Feeding Frenzy
Two pieces struck this week: our analysis of the financial results of RELX, Thomson Reuters, and Wolters Kluwer, and the first-half results of Elsevier, Clarivate, Springer Nature, Wiley, and Taylor & Francis.
Two paragraphs stand out, and they are harbingers of the M&A that’s to come.
The more defensible strategy is to stop competing on the model at all. Embracing bring-your-own-licence (BYOL), and better still simply licensing content and data to whatever tool the customer already runs, takes the cost of AI tokens off the provider’s own books, and that cost is precisely what is eroding the profitability of AI products across the sector today. The tens of millions now going into proprietary models that will be obsolete within months would be far better spent on what these companies are genuinely good at: identifying the information needs of professionals and commissioning authoritative content, unique data, and expert insight built expressly for AI to consume against specific, high-value problems. While the AI labs work to recreate the corpus the incumbents already own, the incumbents must build the next indispensable one. Their edge is proximity to the market and the judgement to know what professionals will need before they ask for it. – Hugh Logue – V.P. & Lead Analyst
The providers facing problems when it comes to competing at scale with these listed players are the niche AI-native research-discovery tools: point solutions such as Iris.ai, ResearchRabbit/Litmaps, and Connected Papers which aim to facilitate literature reviews. As LeapSpace, Springer Nature’s SNAPP platform and Nature Research Assistant, and Clarivate’s own AI tools start to scale they are building in institutional trust mechanisms (Trust Cards, independent Advisory Boards), and direct publisher relationships that no standalone startup can replicate. These tools face the squeeze already visible in adjacent markets: legal AI challengers Harvey and Luminance both ended up licensing incumbent LexisNexis technology rather than competing with it. Scholarly research’s AI-native challengers are heading toward the same fate. – Kate Worlock – V.P. & Lead Analyst
Putting these two together with last week’s post and another twist in the AI plot line of winners and losers emerges. The AI-natives being squeezed on profit or on defensible channel-to-market will be the feeder fish of the next wave of M&A.
The intelligent systems layer of who will own the workflow and AI layer is already playing out in key verticals. Once those hooks are embedded, they are nearly impossible to get out.
And it’s either big tech or big info that will fulfill these roles. The AI native companies, big and small, are likely the feeder fish in the next wave of consolidation, which will no doubt play out. It has with every tech cycle. AI will be no different.
Look too for big tech LLMs to make a play for a big-info company. The odds of those deals being successful rarely play out well because big tech cannot possibly own all the companies that produce all the information they need to own whatever it is they wish to own. Just look at the disaster that was IBM’s acquisition of Truven.
Right now, it’s a feeding frenzy. When the market slows down, the tide goes out, and the froth settles, there will be a lot of companies needing to turn a profit after the VCs say enough. And then watch the M&A fun begin.
We’ll be discussing this and more at the Outsell CEO Summit. Secure your place today.