direct sales model. Engaging with this market means creating a product partnership, rather than a traditional reseller arrangement. In a product partnership, the 2 companies are working together to build something new, to serve a new market. That product must then be priced and sold in the most efficient manner possible. The customer must dictate how much you can charge, and that in turn will dictate how best to sell it (direct sales reps, call center, e-commerce, etc.).
For example, in a recent discussion with a publishing sales executive, they compared the needs of the SME market with that of the auto industry, where everyone in a developing market may want a car, but not everyone there can afford it. And if you sell a car at a fraction of the list price, you will lose money and cannibalize those paying a fair market price. This is an understandable argument, particularly from a sales standpoint, where you will be concerned about how other products may impact your core (US) business. However, the auto industry has figured out a solution: enter those markets with lower-priced models that align with those customers’ ability to pay while still meeting their most critical needs. Introduce cheaper models having smaller engines, lower quality materials, fewer features, and manufactured in lower-cost labor markets (commonly referred to as a localization strategy). Even in the same geographic market, auto companies implement this strategy with lower-priced models to serve their range of customers (e.g., Toyota’s Corolla vs. Camry).
While there is overlap on the margin, the opportunity to win more market share justifies the potential market conflict. And, if a developing market (like China) is big enough, it is not a choice of ‘whether to’ enter the market, it is a ‘we have to’ enter the market. However, it would be a dead-end strategy to enter a developing market with the same set of expensive cars and expect these customers to buy them at the same prices. Some may, but most won’t, and the market would remain under-served. Yet, unfortunately, this is what has been happening in the SME market.
In our estimation, the SME market is also a ‘have to’ market for publishers. The large academic and corporate markets are tapped out: there are no new libraries being built, raising prices is unsustainable, there are more free options than ever, and the pandemic is only going to further challenge academic library budgets. SME represents a significant growth opportunity in an otherwise mature industry under serious pressure. With 240,000 SME businesses within the target market, we estimate that there is <1% market penetration by the existing solutions providers (not only DeepDyve but also publisher direct sales, document delivery companies, etc.).
But, unlike other new ventures, the SME market requires virtually no investment: that cost is borne by the partners that must ‘localize’ the solution. The only cost to the publisher is the willingness to let go of something you do not have. This requires a truly symbiotic relationship where the partners must build the platform to promote the content, and the publishers need the partner’s platform to make their content discoverable. The structure of the partnership will need to reflect these requirements and allow enough oxygen for the partners to invest in the technologies necessary to reach and service this large, fragmented and low-budget market. Without question, this arrangement is different and may cause discomfort, but we believe the SME market potential is substantial enough to justify the time and attention to validate it further.