The Risks of Launching a New Services Business ? Branding ...

Freemium : payer plus pour des services et fonctionnalit?s suppl?mentaires (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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