College bookstores claim that the price of course materials is dropping

The National Association of College Stores, which represents college bookstore operators, has just released a study saying that by students' estimates, the average annual cost of required course materials is $655, down from $667 two years ago and $702 four years ago. The Student Watch study published by the NACS seems, at least in part, to be a response to the press release sent out last week by CourseSmart that said that almost 35% of students don't think that it's worth their effort to sell their textbooks back to college bookstores.

The NACS study says that 74% of college students prefer to rent hard copy textbooks; the organization claims that rental can save students between 45% and 66% off the price of a new print textbook. (CourseSmart claims similar savings from rental of its eTextbooks.) The NACS claims that purchasing used textbooks can save 25% off the price of new textbooks for students, and that renting or purchasing eTextbooks is also an option for saving money.

NACS' members are facing many challenges: Competition from Internet-based textbook suppliers such as Chegg, Amazon, BookRenter and others; publisher groups like CourseSmart that compete against bookstores; colleges and universities that cut direct deals with publishers such as McGraw-Hill and provide textbooks and course materials through activity fees; and schools that adopt open textbooks at low or no cost. Students, colleges and universities are exploring more options than ever before, and college bookstores are no longer most students' de facto source for textbooks, eTextbooks and other materials.

Reviews of six eTextbook platforms

On The Textbook Guru blog, Jeff Cohen has reviewed six eTextbook platforms: Chegg, CourseSmart, iBooks, Inkling, Kindle and Kno. Cohen doesn't pick a "winner," but he does a good job of reviewing the pros and cons of each platform as they relate to eTextbooks. Here's a brief summary:

• Chegg: Based on HTML5, has a built-in "Ask a Question" feature for getting more information from experts, and its purchase and usage models are based on how students actually use textbooks. It's biggest downside is that it's online only and requires an Internet connection at all times. 
• CourseSmart: It allows both online and offline access to eTextbooks. Individual pages, along with highlights and notes, can be shared with classmates and instructors. Up to ten pages from any title can be printed. However, CourseSmart only rents eTextbooks, and they're disabled at the end of the rental period. It only has one level of zoom and no multimedia features.
• iBooks: It brings Apple's ease-of-use and user interface design to eBooks. eTextbooks can include 3D models, embedded video and interactive quizzes. There are also virtual study cards that contain chapter-specific glossary terms. iBooks eTextbooks work both online and offline. The biggest downside is the still-limited number of eTextbooks available for the platform. 
• Inkling: Works on the iPad and in some HTML5-compatible browsers. Allows students to purchase eTextbooks by the chapter or by the entire book. Supports online and offline reading. Video, audio, interactive and 3D content can be incorporated into the eTextbooks. Notes can be shared with other students. The biggest drawback is a strict returns policy. 
• Kindle: Has the most flexible rental and returns policy--eTextbooks can be rented for 30 days and extended as needed, or returned within the first seven days for a full refund. The "X-Ray" feature gives the definitions of important words, phrases and names, and visual diagrams of where they're used in the text. The biggest drawback is that most eTextbooks don't use Kindle Format 8, so they're black & white only, with no 3D, animations or video, and very limited audio support. 
• Kno: Supports iPads and HTML5 browsers, but not all titles work in both eReaders.  eTextbooks can be returned within 15 days, so long as the user hasn't gone past the first 20% of the book. Notes, bookmarks and annotations can't be transferred between platforms--for example, notes made in the HTML5 version can't be accessed when the eTextbook is opened in the iPad eReader. Cohen found that Kno's beta "Quiz Me" feature, which turns sections of the eTextbook into fill-in-the-blanks quizzes, didn't work properly. Some images were left out due to copyright restrictions. 

Kno-t Again: Intel invests $20 million and takes over Kno's tablet designs

According to The Wall Street Journal's All Things D, Intel Capital and Advance Publications (parent company of Condé Nast) led a new investment round of $30 million in Kno, the Silicon Valley-based startup that planned to ship tablets for the educational market starting late last year. $20 million of the total is coming from Intel. Kno claims that none of the tablets were actually ever shipped to customers, but several hundred were manufactured for Kno by Foxconn. As part of the deal, Intel will acquire ownership of the designs for Kno's tablets and will license them to other manufacturers, so Kno is officially out of the hardware business.

Kno will continue to develop its tablet software and pursue eTextbook licensing deals, but will target existing tablet platforms such as Apple's iPad. It's a smart move by Kno, and probably the only viable option that it had. I wouldn't be surprised if some of the $30 million goes to buy out one or more of Kno's earlier investors who had come on board because they believed in the potential of their tablet.

I still have a hard time believing in Kno's long-term prospects: It can no longer take advantage of the unique capabilities that it had designed into its tablets (for example, the 15" dual touch/stylus displays) to differentiate its offerings, and it has to compete with a variety of eTextbook distributors and publishers, including Chegg, the company co-founded by Kno co-founder Osman Rashid.

Kno announces prices for its eBook readers

Kno, the Chegg spinoff that plans to rent college eTextbooks, has announced prices for its two eBook readers. The single-screen model will be priced at $599, and the dual-screen model will be $899. A limited number of readers, manufactured for Kno by Foxconn, will be available by the end of the year. Kno plans to test its readers and rental program at ten unnamed U.S. colleges and universities.

Kno's single-tablet pricing isn't too far from the price of the equivalent iPad, which has become the de facto industry benchmark. However, the Kno readers have a very different set of use cases than the iPad. Kno's devices are designed to provide as close of an electronic substitute as possible for the experience of using printed textbooks, so they have big screens that can fit most textbooks in current use on the screen at full scale. Students can take notes and highlight with a stylus, or use their fingers. They're not general-purpose devices like the iPad or notebook computers.

Kno claims that their rental program will cover the cost of their single-screen tablet in three semesters. However, the question is whether students want an expensive dedicated eBook reader at all, or if they can live with the smaller screen of the iPad and similar devices. I think that most students will go with the iPad. They'll get a ligher, easier-to-carry device, an enormous selection of apps and a choice of eBook vendors, rather than being locked into Kno.

Kno started developing their eBook reader well before the iPad was announced. If they had waited until the iPad was available, I suspect that they would have chosen to support the iPad and other tablets rather than building their own. If Kno's eBook readers don't get market traction quickly, they may be forced to alter their strategy and support other devices.

The problem with eTextbook pricing

Let's start with a fact of the college textbook business: Textbook publishers hate used books. They see every sale of a used book as revenue that they should have received, but didn't, thanks to the First Use Doctrine that allows books to be resold by their purchasers. Consider the following case: A college bookstore sells a new textbook title for $100, then buys it back for $50 at the end of the semester for resale as a used book. For the next semester, it sells it for $50 as used. Assuming that the book can be used for ten semesters before it's too beaten up and marked up to resell, and the bookstore buys it back for $20 each time, the bookstore will end up grossing $320 (even if they buy it back the last time and pulp it.) The publisher, on the other hand, will get only some fraction of the original $100.

That's why publishers are increasingly interested in eTextbooks. Unlike print books, eTextbooks can't be resold, and in some cases, they have "time-bomb" DRM schemes that make them totally unusable after 120 to 180 days. Publishers get revenue from every sale. The problem, however, is that publishers are pricing eTextbooks too high to stop used book sales.

Kenneth Green wrote about the problem on his DigitalTweed blog. He compared the price for one textbook, Mankiw's Principles of Microeconomics, from a variety of sellers, in a variety of forms. He compared purchasing the textbook new, used, used with saleback, and as an eTextbook, along with rental. (One title does not a comprehensive analysis make, but it's a fair place to start.) According to Green, he found that title's list price is $172, and that's what most college bookstores will sell it for. However, Amazon priced it at $153. Keep those two numbers in mind, because everything else works off of them.

Green found that Amazon sells the used print version for $83.49. Amazon's Kindle price for the eTextbook is $110.38, and they're underpriced by both CourseSmart and Follett, who sell their eTextbook versions for $86.49 and $87.84 respectively. He could rent the title for the semester from Chegg for $50.49, or from Textbooks.com for $49.49. And here's the kicker: Amazon will buy back the print version for $67.25, no matter where it was purchased originally.

So, here's the breakdown:

• New list price: $172.00
• Best discounted new price: $153.00 (Amazon)
• Best used price: $83.49 (Amazon)
• Best eTextbook price: $86.49 (CourseSmart)
• Best rental price: $49.49 (Textbooks.com)
• Best used price with buyback: $16.24 (Amazon)

The used with buyback option is by far the best choice, but it's not going to be available for all books, and even if it is for a specific title, it may not be as lucrative as Amazon makes it for this title. Considering the other choices, your best option would be rental, followed by buying the title used, followed by buying the eTextbook.

In short, at their current prices, eTextbooks simply don't make sense unless they offer so much value that they overcome their price disadvantage. With today's eBook readers, they don't offer any significant advantages, especially for cash-starved students. If publishers really want to kill the used (and rental) book market, they have to price eTextbooks at about the same as rental, or about a third the best discounted new price.

That scares publishers, because they believe that doing so will devalue their titles and prematurely kill print sales. However, they'd end up with more money in their pockets over time. Let's consider my first example, with a $100 print title sold new once and used nine times. If publishers get 60% of the sale price for that new sale, they'd get $60 dollars in total. However, if they sell 10 copies of the eTextbook version for $30 each and get the same 60%, they'll end up with $180, or three times as much.

Pricing eTextbooks at or below print rental prices will dramatically increase eTextbook sales and hasten the end of used textbook sales and rentals. eTextbooks are also much more convenient for students, and low prices will save them money. In the long run, pricing eTextbooks very aggressively will be a win-win for everyone.

Kno thanks?

An eBook company targeting the college textbook business called Kno (formerly Kakai) went out of stealth mode today at the D8 Conference. Kno is a Silicon Valley startup that spun off from Chegg (one of Kno's co-founders was a co-founder of Chegg.). The company has been funded by Andreessen Horowitz, First Round Capital, Maples and Ron Conway, and it's looking for another round of funding this summer. Kno's idea is to rent textbooks to college students, and let them use them on a purpose-built, dual-screen tablet that's designed to be 100% the size of most common college textbooks. The result is a a big (dual 14.1" screens) and heavy (5.5 pounds) device that runs Linux. Everything works inside a web browser on the device. People at the conference who got to see the demo and play with the device said that it's slow and buggy, but the Kno team acknowledges the problems and says that it's working on them.

Kno hasn't set a formal price for the device, but it's saying that it will be less than $1,000. It has book rental distribution agreements with Cengage Learning, McGraw-Hill, Pearson and Wiley for a beta program to start this fall, but it didn't provide any details as to what titles or percentages of the companies' collections will be included.

It's too early to say how students will react to a big, heavy, expensive eBook reader that looks, to be honest, dorky. It's also too early to tell whether Kno will be able to retain its beta test publishing partners when it begins charging for readers and eBooks. Frankly, the Kno reader sounds much better in conception than in execution.