The Changing Textbook Industry | Entrepreneur the Arts

"The Internet is transforming the $14 billion U.S. textbook industry. Although this market represents only 1% of overall education spending, the changes brought by the Internet could result in significant improvements in the quality of education as well as cost savings. Legislation introduced on November 14, 2013 by Senators Durbin and Franken would accelerate this process. The textbook industry is divided into two sectors of roughly equal size: K-12 and higher education. Three publishers, Pearson, Houghton Mifflin Harcourt, and McGraw-Hill Education, control the majority of the K-12 market. Pearson, McGraw-Hill Education, Cengage, and Wiley dominate the higher education market. According to the Bureau of Labor Statistics, the price of textbooks has risen more than 800% over the past 30 years, a rate faster than medical services (575%), new home prices (325%), and the consumer price index (250%). The average college student spends more than $900 a year on textbooks. Not surprisingly, textbook publishers have been highly profitable. In 2012, McGraw-Hill’s profit margin was 25%; Wiley’s was 15%; and Pearson’s was 10%. Moreover, the profit margin of firms in the publishing sector increased on average by 2.5% between 2003 and 2012. The Internet, however, has begun to disrupt this market. First, the Internet has facilitated the purchase and rental of used textbooks. Although publishers have long had to compete with the sale of used textbooks at on-campus bookstores, online platforms such as Amazon and Half.com (owned by eBay) enable the selling of books between students at different institutions. This is particularly helpful when one institution has adopted a new edition of a textbook, while another institution is still using an older edition ... Second, the Internet has created a demand for digital textbooks, which has reduced the revenue of the established publishers.  In the higher education market — primarily a B2C market where textbooks are sold to individual students — the price a publisher can command for a digital version of a textbook is lower than that of a physical copy. In the K-12 market — primarily a B2B market where textbooks are sold to school districts — publishers typically charge a school district an annual subscription fee for an e-textbook, which defers income. For example, a publisher could sell a physical textbook for $75, but could only charge $12.50 for an annual subscription fee for the ebook version of that textbook. While over six years the revenue stream would total $75, in the first year the publisher’s revenue is down $62.50 ... Third, and most importantly, the Internet has allowed the emergence of new competitors to the entrenched textbook publishers. These competitors take many different approaches. Some are for-profit businesses. Boundless provides low cost alternatives to standard college textbooks. While the average price of an assigned textbook is $175, Boundless sells an online textbook covering the same subject matter for $20. The search feature of the Boundless textbook allows the student to find the information that matches the content of the textbook pages assigned by the professor. Flat World Knowledge offers over 100 online textbooks, which professors can customize for their courses ..."