The past twenty years have brought substantial consolidation to our sector. Each of today’s major scholarly publishers is the product of progressive acquisitions. And, the past decade has seen a drumbeat of acquisitions in the platforms that support scholarship and scholarly communication — from Elsevier’s acquisitions of SSRN, bepress, Mendeley, Pure, and Aries to the announcement this year that Clarivate will acquire ProQuest. Not surprisingly, there has been frequent, at times reflexive, customer opposition to acquisitions in these sectors, motivated by concerns about pricing. Here are a few powerful examples. Despite these objections, we expect there to be further announcements of mergers, acquisitions, strategic alliances, and other forms of consolidation in the days and years ahead. Which raises an important question: While consolidation is certainly in the interest of the consolidators, are there times when consolidation also works to the benefit of customers and users?
Before we get into instances of “beneficent” consolidation, we wish to declare that we do not take a romantic view of the workings and goals of commercial entities. Such organizations combine with others for any number of reasons, but they all come down to money in its many varieties: higher sales, greater pricing power, more profit, enhanced branding, and the growth of the value of the underlying assets. Customers and end-users may benefit as well from such consolidation, but those benefits are epiphenomenal. To evaluate any instance of consolidation requires great analytic care and thoughtfulness to determine who benefits beyond the shareholders. It should go without saying that the press release issued upon an acquisition should be read skeptically, but skepticism is not the same thing as comprehensive and instantaneous condemnation. If that condemnation is to come, it should follow from an analysis not only of the benefits to the shareholders but also of the benefits, if any, to the customers. Here are three customer benefits that we believe deserve at least some consideration. We welcome a discussion of these, as well as of additional forms of customer benefits, in the comments.
Benefit 1: Scale and Stability
One very good reason to favor consolidation is when it provides scale and financial stability to a specialized or niche provider. Such a specialized provider may find it a struggle, if not impossible, to sustain itself over time without such scale.
When Ex Libris/ProQuest purchased Research Professional and Pivot, each of these was a small and independent provider of funding information for academic researchers in discrete geographical sectors. By bringing them together, there can be a substantial capital investment to improve functionality and connect these standalone platforms with related services.
In the scholarly communications sector, several privately owned companies such as bepress, Aries, Atypon, and SSRN became major providers on which hundreds of publishers or libraries came to rely. When individual owners of such companies are ready to retire or address estate planning issues, these companies are often too mature to attract venture capital yet too small to attract private equity or consider an IPO. Their owners’ only choice for an exit is to sell to a strategic buyer. This has been the case for a number of the acquisitions of independently owned platform firms that major publishers have made in recent years. One can reasonably take issue with the particular configuration of a given acquisition, not to mention the number of companies coming under the ownership of a single major corporation, but one must also consider the alternatives. In such cases, alternative strategic purchasers would most likely have included the major publishing incumbents and a few other companies like Ex Libris/ProQuest and Clarivate. There was no scenario in which these companies would remain independent forever.
Another easy illustration is in the book world, where distribution remains primarily in print (about 80% of all books sold even in the U.S. are in print; the figure is higher elsewhere). Print distribution is not inherently global, making it necessary for the publisher to create marketing partnerships around the world. Let’s imagine a book publisher in Australia, which struggles to penetrate the much larger American market, who may not have the resources to build out a robust digital presence, which involves much more than getting digital files to Amazon. Consolidating that company with a publisher with a global footprint will make the publisher’s offerings available to a wider audience, and also perhaps significantly increase the royalty income due to the authors.
Benefit 2: Workflows
Users also benefit when a consolidation serves to streamline and integrate workflows. This is such an obvious benefit to end-users that it is often surprising how long it takes for some consolidations to deliver on workflow benefits.
We have seen many examples of consolidations that stand to improve user workflow. For example, following their acquisitions of various systems, both Clarivate and Elsevier have merged multiple logins to make it simpler for users to work within their ecosystems. Having the same login for Mendeley and SSRN may seem like a minor benefit in the grand scheme of things, but the time and energy saved by millions of users should not be discounted.
Another example here are the efforts that several major publishers have made in integrating preprint and version of record workflows, which rely on manuscript submission and editorial management systems. One has to hope that in purchasing Aries, perhaps the dominant editorial system, Elsevier will be able to roll out vastly improved workflows bringing SSRN and ScienceDirect closer together, certainly for its own strategic benefit but also for the benefit of authors and other researchers.
Benefit 3: Reestablish Competition
Paradoxically, consolidation may serve to increase competition, not weaken it. This happens when a particular market segment already has a dominant player, but consolidation among other, smaller organizations in the same segment can put pressure on the leading incumbent. In the research publishing area any consolidation that does not include Elsevier potentially makes it possible to compete more effectively with Elsevier. In the primary publishing landscape, this was a big part of the rationale for Wiley’s acquisition of Blackwell. In the systems and tools landscape, it is a driver of Clarivate’s acquisition of ProQuest. While many observers bemoan these actions (and the Clarivate deal has attracted the attention of regulatory agencies), it’s almost certainly the case that Elsevier would have been happier if neither of these deals took place. Consolidation, in other words, in some instances may be a useful method to offset the problem of excessive concentration in a particular industry segment.
We can imagine additional consolidations that could strengthen the competitiveness of weaker players and thereby improve market efficiency. Any consolidation of library systems providers could strengthen competition with Alma. And similarly, the acquisition of ProQuest by Clarivate stands to strengthen the combined position of Esploro and Converis, over time potentially increasing competition for Digital Commons, Pure, and Symplectic.
Consolidation is unwelcome when it serves to solidify the market position of an industry leader — for example, imagine what the landscape would look like if Elsevier bought Taylor & Francis. Such consolidation would make investment in innovation irrelevant, as there is no meaningful competition to ward off. And it is not just monopoly to be concerned about: monopsony, where there is a de facto single buyer for publications, can also stifle investment and invention. The exemplar of this is Amazon, at least in the U.S., whose market share for books exceeds 50%, making it impossible to operate a book business without Amazon’s cooperation along reasonable business terms. Amazon is not always reasonable.
In each of the categories listed above, a consolidation provides real benefit to the customer community, in addition to whatever benefit it offers to the firms involved in the transaction. Of course, a complete analysis of an acquisition and its market impacts may find that other downsides outweigh the upsides to the customer community. Still, we believe there are cases — many more than is typically realized — when the customer community has good reason to cheer a consolidation rather than oppose it.
In what other ways can consolidations benefit a customer community? We invite you to add your thoughts here in the comments.