Flat World Knowledge: A Disruptive Business Model

It would be difficult to find a more ossified corner of the media industry than the college textbook publishing sector, which is essentially a monopoly controlled by three huge companies that no longer serve any of their constituencies particularly well.

• They overcharge a captive audience (students) for needlessly thick, poorly edited tomes.
• They pay the teams of academic authors whose work they word-loaf into the content of these textbooks next to nothing.
• They cause professors endless headaches by releasing new “editions,” filled with unwanted bells and whistles, on a falsely sped-up publication cycle.

Thankfully, there is now a viable alternative to these Pleistocene Epoch companies and their dinosaur-like business model. Flat World Knowledge, the largest commercial publisher of open-source college textbooks, has thrown a disruptive business model right into the face of the $8 billion annual textbook market, and it’s gaining traction fast.

According to new sales figures announced today, Flat World textbooks will be used by more than 40,000 students at more than 400 colleges in the upcoming Fall semester. This is a dramatic increase from the Spring semester, when only 1,000 students in 30 colleges used the Flat World books.

The company projects that it will save college students and their families around $3 million this fall, but that is only the tip of the iceberg, because current growth rates suggest that the company will be serving more than 200,000 students by the end of next year — a five-fold increase over current levels — with plenty of upside market potential left with an estimated U.S. college student population of some 17 million-plus.

Not to mention the rest of the world.

Flat World Knowledge is the brainchild of two industry veterans who, back in 2007, decided to reinvent their industry from the bottom up. Co-founder Eric Frank explained to me how the company’s model works. “We still produce books in the traditional way, i.e., we approach top scholars, conduct peer review, and integrate  all of the elements (photos, charts, graphs) into a high-quality textbook. But then we flip the model on its head.”

As opposed to publishing a paper edition under copyright, the company applies a creative commons open source license. It then publishes each title online, where every single book in its catalog can be read for free. (They are also presently free on iPhones, though I suspect that will eventually have to change.) There also are a number of paid options available to the professors and students who sign up with the company:

• A black-and-white soft cover edition will be printed on-demand and delivered within five days for $29.95.
• A color edition produced in the same manner costs $59.95.
• An audio book, in mp3 file format is available for $39.95. (Individual chapters cost $2.99 each.)
• A PDF costs $19.95. (Chapters are priced at $1.99 each.)
• Study aids that include sample quizzes and other helpful material can be purchased for $9.95. (Chapter study aids are priced at $1.99.)

So how is this model working out to date? “Our data indicate that 65 percent of the students choose to buy at least one of our products, with 35 percent choosing the free option,” says Frank. “The average amount spent by a student is about $30 a semester, or factoring in the free use, $20 per student per class per semester.”

What makes this data interesting is how well it already competes against the traditional textbook model, where books often cost students more than $100 a pop — which is simply too burdensome for most students to endure any longer. Therefore, unsurprisingly in the age of the Internet, tech-savvy students have been pooling resources to purchase just one copy, scan, file-share and print it out in what Frank calls the “Napsterization of the industry.”

What makes matters worse for the traditional publishers is that in order to penetrate growing global education markets they have created a tiered pricing model, so that similar editions of a book may be priced at $140, say, in the U.S. and only $17 in Malaysia. Inevitably, a “global gray market” has developed, sending the cheaper Malaysian editions back for sale in the States.

The market for used textbooks has also exploded, as anyone visiting a campus book store knows, so that after that first pricey semester when a new textbook is adopted by their professor, students have many options beyond plunking down that huge upfront payment to get the text in question.

With sped-up publication cycles, the average shelf life of most textbooks is now only four semesters. Although Flat World has only three semesters of data so far, it calculates that due to all of the piracy, used sales, and file-sharing plaguing the traditional marketplace, “our attrition curve is much flatter than theirs,” says Frank.

So, even with its drastically lower price points, Flat World makes out as well or better over the four semester life cycle of the typical edition as do the traditional publishers. Now, that is truly disruptive!

In addition, the company pays authors a 20 percent royalty, 5 percent more than the industry standard, plus the opportunity to stop feeling awful about the burdens they have been imposing on their students, so it really is providing a win-win-win proposition all the way around.

Except, of course, for the old industry giants.

“We are the most disruptive thing that’s come down the pipe toward the conventional publishers, ever,” notes Frank. “They have that deer-in-the-headlights look to them about us.”

While Flat World Knowledge has emerged as the leader of commercial open-source college textbooks, there are various non-profit outfits trying to attack the problem of usurious textbook pricing, as well as commercial operations experimenting with inserting ads into digital textbooks as a potential business model.

And yes, in case you were wondering, Frank confirms that the company is completely aligned with the underlying premise in Thomas L. Friedman’s book, “The World is Flat.”

Thanks to Mark Coker for introducing me to Eric Frank and his company.