E-textbooks: The New Best-sellers

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Will Apple’s iPad kill the textbook?

Many educators are pointing to Apple Computer’s recently announced iPad as the prototype for an e-reader that will be able to hold all the textbooks a student needs. Its color touch-screen, interactive-video capability and virtual keyboard, they say, give it greater potential for textbook users than monochrome readers like Amazon’s Kindle. 

Apple has been quiet about its designs on the textbook business since unveiling its new device, which will go on sale this month. Meanwhile, Hewlett-Packard and Dell have also announced portable tablet computers, and Microsoft is rumored to be developing a two-screen model.

While some students may be using notebooks or their more portable cousins, netbooks, to read textbooks, some experts predict that within the next 10 years, most U.S. college students — and many high-school and elementary-school students as well — will probably be reading course materials on an electronic device instead of in a paper book. And that will have a broad impact on students and teachers, not to mention the $9.9 billion textbook-publishing business.

If this is, indeed, the future of textbook publishing, a key question remains unanswered: Is it economically sustainable? Almost every industry — from travel agencies to newspapers — that has moved to a digital model has seen its profits decimated and some existing participants bankrupted. Textbook “publishers are aware that their current model is doomed,” says Peter S. Fader, co-director of the Wharton Interactive Media Initiative (WIMI). Adds WIMI co-director Eric Bradlow: “It’s not just that the bound-dead-tree is a dead model. [It’s that publishers] will have less monopoly power.” Assuming the cost of production goes down, “market forces suggest prices would come down” as well.

Bradlow also predicts there will be new revenue models for publishers, including timely ads and electronic coupons. For example, when students finish a chapter and show mastery by passing a self-assessment quiz, an ad could pop up suggesting they reward themselves with a run to the local Ben & Jerry’s.

Frank Lyman, executive vice president of online-text publisher CourseSmart, says that Apple’s tablet “is likely to boost demand for digital textbooks because it will capture the imagination of the next group of students who haven’t yet tried eTextbooks.” He adds that there are 75 million iPod and iPhone users who already know how to use the iPad because of its similar interface.

Within days of the iPad announcement, a group of major educational publishers announced they all would use technology developed by ScrollMotion, a New York-based content technology company, to transfer textbooks to the iPad. The group includes McGraw-Hill Companies; Houghton Mifflin Harcourt K-12, which is a unit of Education Media & Publishing Group; Pearson’s Pearson Education, and Kaplan, the test-prep unit of The Washington Post Co.

At the end of February, McGraw-Hill’s Macmillan unit unveiled a new electronic book imprint, DynamicBooks, that will let professors create their own textbooks, using their own material as well as materials developed by Macmillan. “Basically, they will go online, log on to the authoring tool, have the content right there and make whatever changes they want,” Brian Napack, president of Macmillan, told The New York Times. “And we don’t even look at it.” DynamicBooks includes such titles as Chemical Principles: The Quest for Insight, by Peter Atkins and Loretta Jones, and Psychology, by Daniel L. Schacter, Daniel T. Gilbert and Daniel M. Wegner. Students will pay about one-third as much as the the paper-bound version’s list price. 

ScrollMotion already partners with some publishers to make books into iPhone apps. “Education-related content has always been on the cusp of taking advantage of the promise of technology. Finally it’s here,” says ScrollMotion CEO John Lema. Rik Kranenburg, group president of higher education for the education unit of McGraw-Hill Companies, recently told The Wall Street Journal: “People have been talking about the impact of technology on education for 25 years. It feels like it is really going to happen in 2010.” “[We] have been anticipating this,” adds Bruce Hildebrand, executive director for higher education at the American Association of Publishers, a trade group. Publishers, he says, will “provide their content on the best technology available,” although he notes that electronic readers don’t yet meet educational needs as well as textbooks do.

Educators and book publishers are also predicting that eTextbooks will change the way teachers teach, students learn and textbook publishers sell their content — often in unexpected ways. Yet while students eagerly anticipate lower costs and lighter backpacks, teachers remain wary and some publishers still question the model. Wharton management professor Daniel Raff, who has studied the book business, suggests that publishers will maintain their grip on the school market. “One expects textbooks to have a certain authority. To the extent they are brands, they would retain [that] authority.” He notes that textbook publishers also have long lasting copyrights along with skills in managing licensed materials. Moreover, it isn’t clear that students are ready to study from an eTextbook. As Stephen Kobrin, editor of Wharton School Publishing (WSP), notes, “we publish all our course packs [collections of customized course readings] digitally. When I ask students how they read them, they say they print them out.” Kobrin estimates that currently 4% to 5% of WSP’s business is digital.

Indeed, approximately 88% of college students own laptops, according to a study by EDUCAUSE Center for Applied Research, a Boulder, Co., think tank. But so far, few of them download electronic textbooks, even though they could save money. The National Association of College Stores estimates that less than 3% of textbook sales today are digital versions, although many paper textbooks are sold with supplemental materials on CDs or web sites. Fader predicts that soon “some innovative college” will require incoming freshmen to get an iPad and will push professors to use them for course materials. 

$220.95 vs. $110.49

Electronic readers have already shaken up the market for fiction and non-fiction books, known in the industry as “trade books.” Trade books accounted for $8.1 billion in U.S. sales in 2008,  the most recent full year reported by AAP, 18% less than the textbook market. Forrester Research estimates that book lovers bought some three million electronic readers last year. E-readers attract some of the book industry’s best customers, who regret the demise of bookstores but like the idea of $10 titles that can be downloaded at will and don’t crowd overburdened bookshelves.

“As complex as the issues are for trade book publishing, it’s far more so in textbooks,” says Fader, partly because price-sensitive students are not the ones making the decisions. At the college level, text book decisions are made by teachers. In K-12, they are mostly made by school boards. K-12 schools “will be very slow to change, partly due to pure economics” since they would have to equip whole classes of students with fragile, mobile readers, says Fader. In addition, teacher unions will be skeptical, and school boards will be hesitant to make the leap because “people focus on potential downsides.” Still, he says: “The evolution is inevitable. It’s just a question of when.” 

In the specialized education arena, digital textbooks are likely to appear very soon, Fader adds. “I see it most likely to start through executive education,” where binders of material rather than traditional texts are typically handed out. Conceivably, an e-reader with content installed could be bundled as part of the course price. “It’s a high-margin environment.”    

Kaplan has already announced that it is making its MCAT preparatory course materials (for admission to medical school) available as apps on iPhones and iPods using ScrollMotion technology. Lema says they will also be available on the iPad. According to Kaplan, the apps replace 20 pounds of paper instructional materials.

And despite mixed feelings, the textbook industry has already been moving into digital distribution. Five of the biggest textbook publishers founded CourseSmart in 2007 to provide digital versions of college textbooks. The company now has some 6,000 textbooks available in a common format that students can download. Students get a 180-day license for the book rather than permanent ownership — which means there is no used-book market for CourseSmart titles.

CourseSmart prices are typically half the list price of a textbook. For example, Harvard professor Gregory Mankiw’s introductory Principles of Economics, which has a list price of $220.95, costs $110.49 for the electronic version at CourseSmart. Amazon.com sells the paper version for $168.01 and an electronic Kindle version for $141.56. The paper version has 904 pages and weighs 4.2 pounds. 

Although teachers and students hope that digital textbooks will mean lower prices, textbook publishers “price very aggressively,” says Raff. A 2005 Government Accounting Office study of textbook prices found that publishers raised prices an average of 6% a year in the previous two decades — twice the rate of inflation and nearly as fast as the 7% annual increase in college tuition. Raff predicts, however, that with Amazon and Apple competing to deliver content, pricing will come down.

Publishing industry insiders say privately that they could realize higher profits despite much lower prices if digital downloading eliminated the used and rental book market along with the costs of printing and stocking paper books. They say they could prevent book sharing by forcing students to do workbook exercises linked to their textbooks.  Many already offer their texts directly from their own web sites, sometimes at prices lower than CourseSmart, which means that none of the book’s price goes to bookstores or online sellers.

But digital readers could also make it easier for new entrants in the market. Amazon or Apple could become textbook publishers themselves, using their recommendation engines to replace textbook salesmen in reaching out to teachers. Some teachers might be more open to assigning open-source textbooks from the Wikimedia foundation if they were on digital readers that students already owned. 

At the college level, professors are already intrigued by the idea of creating custom textbooks for a course by assigning a few chapters from one book, a few chapters from another, and some articles and original source material. Such modular textbooks are available in paper form, but they haven’t been popular, partly because they look odd given their many different type-faces and formats. In the digital world, it should be easier to create such customized textbooks, but licensing copyrights will remain challenging.

Textbook publishers currently handle such tasks and custom print textbooks for individual classes. For example, Pearson’s custom library group lets professors go online to create a book, mixing and matching chapters from several of its textbooks in subjects. Professors can include up to 20% outside material, whether written by them or chosen elsewhere, with Pearson managing permissions. 

Highlighting Key Passages

Digital textbooks will need to have features students take for granted in paper books, such as the ability to highlight key passages and take notes that can be attached to pages. Digital versions also need consistent pagination so that teachers can give assignments. Even with a search function, digital books will still need tables of contents, indexes and glossaries.

Even with these limitations, digital presentation opens up a number of new possibilities for textbooks. With interactive graphs in an economics book, for example, students could try different costs to see the impact on demand or different supply levels to gauge the change in price. ScrollMotion promises publishers that its technology will let them embed video that students can watch, record lectures linked to chapters and offer self-assessment tests.

“You will see more up-to-date textbooks that incorporate cutting-edge research without waiting for the next edition,” says Bradlow. Publishers may build communities of expertise around their digital textbooks with the ability to post comments or questions. As Bradlow notes, “It’s not static content anymore.”

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