Waiting for the Dust to Settle; Lessons From the Swets Bankruptcy. Part 2

Can Technology and Innovation Save Us All?

In part 1 of this 2 part series on lessons to be learned from the Swets bankruptcy, I spoke with Betsy Donohue and Adrian Stanley about their perceptions of the long term viability of the subscription agency business and what some companies are doing to capitalize on the opportunities offered by both the internet and the global market place. In part 2, I continue my conversations with Richard Bennett, head of institutional sales for the EMEA and APAC at Digital Science and Mark Hahnel, MD of Figshare, who recently partnered with Swets. 

Richard Bennett is an industry veteran, who has worked in a variety of senior commercial positions for over 15 years. By happy coincidence, Richard was head of institutional sales at Mendeley during the time when they and Swets co-developed Mendeley Institutional Edition. In light of Betsy’s comments I asked Richard what he thought about the long-term sustainability of the traditional subscription agency model.

RB: Yes, Betsy’s absolutely right to point to eCommerce systems. With changes in technology, it’s possible for publishers to more easily manage their relationships with libraries because many of the traditional manual tasks associated with the print journals can either be automated or simply do not exist in the e-journal world.  It’s tough to hear, but for publishers, who have spent the last 10 to 15 years building up library sales teams, it’s hard to see the value in paying an external company to do that work for you.  This movement towards direct to publisher licensing has also been compounded by the strengthening of library consortia as buying groups, and the development of publisher big deals into ‘one fee – all content’ type arrangements. Just to prove the point, since the bankruptcy, some publishers of various types and sizes have been gently reminding libraries that they can order journals directly from them; Springer, Sage, and Cold Spring Harbor Press being just 3 examples. (Author’s note: That said, Kevin Smith, writing in Library Journal, claims that Blaise Simqu, CEO of Sage has suggested privately that it he is happy for subscription agents to remain a part of the process, but would be happier if there were added security, specifically by using escrow accounts).

PJ: That’s a pretty uncomfortable truth for subscription agents. Do you think that the future is all that bleak for Swets’ former competitors like EBSCO and LM Information Systems?

RB: In the short term, of course, the remaining agents stand to do well from libraries looking for a new agent, existing players such as EBSCO, WT Cox, and Wolper have all gone on record to let libraries know that they have capacity to take on orders in time to prevent a gap in coverage (scroll down to ‘POINTS OF DIFFERENCE’).  In the long-run, though, subscription agents are to a reasonable extent being disintermediated, so in that sense, it’s tough to see how the traditional agency model is sustainable. The more successful ones, such as EBSCO, have significantly diversified their offerings to rely less on the subscription business.  At this point, after various investments into ebook platforms, discovery layers and analytic technologies they look more like a technology company than a subscription agent. It’s reasonable to assume that subscription agency revenue is now not as critical a risk for them at this point.

PJ: Yesterday, I spoke to Adrian Stanley about subscription agents in emerging markets. He made the point that in the BRIC countries, relationship building, local knowledge, and simply being able to speak the language is still of significant value.

RB: Yes, I’d agree with that, but with a caveat. I suppose that some might see the difference as being semantic but to me, there are two classes of companies working in that market. There are subscription agents, who perform the basic function of aggregating orders, and there are sales agents. Adrian used to work for Charlesworth, who do precisely that kind of relationship building, especially in China. Those types of companies, who do more than simply fulfillment, but offer a cultural bridge and personal service, are in a good position.

As many people will have already noted, we at Digital Science are not entirely disinterested observers in the Swets situation. In recent years, Swets partnered with innovative companies in the publishing space. They worked with Mendeley (prior to the Elsevier acquisition) to create the Mendeley Institutional Edition and just this year, they partnered with our own Figshare. I caught up with Mark Hahnel of Figshare at the Frankfurt Book Fair and asked him how the Swets bankruptcy will affect figshare.

MH: I’m glad you asked; we’ve actually had that question from a number of our clients and potential clients. The first thing to say is that we’re really saddened to see so many people negatively affected by the situation. We’ve met people just today who’ve lost their incomes from it and of course, some smaller and society publishers were expecting payments, which makes life hard for them. There’s also the libraries as well, many of which are now having to go to publishers to figure out how to maintain access to content they need. From the point of view of figshare’s business, though, it is a lost opportunity but it hasn’t left us exposed in any way.

PJ: You say that it’s a lost opportunity. I imagine that in the light of Swets’ attempts to innovate, there’s a temptation to think that working with new technologies was less effective than Swets had hoped.

MH: We were shocked, just like everybody else, to learn that Swets had been declared bankrupt. It’s a shame for us that we lost that partnership, there was strong positive feedback and it was generating lots of interest. The thing to remember though is that we only launched in March. My only regret is that we didn’t have enough time to really make a big difference.

After speaking with four people at Digital Science who have had direct experience of Swets and the subscription agency business, I’m left with the conclusion that the traditional subscription agent model has been disrupted and is under significant, if not terminal, pressure. The development of web scale eCommerce solutions has driven a shift towards direct deals that are disintermediating subscription agents. At the same time, library consortia are attractive as an alternative intermediary for libraries. To further compound the problem, improved communication and transparency in the market has raised expectations among publishers in terms of speed and consistency of payments, which reduces opportunities for agents to gather interest on money, or take advantage of exchange rate fluctuations, before passing it on to publishers.

To adapt to the new realities, some companies are changing the way that they do business through either technology innovations such as holdings management platforms, discovery layers, and even ebook platforms. Others are providing services that are specific to international and emerging markets. These agents work to understand local needs and challenges and provide a two-way cultural bridge between those markets and publishers in Europe and the US. On a global level, it is important to monitor trends in economic development and scholarship, to see where to invest and create relationships next.

In a way, the pressure on subscription agents might be viewed as a highly intensified microcosm of the scholarly publishing industry as a whole. Subscription revenue continues to be under pressure, despite evidence of recovery, particularly for smaller publishers, due to a mix of slow growth in library budgets and industry consolidation. There are problems for other revenue sources as well. Many society publishers, for example are struggling to maintain membership revenue, as young researchers are choosing to forgo membership. In these changing times, I believe that the companies that are willing to take a long hard look at long term sustainability of their business models, and find new ways to provide value, will be the ones that ultimately thrive.