Elsevier bought SSRN to increase its profits, plain and simple

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This week Elsevier and the Social Science Research Network announced that Elsevier purchased SSRN.  SSRN is one of the largest open access scholarly services in the world, serving especially the fields of economics, law and accounting.

To forecast what Elsevier might do with SSRN (and the impact on “green” open access as a strategy for reducing the market power and pricing of the monopoly for-profit publishers), we should start with fundamentals (and only forecast in high-level, abstract terms — there are a gazillion specific paths Elsevier might follow over the years, and we don’t accomplish much by speculating about the details).

Elsevier is a shareholder company.  That means management has a legal, fiduciary responsibility to maximize shareholder value, which is a synonym for maximizing profits.  NOTHING in Elsevier’s mission is to benefit society, or the participants in the scholarly communications world (authors, readers, libraries, etc).  To the extent Elsevier (or any for-profit company) does good things for participants, it is solely derivative from its prime objective: profit maximization.  (I am not making a moral judgment.  This is the social contract in capitalist economies, and indeed, if Elsevier management doesn’t do this, it can be sued by its shareholders, and shareholder lawsuits against managements that don’t maximize shareholder value succeed regularly.)

So, e.g., if Elsevier provides a better product, it might be able to extract more profits, and so we might see better products over time.  (But not necessarily, and hence not all participant-desired improvements: the cost of creating the improvements might exceed the additional revenues Elsevier can extract, so the improvement won’t increase profits, and thus Elsevier won’t implement it. This might be because the costs of the improvements are high, but it also might be that the costs are low relative to the value to consumers, but the extra value to participants might be hard to extract — perhaps because competitors can easily imitate the improvement — and then we don’t get improvements that have social value greater than their cost, because they aren’t profitable.)  If Elsevier says it intends to operate SSRN in order to benefit users…it’s not telling the truth.  (Sorry.)  It may believe that it’s use of SSRN to increase profits will benefit users — and it may — but benefitting users is not Elsevier’s goal.

Elsevier has a variety of assets at its disposal.  Its leadership has the job to deploy those assets in the way that maximizes profits.  Some of those assets are human capital (smart, experienced people), some are its ownership of millions of copyrights on scholarly content, some are its patents and copyrights on its own platform software, etc.  And now one of those assets is SSRN.  Elsevier gave Mike Jensen a chunk of money because they think that they can use SSRN in a way to increase its own profits by even more than it paid Jensen.  SSRN already sells premium subscriptions to libraries and others.  Maybe Elsevier thinks it can pump up this revenue stream (raise prices, put more of SSRN value under subscription licensing) — they say this isn’t what they’re going to do, and I tend to believe them on this, not because they are looking out for the authors and readers, but because I don’t think the SSRN pre-print platform has a lot more value that can be extracted through subscriptions.

Instead, I expect that Elsevier expects to leverage SSRN as a key part of the scholarly communications system in some major social science fields (especially economics, law and accounting) to extract value from us in other ways. Perhaps data mining that enables Elsevier to raise its journal prices.  Perhaps degrading the quality of service that SSRN provides so that scholars can’t rely on it as much, and Elsevier can raise its journal prices.  Perhaps creating greater lock-in to the Elsevier platform so that authors find it harder to switch to competing alternatives for publishing their work than they already do…enabling Elsevier to raise its journal prices.

Etc.  One thing the legal and economic fundamentals tell us is clear and simple: Elsevier bought SSRN because it expects to be able to use this asset in a way that will result in higher profits than if it hadn’t purchased SSRN.  And because Elsevier has substantial market power — that is, it is not constrained to offer competitive prices — higher profits for Elsevier means more value extracted from authors, readers, libraries, universities, government agencies.  We can’t be sure through what mechanism Elsevier expects to increase its profits — at our expense — but we can be sure that this is the sole reason it purchased SSRN, and that Elsevier will integrate and operate SSRN in a manner that best advances its mission to increase its profits.

[Small edit 19may16 to correct grammatical error.]

3 thoughts on “Elsevier bought SSRN to increase its profits, plain and simple

  1. It would be interesting to know what proportion of Elsevier revenue their Research Intelligence section contributes, and how profitable it is.
    https://www.elsevier.com/research-intelligence

    While their identity as a ‘publisher’ is very strong, I imagine they will increasingly position themselves as a provider of research and researcher productivity and analytics services. SSRN fits in here nicely.

  2. Jeff — Isn’t it possible that Elsevier purchased SSRN because it anticipates losing revenue and profitability in its journals business due to open access, and wants to replace that revenue with an alternative asset that the academic community values? Would that ipso facto be a bad thing, and if so, why? I can think of some not-for-profits in our own sector that operate in the same way that you describe in your third paragraph – these kinds of tradeoffs aren’t limited to the commercial sector.

    1. Ivy, what you suggest isn’t really inconsistent with what I wrote, but let me try to clarify.
      First, for-profit businesses are in the business of revenue, they are in the business of profit (the net of revenue minus cost). Revenue isn’t helpful if it is less than the costs of operation. This is probably obvious and what you meant, but many people make mistakes when try to explain corporate behavior in terms of chasing revenues (or market share), so I thought I’d be pedantic about this.

      What I wrote is that Elsevier bought SSRN because it thinks it can make more profits from doing so than it spent for the purchase. Now, to make profits, you have to sell something that people *want*. So, anything Elsevier tries to sell to the academic community is something it thinks the academic community will value, a fortiori, and if they succeed in selling it then apparently we (who purchase it) *do* value it. I wasn’t suggesting that Elsevier would be perpetrating pure evil, foisting a product on us with the goal of making us worse off (pretty hard to do in market economies).

      What I assert is that it’s *goal* is not to make consumers better off, but to make profits. To do so, it has to offer things that make us better off than the amount we are paying, a fortiori, but they are going to try to take as much value out of us as they possibly can. That’s, of course, true for *every* for-profit entity: that’s the way market economies work. The difference with Elsevier is that they have substantial market power (that appears so far to be essentially undiminished by the limited open access competition that has emerged), and so they are in a position to extract *more* profit from us than a firm that does not have market power.

      So whatever Elsevier says, we should expect it to make decisions about SSRN that are first and foremost designed to maximize Elsevier’s profits. To do so, they’ll try to generate some consumer value, but they’ll simultaneously try to take away as much of that value as they can. And they have the market power to take away a lot. On net, I think it is *highly* likely that we’ll be worse off with SSRN owned by Elsevier than in its previous form (which happened to also be a for-profit company, but which was held by just a few shareholders who agreed to operate it with a mission much more like a not-for-profit, that is, with a goal of maximizing value for the community, rather than maximizing value for the shareholders).

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