Declan Butler wrote a news article about PLoS' business model that has generates a lot of discussion. A good summary of blog reactions is available from Bora's blog and there is a long thread of discussions at FriendFeed.
It is hard to read the piece as impartial reporting due to the general negative undertone. Describing PLoS ONE as a database and referring to PLoS ONE and other PLoS journals of lower impact as "bulk, cheap publishing of lower quality papers". I have nothing against the factual content in the news piece. From that perspective it is an interesting report on the PLoS business model. According to the news story PLoS is on track to become economically self-sustainable within two years. We learn that this is possible due to the expansion of PLoS as a publisher to cover a broader range of subjects and different degrees of perceived impact. This is hardly surprising. I wrote a year ago:
"On an author pays model, the most obvious way to limit the cost per paper and still provide a solid evaluation of perceived impact, is to have journals that cover the broad spectrum of perceived impact. In this way, for the publisher, the overall rejection rates decrease, the papers are evaluated and directed to the appropriate "level" of perceived impact."
Most people agree that in principle Open Access publishing would benefit science. Up until know publishers have been reluctant to admit that there is a viable business model with author fees. Some open access publishers (including BioMedCentral) were already showing that this was a viable business model but PLoS will be the first to have viable business model with high impact factor journals within the set of journals they publish.
Two of the most interesting comments on this discussion so far have come from Timo Hannay at Nascent and from Lars Juhljensen
Timo argues that PLoS has failed to show that it is possible to have a business model for a publisher that only has journals of high editorial input (high rejection rates and high perceived impact). Also, the existence of PLoS creates a barrier to entry to other science publishers interested in publishing with an open access (OA) model. There is no argument against the first statement, so far I have not seen any publisher that has managed to reduce the costs of maintaining such "high impact" journals to the point were authors fees would be sufficient. I think this is possible and the PLoS Community journals are the closest form of this but this is another discussion.
What I disagree with Timo is that PLoS somehow creates barriers to entry to other OA publishers. PLoS did require (still requires) philanthropic grants to establish themselves but pioneers have typically a harder time than creative followers. Anyone trying to follow PLoS has access to the records of success and failures, detailed financial reports and (I think) even the publishing infrastructure that they have developed.
Most people know that the strongest barrier to entry to scientific publishing is a perception of quality. NPG has used this fact to their advantage many times. Journals with Nature brand typically establish themselves quickly among the top of their topic. I am sure Nature invests a lot in excellent professional editors but without the Nature brand supporting these journals there would be nothing to choose from to start with. NPG also publishes many more journals than the Nature branded journals and as Lars has pointed out the majority of these have lower impact factors. I don't think there is financial information available so it is hard to know what is the fraction of NPG's income that comes from the high impact or lower impact journals.
Going back to one of Timo's main points, I don't agree that PLoS creates barriers to market entry to other OA publishers. At least certainly not because they used philanthropic grants until they reached break even point. If there are barriers in the market they are due to perception of quality and strong brand name. Here OA publishers have the added advantage that creating a strong brand is easier when most people perceive OA as something good. From the example of PLoS and to some extent BMC there are now clear paths for any publisher (specially one with a strong brand name) to set up a viable business OA model.