Kno moves into K-12 market: Expansion or act of desperation?

AllThingsD reports that Kno, a college eTextbook rental company, has struck a deal with Houghton Mifflin Harcourt to distribute its eTextbooks to the K-12 market. The titles will be rented for a one-year period for $9.99 or less, and will work on iPads and the web. Kno plans to release eReaders for Android and Microsoft Windows 7 (and presumably 8) later this year. The company is negotiating with McGraw-Hill and Pearson to distribute their K-12 eTextbooks.

The obvious hole in this strategy is that most K-12 schools directly supply textbooks to students (either at no cost or in exchange for a small activity fee,) so convincing parents to rent eTextbooks, and school districts to switch to renting eTextbooks instead of buying print, is going to take a lot of work. In addition, moving into the K-12 market indicates some desperation on Kno's part. It suggests that Kno isn't meeting its sales objectives, and needs to find new sources of revenue.

Update, August 8, 2012: Kno has launched its K-12 eTextbook rental program on its website. The biggest reason why parents should rent eTextbooks when they get them for free from their school is...wait for it...print textbooks are too heavy! Why, did you know that carrying a 12-pound backpack during a school year puts a cumulative load of over 20,000 pounds on your child's body--the equivalent of six mid-sized cars? And, given the epidemic of obese children and Type 2 diabetes starting in childhood, along with cutbacks in physical education programs, there's absolutely no reason for children to get exercise. Let's protect their delicate backs.

Print textbooks are too heavy? Seriously? 

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.

McGraw-Hill puts its Education division up for sale

First, McGraw-Hill released details of its plan to spin its education division off as a publicly-traded company, and now, the New York Post is reporting that the company has hired Evercore Partners and Goldman Sachs to run an auction of McGraw-Hill Education. The big question, which the article doesn't answer, is why McGraw-Hill is trying to sell off the division. It's possible that the company doesn't think that it would get enough for it in an IPO, but given private equity's poor track record with educational publishing and distribution companies (Houghton Mifflin Harcourt and Nebraska Book Company being two examples,) it's unlikely that McGraw-Hill could raise much more through an outright sale.

College consortium launching eTextbook pilot program this fall

eCampus News reports that EDUCAUSE and the Internet2 Consortium have joined together with several colleges and universities to run a 28-campus eTextbook pilot starting this fall. The groups' objective is to bring prices down in order to increase the number of students who can afford to purchase textbooks. McGraw-Hill Education will supply the eTextbooks, and Courseload will supply the eReader and annotation software. Universities participating in the test include Indiana University, the University of Wisconsin at Madison, the University of Minnesota, Cornell, the University of Virginia and the University of California-Berkeley.

Apple's eTextbook announcements: Far from a slam dunk

This morning, Apple announced:

• A new version of iBooks that supports eTextbooks.
• Distribution agreements with five textbook publishers (Pearson, McGraw-Hill, Houghton Mifflin Harcourt, DK and the E.O. Wilson foundation) covering 90% of the high school market.
• eTextbooks priced at $14.99 (U.S.) or less.
• A free eTextbook editing application for OS X called iBooks Author.
• A revamped version of iTunes U for higher education, with a dedicated iOS app.

Apple's announcements could be very important, but the company has a long way to go, for several reasons:

• Apple's focusing on the high school market, not colleges and universities, and it's trying to convince parents and students to purchase eTextbooks directly from Apple. In most U.S. schools and districts, students get their textbooks from the school, either at no charge or as part of an activities fee. Why would parents who don't have to pay for textbooks now or get them automatically start paying for them? Thus, Apple's plan only impacts those parents and students who have to pay for their textbooks now.
• Parents also have to be willing to buy an iPad for their child. That cuts out low-income and many middle-income families.
• There are currently only eight titles in Apple's eTextbook collection--not even enough to be called a good start.
• Although iBooks Author creates eBooks that are based on EPUB 2.0, it uses Apple's proprietary extensions for supporting multimedia, animation and JavaScript-based new features. Thus, titles created with iBooks Author can only be used in iBooks. (This might change in the future, when Apple fully implements EPUB 3 in both iBooks and iBooks Author.)
• If you use iBooks Author and create eBooks that you intend to sell, according to the EULA for the software, you are prohibited from selling the eBooks anywhere except through Apple.

Apple's decision to focus on high school textbooks before going after the college market is questionable: College students pay far more for textbooks than do high schoolers, and parents are far more likely to purchase a tablet for a new college student than for a high school student. However, that's not the most important reason why I believe that Apple will have an uphill battle. When Apple launched the iBookstore initially, with the support of five of the "Big 6" trade publishers and the agency pricing model to eliminate Amazon's price advantage, it looked as though Apple would eventually become as dominant in eBooks as it already was in music. The results, however, have been far from what Apple and its boosters expected.

Even today, Apple has a minuscule share of the U.S. eBook market, far below those of Amazon and Barnes & Noble. Apple's eBooks can only be used on Apple's devices, while Amazon's and Barnes & Noble's eBooks can be be used on those companies' popular eReaders and tablets, as well as with software eReaders on PCs, tablets and smartphones. Amazon in particular has set up an effective self-publishing program for authors, while Apple is just taking the first tentative steps today.

In short, Apple's new eTextbook initiative could make a big difference eventually, but it's far from a slam dunk.

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.

It's Book Publishing Businesses, not Business

This morning, NPR did a news story about Apple's new iPad. I was half-awake when I heard the story, so I went to the NPR site to get the transcription. Near the top of the story, the reporter, Lynn Neary, said "At the iPad's unveiling Wednesday, Steve Jobs announced that five publishers — Simon & Schuster, Hachette Book Group, HarperCollins Publishers, Penguin, and Macmillan — had signed on to provide books to Apple's venture, with more to come." No problem there, but near the end of the story, she said the following: "Random House, the only major publisher that did not make a deal with Apple, issued a statement saying it is continuing conversations with the company about how they might best work together."

Put those two sentences together, and she's saying that the six publishers mentioned are the only "major" publishers. To be sure, they're the biggest trade publishers in the U.S. and European markets; they print the most popular fiction, biography, self-help and similar consumer-oriented titles. However, there are many other "major" publishers. The definition of a "major" publisher is determined largely by market segment. In technical and computer books, Pearson, Wiley and O'Reilly are among the dominant publishers. In textbooks, Cengage, Pearson, Houghton Mifflin Harcourt, McGraw-Hill and Wiley are powerhouses. In children's books, Scholastic and Houghton Mifflin Harcourt are among the biggest players, along with several of the big trade publishers. Heck, Pearson actually owns Penguin.

My point is that there is no single book publishing business and no single group of "major" publishers. Apple reproduced the strategy with eBooks that it followed when it launched iTunes, signing up the top five recording companies: Warner, Universal, EMI, Sony and BMG (Sony has since acquired BMG). Once it secured rights to the market leaders' catalogs, it went after smaller recording companies. It did the same thing with the iBookstore, going after the trade (consumer) publishing leaders first. But unlike the music business, where a handful of companies dominate every major category, each book category has its own group of dominant publishers. Getting the five publishers that Apple signed up gets them all but nothing in many of the major categories. They have a lot of negotiations ahead of them to get a range of eBooks comparable to what they already have in music.