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.

The problem(s) with eTextbooks

The eBook market is growing dramatically, especially in the U.S., but eTextbook usage in colleges and universities is growing at a much slower pace. There are no good statistics on eTextbooks' share of overall textbook usage, so surveys and anecdotal reports are taking the place of hard facts. Kno, a distributor of eTextbooks, released a survey last week that said that, of 400 students at four California community colleges who used the Kno eTextbook application with an open source textbook, 95% found it very useful and plan to use it again. However, an article yesterday in the University of Rochester's Campus Times quoted the manager of the school's bookstore as saying that in most cases, students rent or purchase eTextbooks only when the bookstore is sold out of the print versions. (The bookstore has sold eTextbooks since 2004.)

The Kno study focused on a pilot program that used a free textbook, so as much as they may like Kno's app, it's impossible to draw any conclusions as to whether or not students would be willing to purchase eTextbooks from Kno. The Campus Times article says nothing about students who use and like eTextbooks--and there have to be some out there. There have been other stories and surveys, with equally conflicting results.

Given what I've seen in the market, I believe that there are two fundamental reasons why eTextbooks haven't taken off: Price and selection. In general, eTextbooks are priced much less than new print textbooks when purchased, but they're more expensive than used textbooks. What's more, eTextbooks can't be resold, so the student can't recover any of the purchase price. eTextbooks are also more expensive to rent than used print textbooks. Students are very price-conscious, and any usability advantages of eTextbooks (such as the ability to keep an entire semester's worth on a single tablet) are outweighed by their increased cost.

Selection is the other issue. The number of available eTextbooks is increasing all the time, but many print textbooks are still unavailable in eTextbook versions. If the textbooks required for a course aren't available in digital versions, students have no choice but to buy or rent them in print.

The Campus Times article also points out another potential roadblock: Some vendors only make their eTextbooks available for use on personal computers, while many students prefer to use them on tablets. For example, Barnes & Noble's Nook Study eReader software, which is designed specifically for eTextbooks, only works on PCs and Macs. Since most vendors either use proprietary formats or attach DRM that makes it impossible to use their eTextbooks in other eReaders, students are limited to the capabilities provided by the vendor's software.

Apple's eTextbook initiative addresses the price issue, with all textbooks priced at $14.99, but as of this writing there are only ten titles available, and they're all for K-12 students, not college students. No one has managed to address both the price and selection problems, but it's not clear that the publishers, which control both price and availability, really care. Publishers are primarily interested in using eTextbooks to kill the used textbook business, which has been a thorn in their sides for decades. However, they're not willing to accept lower profit margins over the course of several years in order to do so. eTextbook resellers don't want to take the margin hit either, so it's likely that eTextbooks will remain a niche business for the indefinite future.

Kno more? Kno in talks to sell off its tablet business

All Things Digital is reporting that Kno, the Silicon Valley-based educational eBook reseller startup, is in negotiations to sell off its hardware tablet business and focus solely on renting eBooks. The company had announced plans to start selling its tablets in several configurations, both single- and dual-screen, between $599 and $999, at the end of last year. Kno apparently did deliver several hundred tablets before halting shipments.

Kno's original dual-screen tablet was conceptualized before Apple released its iPad. Kno's idea was to develop a tablet that could display 99% of college textbooks at full size, so its tablet was purpose-built for that application. The problem was that the resulting tablet was much too big and heavy--equal to two full-size college textbooks. After the iPad was released and defined consumer expectations about tablets, Kno responded with a single-screen version of its tablet, but it was still too big and heavy.

Now, according to All Things Digital, Kno wants to support tablets like the iPad and Motorola's Xoom, and get out of the hardware business. That, however, will impact Kno's "99%" strategy. There's no standard size for tablets, and they generally range from 7" to 10.1". None of them are big enough to support Kno's page size requirements, so users will have to pan and zoom documents, which Kno originally wanted to avoid.

Kno is apparently attempting to get some financial return on the time and money that it spent developing its own tablet, but it's unlikely that any hardware manufacturer will acquire its tablet designs. The Kno reader runs on Linux, not Android, so it will require significant additional software development. Whoever buys the hardware design will be coming into the market well behind Apple, Motorola, LG, RIM and HP. They'd be better off going with an ODM design from a Taiwanese or Chinese manufacturer.

Kno's tablet was the centerpiece of its business strategy; without it, it has no particular advantage over CourseSmart, Follett, Barnes & Noble, Chegg or any number of other, better-funded college eTextbook vendors.

The future is coming early to college bookstores

The trend toward print-on-demand books in college bookstores is gathering momentum. Last month, I wrote about the Espresso Book Machine, and now Hewlett Packard is getting into the act. Both Arizona State University and the University of Arizona have installed print-on-demand systems in their university-owned and operated bookstores. ASU is using the new HP system, while U of A has used an Espresso Book Machine for a year. (Portland State and the University of Kansas are also testing the HP system in their bookstores.)

The biggest goal of both universities is to drive down the cost of college textbooks. In the three largest Arizona universities, students will spend an average of $3,200 for textbooks and supplies over four years. Nationally, the average price of new textbooks went up 12% in 2009, far faster than inflation. Only a small selection of titles are available for print-on-demand at the two universities, but according to Dennis Mekelburg, the associate director of ASU Bookstores, if his school can replace conventional printed textbooks and materials with print-on-demand for 5% of its courses, students would save $500,000 per semester.

McGraw-Hill, John Wiley & Sons and Cengage Learning are supplying a small selection of their titles to ASU for print-on-demand, and the savings can be significant. One Marketing instructor at ASU switched from a conventionally-printed textbook and workbook that sold last year for $250 new to a softcover version of the same textbook and a workbook printed on demand, together priced at about $62.

In the long run, I believe that the most textbooks will be sold as electronic versions, and print-on-demand will be used to provide paper copies for special situations. The sophistication of eTextbooks and the devices used to read them is increasing so quickly that paper textbooks will soon be considered relics.

One big question is what the impact of these changes will be on the bookstores themselves. To date, the print-on-demand phenomenon seems to be limited to schools that own and operate their own bookstores. Publishers are demonstrating a willingness to negotiate better deals directly with colleges and universities, and some schools are in turn showing a willingness to cut the private operators of their bookstores out of the channel in order to lower the prices that their students pay for textbooks and materials. (In the U.S., the largest private college bookstore operators are Barnes & Noble and Follett.) If the college bookstores no longer sell textbooks, or no longer make any money selling them, what will be the role of the private operators? Probably not much. In fact, I wouldn't at all be surprised to see general retailers, anyone from 7-11 to Wal-Mart, compete for the contracts to run these "bookstores". They're likely much better positioned to sell general merchandise than the existing private bookstore operators.

Inkling and Kno: Two very different takes on how college eTextbooks should work

Earlier today, Kno, a Silicon Valley-based startup, announced that it has raised $46 million in its most recent round of funding, to add to the $10 million it previously raised. Kno and San Francisco-based Inkling, which recently announced its eTextbook application for the iPad, compete directly with each other, but the two companies have dramatically different approaches to how eTextbooks should look and work.

Kno began with the concept of reproducing print textbooks as closely as possible in an electronic form. For the Kno team, that meant preserving the look and feel of individual pages, right down to the page numbers. A professor who tells students to read "Chapter 6, pages 137 through 149" in a textbook can be confident that the chapters and page numbers will be identical in the print and Kno eTextbook versions. To make the Kno approach work, the company designed its own eTextbook reader (Kno refers to it as a "tablet", but it's really two tablets stitched together.) The Kno reader's dual displays are designed to show 99% of all college textbooks in use today at 100% magnification. In other words, no panning, scrolling or zooming are needed. It's just like reading a paper textbook. In addition, the Kno displays can be controlled by touch or with a stylus, so students can write notes in the margins of their eTextbooks and highlight text, just as they can with print textbooks.

The downside of the Kno approach is that the Kno reader that's needed to make everything work is heavy (the weight of two average textbooks), big (the size of a large notebook computer, except turned vertically) and expensive (the company says that it will be "under $1,000.") If the reader isn't accepted by students, the rest of the Kno approach will fall by the wayside. Kno took the "path of least resistance" approach: Make the eTextbooks just like print books so that students won't have to relearn how to use them. Use the same page format as existing print so that publishers don't have to pay to reformat their books for Kno.

Inkling, on the other hand, started with the content of textbooks and went from there. Inkling recognized that tablets like the iPad would likely become the preferred devices for reading eBooks (even though the iPad didn't exist when Inkling began development.) Since they didn't know what screen sizes their eTextbooks would have to work on, they designed Inkling to support a variety of screen sizes. Their system starts with Adobe InDesign (and possibly Quark) files, integrates audio, video, animations and hyperlinks, and outputs eTextbooks that dynamically reflow to fit the screen size of whatever device is used to read them.

There are a number of downsides to the Inkling approach: For example, page number references are no longer valid between print books and eTextbooks, so professors will have to refer to chapters and sections, not page numbers. (Update: A commenter says that Inkling maps the print version's original page numbers to the eTextbook version and allows users to navigate using the print page numbers.) Disiplay of eTextbooks on devices with screens smaller than 7" will be marginal at best. Inkling requires much more redesign and reformatting of content than does Kno, so it costs more and takes more time to create Inkling eTextbooks, and publishers have to be much more involved in the conversion process. On the other hand, Inkling eTextbooks work with the iPad, and will likely work on Android tablets in the future. Inkling doesn't have to build, sell and support its own tablets, and it's already supporting a wildly popular platform.

Kno's approach may be the path of least resistance in the short run, but it's hard to believe that we'll see millions of college students carrying heavy, bulky, expensive Kno eTextbook readers instead of cheaper, lightweight iOS and Android tablets that can do much more. Inkling's approach is better suited to where the industry is going. Making eTextbooks that look and work like their paper counterparts is an interim strategy at best. The value of a textbook is the information it contains, not its packaging, and that's why my money's on Inkling for the long run.

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.