Elsevier bought SSRN to increase its profits, plain and simple


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.]