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Open Textbooks: An Entrepreneurial Open Textbooks: An Entrepreneurial ApproachApproach

Bill Buxton

October 18, 2010

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Entrepreneurial MethodologyEntrepreneurial Methodology

The following analysis was made using standard techniques of entrepreneurial evaluations of business opportunities:

•Product definition, product life cycle, sources of content

•Technological advances in production and outputs

•Changes in the application of copyrights and other IP trends

•Industry’s structure, conduct and performance

•Financials, history and trends, profitability

•How members compete

•Cost and price analysis

•Market penetration strategies

•Customers, buyers, influencers

•Etc.

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Disclaimer and CreditsDisclaimer and Credits

While enrolled at the Center for Entrepreneurship and Innovation’s CAPE program at Santa Clara University I interviewed entrepreneurs, venture capitalists, business professors, law professors, CCOTC members, and CEO’s of non-education based businesses. My conclusions are based on that feedback as well as detailed market and financial analyses. My conclusions are not the opinion of any members of CCOTC, CCCOER, or Foothill College, although some members graciously provided invaluable insights.

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Federal law Effective July 1, 2010

20 U.S.C. 1015 It is the intent of this section to encourage all of the involved parties, including faculty, students, administrators, institutions of higher education, bookstores, distributors, and publishers, to work together to identify ways to decrease the cost of college textbooks and supplemental materials for students while supporting the academic freedom of faculty members to select high quality course materials for students.

Open College Textbook Act of 2009 Open College Textbook Act of 2009

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What is a Textbook?What is a Textbook?

Textbooks are snapshots of the body of knowledge of a particular subject at a particular depth, arranged to enhance and test learning.

That body of knowledge is formulated and maintained by academe – thousands of individuals and institutions researching, writing, publishing, conferencing – to achieve a consensus that defines the state of the art. Academe has been “crowd sourcing” for hundreds of years. (How did they manage without Twitter?)

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What is an Open Textbook?What is an Open Textbook?

Open educational resources (OER) means teaching, learning, and research resources that reside in the public domain or have been released under an intellectual property license that permits their free use or repurposing by others.*

An open textbook is a type of open education resources.

http://www.federalregister.gov/articles/2010/08/05/2010-19296/secretarys-priorities-for-discretionary-grant-programs#p-106

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The Question:The Question:

Are there sustainable private-sector* business models that can provide free or low cost open textbooks** to community college students?

*Includes non-profits

**Textbooks = all formats of open content

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The Answer:The Answer:

Definitely YES.

Here’s why…….

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•Educational achievements, not just opportunities, yield a precious social benefit, and the security and advancement of our democracy depends upon those achievements.

•Many educators are willing to offer their knowledge for the benefit of all - for free or low cost (e.g. Creative Commons licensing).

•The price of educational resources should not be used to subsidize (perceived or real) corporate excesses.

•Education cooperation is becoming global. We are all in this together.

Changes in Social Attitudes:Changes in Social Attitudes:

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Reduction of CostsReduction of Costs

Costs are falling all around us:

•Internet access

•Text and graphics software

•Databases (for repositories)

•Website technologies

•Computers and storage devices

•Print-on-demand services

Costs

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Because of Costs Reductions:Because of Costs Reductions:

Anyone can write, publish, and market a book for less than $100.*

Anyone with organizational skills can create a book publishing company.

* Connexions (Rice University), for example, offers a totally cost-free, ad-free repository to create, collaborate, and modify textbooks.

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And Opening of Copyright PermissionsAnd Opening of Copyright Permissions

Anyone can create a designer textbook from existing open content, matching or bettering the traditional designer versions.

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What’s making this possible?What’s making this possible?

•The proliferation of computer technologies offering low costs websites, collaboration software, databases (repositories), and document processing

•Trends in removing the complexity of copyright permissions.

•Expansion of print-on-demand providers.

•Cost reductions in printer technologies.

•Authors and educators recognizing they can have control over content and supplementary materials.

•Authors and educators embracing computer technologies.

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Analyze the prices and costs …

But How to Compete? But How to Compete?

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| Authors | | Publishers | | Printers | | Wholesalers | | Retailers | | Education Organizations |

$Students’{Governments} {Family and

Friends}

{Jobs} {Auctioning younger siblings’ video games}

$$$

$ $

$ $ $

Where Does the Textbook Money Go?Where Does the Textbook Money Go?

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Typical Profit and Loss AnalysisTypical Profit and Loss Analysis

Sample Profit and Loss Analysis per TitlePrint Run 50,000 TotalsGross Sales 49,000 $518,102Return Rate 19,000 $200,897 39% Return RateNet Sales 30,000 $317,205 61% Sale through RateSuggested Retail Price $19.95Average Discount Rate 47% $10.57 ea. to publisherUnit Manuf. Cost (PPB) $1.50 $75,000Plant Costs $10,000 $10,000Direct Marketing $50,000Royalty/Advance $0 $31,721 10%Subsidary/Foreign Rights Revenue $0Total Cost $116,721Gross Margin $200,485 63%Direct Marketing $50,000Other Publishing Income $2,100Inventory w/o $28,500royalty w/o $0Overhead $95,162 30% Net SalesNet Profit $26,823 8% Net SalesSource: The Book Publishing Industry , Second Edition by Albert N. Greco (Oct 25, 2004)

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Textbook Iterative Price Analysis:Textbook Iterative Price Analysis:RevenuesRevenues

Price per Unit Used ConvertedPrice

DistribDesigner Textbook

Open Textbook

Designer Textbook

Open Textbook

Student Pays 100.0% $150.00 $91.61 $112.50 $41.75Retailer Receives 25.0% $37.50 $0.00 $84.38 $0.00

Wholesaler Receives 5.0% $7.50 $0.00 $5.63 $0.00Printer Receives 20.0% $30.00 $30.00 $0.00 $30.00

Publisher Receives 50.0% $75.00 $61.61 $0.00 $11.75

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$0.00

$20.00

$40.00

$60.00

$80.00

$100.00

$120.00

$140.00

$160.00

New Designer Textbook

New Open Textbook

Resale Designer Textbook

Converted Open Textbook

Retail Price DistributionRetail Price Distribution

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Textbook Iterative Price Analysis:Textbook Iterative Price Analysis:CostsCosts

Sources:

TAA Myths Flyer 2009

SmartTrend Stock Analysis

Georg von Holtzbrinck GmbH publishing group

Designer Textbook

Open Textbook

Designer Textbook

Open Textbook

Publisher Costs 25% updatesResearch and writing $6.76 $6.76 $0.00 $1.69

Author review changes $0.75 $0.75 $0.00 $0.19Developmental Editors $8.04 $8.04 $0.00 $2.01Developmental Artists $2.39 $2.39 $0.00 $0.60

Vetting $2.00 $2.00 $0.00 $0.50Design Artists $2.00 $2.00 $0.00 $0.50

Copyeditor $0.75 $0.75 $0.00 $0.19Checking/Rechecking $1.30 $1.30 $0.00 $0.33

Production Setup $3.00 $3.00 $0.00 $0.75Publisher COGS $27.00 $27.00 $0.00 $6.75

Publisher Gross Margin 64.0% $48.00 $34.61 $0.00 $5.00G&A, Selling, Royalities, etc. $34.50 $34.50 $0.00 $5.00

Profit Before Taxes $13.50 $0.11 $0.00 $0.00Percent of Revenue 9.0% 0.1% 0.0% 0.0%

Assuming the same costs

Used Converted

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How to Break intoHow to Break intoand Stay in the Market?and Stay in the Market?

•“Clone” the designer textbooks using open content

•Offer student rebates based on performance

•Enlist corporate subsidies of particular textbooks

•Improve software applications to further reduce production costs

•Vertical integration (e.g. Print Express machines $75K) to reduce production costs

Hire top academic subject matter experts.

And especially important …..

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• Are offered and maintained by the authors and their representatives – no orphan works – with providences permanently recorded and available to public.

• Are fearlessly copied, remixed, distributed with confidence.

• Are available in modular, liquid, structured digital and print formats.

• Meet or are readily adaptable to accessibility requirements.

• Are at least equivalent to “designer” textbooks and ancillary materials.

• Are available online to all, without exception, for free or very low cost, and freely accessible 24x7.

• Have printed versions available to all, without exception, for very low cost 24x7.

• Create meaningful analytics.

Textbooks (content) and ancillary materials:

Maintain the IntegrityMaintain the Integrityof Open Textbooksof Open Textbooks

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A Feasible Business ModelA Feasible Business Model

Textbooks

Authors

Open License

24x7 Free Repository

Free Downloads

$ Print Copy

Students No-adsponsorsProfessors Publishing Co.

Selects

Dev, etc.

PerformanceRebates

Royalties

Dividends

$ Margins

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How Will They Compete?How Will They Compete?

First-to-market

Prices are low enough to discourage entry from traditional publishers.

Entry would increase competition and thus efficiency, keeping prices low

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……and what of Campus Bookstores?and what of Campus Bookstores?

They must reorganize. They will continue to carry specialized textbooks, supplies, software, and service the after markets. The successful ones will become textbook print-on-demand printers, capturing that markup plus the shipping revenues.

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Questions? Comments?Questions? Comments?

An informal survey of professors show that quality and completeness of content are the primary factors in selecting a textbook.

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Santa Clara University California Program for Entrepreneurship:http://www.scu.edu/business/cie/CAPE.cfm

Book Industry Study Grouphttp://www.bisg.org/

The Book Publishing Industry, Second Edition by Albert N. Greco (Oct 25, 2004)

Connexionshttp://cnx.org/

Source: The Association of American Publishers

http://www.solutionsforstudentsuccess.org/quick-facts/

Prepared by Bill Buxton bill@textbookequity.com

Sources and ReferencesSources and References