By Ellen Lee
The Department of Justice and Apple are battling in court over e-book pricing, but that's not the only high-stakes brawl that's brewing in the publishing industry.
The multi-billion dollar textbook industry is also being shaken up by a slew of forces, from the publishers to tech startups, education non-profits, the government, university professors and, of course, Apple.
Textbook sales, for both higher education and K-12, will reach an estimated $13.7 billion in the U.S. this year, according to Outsell, a research firm. The overall market is expected to increase over the next few years as the student population is growing, according to Kate Worlock, an analyst at Outsell.
Just as with e-books, the shift comes as students turn to their tablets and smartphones for digital textbooks. Just take college student Clayton Brown, who carries an iPad to his biology class at Liberty University in Lynchburg, Va.
If his professor asks the students to follow along in the textbook, he taps his iPad, opens a digital copy and quickly lands at the right place without thumbing through any pages.
"Instead of carrying around a bunch of books, you have one device with everything on it," said the 23-year-old student. He also uses the digital textbook's added tools like flash cards and an online journal that keeps track of the material he's highlighted. "It's just much more efficient."
The price is also much more palatable. Instead of more than $200 for a used textbook at the bookstore, Brown said he paid $80 for his digital copy from Kno, an education software start-up in Silicon Valley.
The late Steve Jobs had his eye on textbooks, calling the industry "ripe for digital destruction" in Walter Isaacson's biography. The Department of Justice case only focuses on trade e-books, and whether, say, $10 or $12 is a reasonable price reached fairly by all parties. But its outcome could also potentially influence the pricing of textbooks, where a college student can spend on average $1,200 a year, according to the College Board.
Slowly, but surely, more and more teachers and students like Brown are switching from traditional printed textbooks to digital ones. In what could be a tipping point this year, local schools around the U.S. have started experimenting with digital textbooks and resources.
"Textbooks are going to remain a key part of learning. They just need to go digital, become more interactive and they need more analytics," said Osman Rashid, co-founder and CEO of Kno, which has received $65 million in funding from Andreessen Horowitz, Intel Capital, Goldman Sachs and others. It's incremental innovation that will lead to change in education, he said.
Previously, Rashid co-founded Chegg, the textbook rental company, which, faced with the digitalization of textbooks, has since expanded to be an online network for college students.
Kno and Inkling, another startup, are producing interactive textbooks, taking what was once static words and illustrations and adding features such as videos, audio, self-assessment quizzes and the ability to share notes with friends. A partnership among several major higher-education publishers led to the launch of CourseSmart, which also offers digital textbooks and resources.
A survey released last year by the Pearson Foundation found that 63 percent of college students and 69 percent of high school students believe that traditional textbooks will be phased out in the next five years. Slightly more than half of college students also said they preferred reading digital textbooks over printed ones for class.
The publishers, attuned to the digital wave, are also experimenting with new business models and launching new products, such as developing more personalized tools that can be tailored for individual students.
Pearson, for instance, no longer considers itself a textbook publisher, instead calling itself a "digital learning and services company." It launched in February an incubator to foster education start-ups. In November, it announced a pilot program, "Project Blue Sky," which lets professors mix and match both Pearson-owned and free online materials to create custom textbooks.
Such innovations, however, don't directly address one of the chief complaints about textbooks: the cost. Apple has argued that its move into e-books and textbooks should help lower the price and create a more competitive marketplace—something that the Department of Justice is hotly contesting in court. In the case of textbooks, disruptors say that even more could be done to make textbooks more affordable.
Soaring costs in education have spurred the state of California to invest $5 million to develop open-source college textbooks, tapping the masses of experts, researchers and faculty to produce cheaper, if not free, digital textbooks.
More states such as Illinois and Virginia are also considering similar legislation, and Washington is among the states that already make some texts available online for free.
"It's amazing how higher-education costs have spiraled out of control, especially textbook costs," said Dean Florez, president and CEO of Twenty Million Minds, the nonprofit in California that has been spearheading the open-source textbook effort. "The students don't have a choice at all."
Twenty Million Minds aims to produce digital textbooks for introductory college courses and has already released a free, faculty peer-reviewed statistics book. It plans to offer five more digital textbooks by the fall, also for free.
It isn't enough, Florez said, for publishers to sell interactive digital textbooks at a slight discount to their printed ones. "It needs to be more disruptive than that," he said.
Professors see disruptive opportunity in the digital age to free themselves from the hold of the entrenched publishers, too.
Anne Marie Knott, a professor of strategy at the Olin Business School at Washington University in St. Louis, is applying the lessons that she has learned studying business disruption as an academic subject to her own book publishing experience.
Knott digitally self-published her most recent textbook, "Venture Design," after having worked with two publishers, who she thought did poorer jobs of design and marketing than she could do on her own.
"Faculty should be all over digital textbooks!" Knott wrote in an email.
She explained that if they go through publishers they make 15 percent of wholesale (which is 75 percent of retail), so for a $100 book they would make $11.25. If they self-publish, they can get 75 percent of retail ($75).
"Textbook sales are incredible, you only have to get to one faculty member to adopt your book to get sales of 100 books per year for many years (faculty don't like creating all new material to match a new text)," Knott wrote in an email.
The Washington University professor believes there is a simple reason why higher education faculty should seek to self-publish: Publishers, while keeping a much larger share of the revenue, don't necessarily do a better job of designing, editing and marketing their books.
Publishers do two forms of marketing. They create and maintain lists of who teaches what, which they use to send free copies of new books, but Knott said faculty can rent member mailing lists from faculty associations for a few cents per name.
Publishers also hire direct sales people who visit campuses. Knott said she has never bought a book based on a campus visit, but she does review the "desk copies" of new books that are sent, and "if an academic I respect writes a new book, I seriously consider it."
Knott said the growing niche is professors such as herself who have small audiences. Since they actually already know each other and their reputations, they don't need the publishing world's marketing apparatus.
"My guess is faculty will catch on, the way musicians did. The advantage we have over musicians is we actually know our customers!—we hang out with them at conferences. That's less true in music—the publishers still have access to important things that generate sales: stations, venues, etc.," Knott wrote.
Ultimately, said Mark Edwards, the school superintendent in Mooresville, N.C., the shift to digital is meant to help students learn better. Mooresville schools have become a digital role model after the entire district adopted laptops for its fourth through 12th grade students.
There, teachers use a combination of digital resources, including free math tutorials from the Khan Academy, a pioneer in the MOOC online learning world, and digital textbooks and software from Pearson.
Since the conversion to digital, which began in 2007, graduation rates have increased from 64 percent to 90 percent. Test scores and attendance have also improved.
"The whole community is more engaged. Students see the connection of what they're doing in school to their future," Edwards said. "We're just on the cusp of discovering how powerful this can be."
Who will ultimately wield the power to profit from this powerful education publishing tool, though, isn't front and center for the business titans and federal prosecutors currently getting all the attention.