One of the most annoying anomalies during my college education was the incredibly high and progressively increasing price of textbooks (often around $100 for most Computer Science and Economics classes). More than the price itself, the most irritating factor was the artificially-induced price-inelastic demand for text-books (no matter how high the
prices were, almost all students including myself were forced to purchase the textbooks). These high prices can be attributed to the existing business model and delivery mechanism of text-books which is dominated by a small set of publishers and distributors. While renting physical printed books does address some of the issues (I admire Chegg : Text book rentals), it doesn’t solve the problems of high cost, out-of-date content and logistical inefficiences.
From my vantage point, Amazon Kindle’s adoption, usability and content-distribution mechanism makes it far more superior both functionally and experientially for the college student. I believe firmly that Amazon Kindle for college students has an opportunity to make a substantial dent in the $4.9 billion text books market by shifting the focus from “used books” to affordable and up-to-date new digital book rentals. If I ever bump into Jeff Bezos in the next few months (you never know – Seattle’s a small city), here’s my elevator pitch:
- Amazon Kindle College could offer college students with rental textbooks at dramatically lower costs than used text books, thus substantially reducing the student expenses on textbooks by more than half. College students who are often cash-strapped are frustrated by the ever-increasing costs of text-books and the hassles associated with re-selling them back.
- Kindle could enable to publishers to gain substantially larger aggregate margins for a textbook unlike contemporary model where the publishers get margins/profit-share only from the first sale of a new book, even though an average textbook may be sold multiple times over in the used books market.
- Kindle could leverage technology and a significantly better customer-experience to eliminate the inefficiencies associated with the used books market, which is estimated at a $1.9 billion per year.
Textbooks are expensive and prices keep increasing:
Textbooks account for a major expense for college education, ranging up to $1000 per year per student. Since the supply chain (publishers and distributors) is an oligopoly (just five major publishers – Thomson, McGraw-hill, Wiley, Houghton-Mifflin and Peason, and just four major distributors/wholesellers – Follet, Barnes and Noble, Nebraska and College Bookstores of America), price of new textbooks is not controlled by market forces. The demand for textbooks is almost inelastic (see the graph above). Nonetheless, students are forced to purchase textbooks.
The market for used books is inefficient and wasteful
Students waste significant mindshare and resources at the beginning of every semeseter/quarter to sell their textbooks back (either to other students or to a bookstore), and are often forced to do so due to financial constraints. The “used books” market is typically driven by bookstores (online and offline) and is often full of inefficiencies related to pricing and logistics. The “used books” market is optimized for the benefit of the bookstores/distributors while publishers as well as authors are kept out of the loop.
Renting physical printed textbooks has shown positive results, but is neither scalable nor optimal.
Owing to large initial investment requirements and conflicting interests with existing profit streams of bookstores, bookstores/universities often don’t rollout rental programs. In the last few years, there have been some progressive startups like Chegg, who rent textbooks for typically 1/3rd price of the cost of a new book. But these models work only for beginner classes (with a large and predictable enrollment of students). These models also keep the publishers out of the loop of sharing margins of book-rentals, thus giving them incentives to publish new books more frequently.
Amazon Kindle for College could rent textbooks to students for a semester/quarter at a substantially lower price than that of used books. Incentivize publishers and authors by sharing revenues from each book rental. Shift the cost savings from “not having to move around used books” and “not paying hefty margins on used books at bookstores” to the customers, while providing them with an incredibly superior “Textbook” experience.
Overall the market textbooks in the US is estimated at $4.9 billion per year. Used books account for about $1.9 billion per year market annually. There are bout 17.5 million college students in the US (addressable market size.)
Benefits of innovation:
- Students get a superior and up-to-date textbook experience for a significantly lower price
- Publishers get a share from every book consumed by a student, thereby increasing their aggregate profit.
- Authors get a royalty for every book consumed by a student and can publish updated content seamlessly at a marginal cost.
Distribution and go to market:
- Offer students with an offer they cannot refuse. Price the books such that, the cost of a Kindle College and first semester rentals would be less than what students would pay otherwise for textbooks for one semester.
- Add value to the Kindle College experience by opening the Kindle platform to developers to develop value-added applications
Napkin Numbers: These are some numbers that I came up with based on my college experience and some napkin math. These numbers, may not be exactly accurate, but should be in the ballpark. I had purchased a Computer Science textbook “Introduction to Algorithms” by Cormen for about $100 and am sure that it is still being circulated in the used-books market, benefitting the bookstores.
After being forced into buying a new book for $100, I could have sold it for $40 to the local bookstore, who would resell it for $70 and the cycle could continue, until the publisher publishes a newer version of that book. Although the book would be experienced by multiple readers, the publishers and authors wouldn’t get any royalties/margins from the subsequent purchases.
Rentals on Kindle may eat into profits of existing “used books” business of Amazon in the short term, but it is THE right thing to do for customers in the long run.
Most numbers about the market and supporting data are quoted from a comprehensive study done by Dr. James Koch (smart man) which can be found here.
On a personal note, this has truly been one of the most irritating things about my college experience and I had attempted the following means at various times to deal with it:
- Bought the same textbooks at significantly cheaper prices from India (typically for the spring semester, whenever I went to India for Christmas break.)
- Attempted to rent my textbooks to juniors.
- Sold my used books on Amazon zShops.
- Did not buy a text book for a class (as an experiment) and managed to get a decent grade (had almost bought the textbook on the eve of a midterm exam)
- Mostly ended up buying used books on Powell.com or half.com (they offered the cheapest used books)
Let’s fix this!