Hello Again, 2006: The Economics of Reference Management Software

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The tiny and insular world where academia, technology, and business converge buzzed all day yesterday (and continues to do so today) about publishing giant Elsevier’s rumored bid to purchase Mendeley for $100M. TechCrunch’s dependably credulous reporter duly transcribed the leaker’s claims that publishing is “the world that Mendeley is disrupting.” But this story has really nothing to do with a “disruption” in academic publishing, and if anything what we’re seeing is a reversion to 2006 or so. When Zotero launched then, the major players were Endnote (Thomson Reuters) and RefWorks (ProQuest), each owned by a major content provider. And now in 2013 we can add to that stable of publisher-owned reference managers Papers (Springer) and, apparently, Mendeley (Elsevier).

As someone who has led a successful and sustainable project in this space for over six years, I’d like to put this rumor in perspective, because it speaks volumes about the space of academic research software, even if the Elsevier purchase never materializes.

1. Research software doesn’t make (enough) money
There’s just not a lot of money to be had in this space. Thanks to certain events, I have an exceptionally clear idea of EndNote’s revenue and overhead. Trust me, it’s not the thing of VC dreams. I also know exactly what good developers and sound infrastructure cost. And as for Mendeley’s “business model,” well, that’s what Zotero has actually been doing since 2009. With that in mind, I can assure you that there is simply no way to pay 3 FTEs, let alone Mendeley’s claimed 45, on “tens of thousands of dollars” per month. And cover the infrastructure costs. And the rent. We’re talking about an annual burn rate that’s solidly in the millions, no matter how you slice it. And now to turn some massive, VC-satisfying, profit? The “business model” could never continue on its own, let alone withstand the scrutiny of a public offering. Acquisition was always the exit strategy. Now there’s nothing wrong with this strategy, or even with the need to be coy about it. But based on the market it was the only remunerative outcome. This gloomy outlook doesn’t mean that independent projects can’t thrive. It just means that they won’t be gold strikes on the merits.

2. Users don’t pay for research software, just like they don’t pay for content
It’s misleading to blame the need to be acquired by a deep-pocketed publisher on the Web 2.0 generation’s purported aversion to paying for software. 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.

3. Publishers think they need to own a reference manager
All available evidence shows that it’s certainly not about money directly generated by reference managers, and yet publishers still want them. Elsevier’s ill-fated 2collab didn’t teach them that they should own a reference manager. It just taught them that they needed to own a different one. Springer’s purchase of Papers likewise makes sense only from the perspective of this mentality. Then why do it? From a sales and marketing perspective, there’s a perceivable benefit to being able to bundle content with research software. Not only does it help to establish a loyal community of users at an institution, it’s simultaneously inevitably a competitive play against another publisher, which has its own competing software to offer the purchasing organization. If Mendeley is acquired by Elsevier, it marks something closer to a reversion to the status quo from a business perspective, not a sign of a dramatic shift in the market. Indeed, for Mendeley to be purchased it needs not to be disruptive.

4. The data is worthless
Had Mendeley been able to monetize the data piecemeal, they would have. They’ve admirably devoted a ton of effort on this front, and still have little to show for it. This is not at all to say that Mendeley users should not be concerned about privacy or data-mining, but rather that there was no palatable way to sell the aggregated data.

In sum, if Mendeley does get acquired by Elsevier, its hyperbolic stated mission to disrupt academic publishing will of course finally be laid to rest. But this is not to say that there’s no synergy, to use some TechCrunch-speak, between research software and publishing. Hold on to your hats, but did you know Zotero’s parent company also runs some journals?




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