How Nik Osborne Plans To Disrupt Class

The head of Indiana University's e-texts program lays out how his institution plans to "disrupt" the traditional textbook publishing model with the help of publishers themselves.

• By Dian Schaffhauser
• 05/03/12

Nik Osborne, leader of the Indiana University (IU) eTexts initiative and chief of staff for the Office of the Vice President for IT, could be considered an "old-timer" when it comes to the implementation of digital textbook programs. After all, his institution's implementation of e-texts has been going on since 2009.

Now five other universities will also be running pilots based on the model developed by IU through a program set up by Internet2's NET+ service. Participating universities in will get McGraw-Hill e-texts, the Courseload reader and annotation platform integrated with their learning management system, and the opportunity to be part of a joint research study of e-text use and perceptions.

In that model, the institution negotiates a deep discount off the list price of the textbook in order to have access to an e-text edition. In return for the discount, the university guarantees that every single student in the course will buy the e-text, which is charged like a lab fee. This is a definite change from the current textbook model, in which each student is personally responsible for showing up to class armed with the textbook, either in printed or digital form. As schools are discovering, as the prices of printed textbooks rise, so does the number of students who avoid buying the textbook.

But IU isn't done tweaking its approach to managing e-texts. In this interview, Osborne explains why digital textbooks offer so many advantages over printed ones and why the current "course fee model," as he calls it, isn't the final word for disrupting the traditional textbook model.

In referring to IU's use of digital textbooks, you were quoted in the New York Times as saying that what Indiana U has implemented isn't an innovative technology so much as an innovative business model. Can you explain?

The piece that's really innovative about what Indiana U is doing is we're considering the whole marketplace. When we made this arrangement, we were considering, what does the publisher need to have, what does the author need to have, and what does the student need to have? You have to create a model, I think, that works out for all three of those pieces. That hasn't really been done to date--and certainly not at an R1 institution like IU.

By understanding what's going wrong with the textbook model. If we can create something that works for all three parties, that could be a viable model that might solve some of these high textbook price issues that we're all dealing with.

We as an institution are constantly looking at how to lower the cost of education. As state support dwindles, we have to look at new ways to do this. One of the ways we've focused on is to cut down the cost of student materials. That's ripe for a little bit of disruption.

That's what the students need--reduced textbook prices. What do the publishers and authors need?

The publishers and authors are stuck in this really vicious cycle. Because they only get paid whenever that new book is sold, they're in a situation where they really have one or two semesters in order to make all the money on an edition of the textbook. If we assume that each textbook lives for three to four years before a new edition comes out, and we know that the used textbook market is available, really, as soon as that first edition comes out, that's when they have their chance to sell their book and make all that money that it costs them to put the book together. As soon as students have bought those books and started selling them back to the textbook market, the publishers and authors see the sell-through of those books drop dramatically. This is data we receive from the publishers. It drops to 20 to 30 percent sell-through after those first couple of semesters. If you're a student and you're looking at a $200 textbook brand new and you can get it for $125 used, that's not a difficult decision.

The other issue [publishers] have to deal with is piracy. That's alive and well. We certainly don't encourage this. Students are out there downloading textbooks for free. There are sites set up overseas outside of U.S. jurisdiction that almost encourage these things. Students now have these other options available. They're not even buying used books. They're going to pirate the book. I can promise you that the large majority of the biggest publishers' best sellers are available [through BitTorrent sites].

The other issue we see as a big problem in higher education is that a lot of students are choosing not to buy books at all. A high percentage of students have chosen [to] walk into class without one. That's a concern on our end.

Publishers and authors are seeing their sales drop. And they're trying to figure out how to boost sales, pay authors what they need to pay them, and get money back from all the value they're adding to the process as a publisher. Thus far, in this vicious cycle, the only thing they've been able to do is raise prices.

We're trying to figure out how to solve all these problems at once. That's when this fee model came in. If the publishers will drop the prices dramatically, we'll guarantee that each student who touches their textbook pays for it. And if you distribute the cost over the lifetime of the textbook--say, potentially nine semesters over three years--then each student is going to pay a much lower price. And the publisher and author will end up making more money, because they have made money each time that book was used rather than the first two semesters.

And that's more effective than just offering each student the option of buying the ebook?

Exactly. The deal with the publishers is they'll drop the prices substantially, but only if they get that 100 percent sell-through. If we're just going to open it up to letting the students choose, then we're just in the marketplace.

Is this model sustainable?

We think so. There are things that we'll fine-tune as we go forward. Right now at IU we have deals with Wiley, McGraw-Hill, Macmillan, Norton, and a few others. They seem to like the process, because from their side, once they get a faculty member to sign up for a book, once a faculty member has said, "I want to use this textbook," they've just sold it to everyone in the class. Before [the publisher] may get a faculty member to say, "I want to use [your] textbook," but they have no control over who's buying the book. The faculty member could say, "I want them to use this book," but the student could go lots of places to get it--including places we wouldn't support, such as piracy and illegal downloading.

So we think it's sustainable. We seem to be gaining more momentum with the publishers. Other institutions are buying into this. I think that's when it starts to get interesting. When you get other institutions throughout the country and throughout the world to be interested in models of these types, then the publishers will do even better. Again, students save money, publishers and authors earn a fair amount for their content. It's a win-win.

Is the eTexts program expanding at IU?

Yes, it is. I don't have the exact numbers quite yet for this year, fall 2012. But last semester we had 130 sections and over 5,000 students. This year I think we're at over 200 sections. That's a good, solid increase.

At IU we need to get deals with a couple of other publishers. Pearson is obviously one that's a glaring [omission] from our contracts. Cengage is another large one.

When faculty members have developed their course instruction based on a certain book, it's really hard for them to change. They're resistant to that change. We've been trying to get out there and try to get more deals, so we can provide our faculty with options for those who are using those publishers.

I have a positive feeling we'll be able to do that. We've had good discussions with both of those companies. I think we'll be able to get deals with them relatively soon.

Is there tweaking of the course fee model that you foresee coming in the next year?

There are a couple of really interesting pieces.

One is this "discount off list price." Thus far, we've basically had a model where we get a discount off of list price from the publisher. The list price is really just a made up number. The publishers each have their own list prices for their books. They can raise those up $10 or $20 every semester if they want to. I'm sure they have some sort of formula, but in my eyes, it's really just numbers they make up. If we base all of our discounts off of made up numbers, it's like going to a car dealer. The car dealer will give you whatever discount you want as long as he gets to set the initial price.

So we want to move away from that. We want to move into more of a flat rate or bucket pricing. Some publishers, like Flat World Knowledge, will give you a flat rate price for all their books. Some of the other publishers--especially the larger ones--can't do that because there are certain books in their portfolio that do cost a lot more money for them to make. What we've asked them to start thinking about is distributing books into buckets. Let's say you have a $15 bucket, a $30 bucket, and maybe a $50 bucket. You as publishers determine where your books fall into that bucket. Instead of having these formulas where we take a discount off of made up numbers, put your books in certain buckets, then let the faculty choose.

Of course, the publisher has to be careful. If a faculty member says, "OK, I'm interested in this book in the $30 bucket," but then does a little research and finds out that the student could maybe do a little better on their own, he or she is going to choose not to buy out of that bucket. There could be some situations where the publisher has to maybe lose a little money on one title and make a little money on another in order to be competitive in the marketplace.

We think that’s an interesting next step for the publishers to take and really button down the system.

The other one we're really interested in is around digital supplemental materials. For example, McGraw-Hill has a product called Connect. Pearson has one called MyMathLab. These are pieces that we encourage the publishers to try to sell, but we want them in an almost a la carte pricing. What the publishers have been doing in the marketplace is combining them with the textbook. We've said, "If these digital products are so good, let them stand on their own. Give us a price for the e-text, and then give us a price for the digital supplemental material. Then let the faculty choose."

In the first semester, we had some pushback from faculty who were interested in the e-text, and then they got the price for the digital supplement, and said, "That's too expensive." When we pushed back to the publishers and said, "OK, for that price, that supplement is too expensive for the faculty. You need to think about that." At least with McGraw-Hill, we've been very happy with their response. They actually came back with some flat rate pricing for their McGraw-Hill Connect feature. So we can say, to all the faculty, "You can get your e-text, and then if there's a Connect piece, it's a flat rate price." Thus far that has been a really positive step forward.

It's a really good example of IU market working, because when they came in with these high prices, the faculty said, "No, it's not worth it." And now we've got lower prices and the faculty are starting to adapt.

We think those are two really positive steps as we move forward in this process.

According to reports put out by the project, nearly nine out of 10 students believed that the IU approach saved them money on textbooks. First, is it true, and second, does it surprise you that students believe it?

Certainly, the students--and maybe the students' parents--believe that. They're the ones paying these high prices. I think it is true. We did some very minor looking at prices and figuring out, OK, what if you went out on the marketplace and bought a book or bought another e-text compared to the prices we gave students. When we did that analysis, the IU e-text price was lower.

I think the used book market makes it difficult to make a strong statement that IU's e-text always saves students money. The reason I say that is because students can sometimes buy and sell back, it's really hard to figure out what their net cost is. It depends on the lifecycle of the book they just bought, it depends on where they sell it back. It's hard to put your finger on net cost. I'll give you a brief example. If a student has bought a first edition, brand new book from the bookstore, they're paying a premium. They're going to pay $200 or $220 price for that textbook. When they go to sell it back, depending on where they sell it back, they're going to get a percentage. If they took that book and sold it back to the bookstore here at IU, they may get 50 percent back. Then their net cost for that book was about 50 percent and they just lost access to it.

If you compare that to some of the deals with IU e-texts, especially given that the IU deals allow continued access while the student is enrolled, and at price points lower than 50 percent, then the student has done better. It's clear, and we can clearly state that they've done better.

Now we start to get into, well, what if the student didn't sell it back at the bookstore? What if they sold it to a friend or on Amazon, where they were able to get a little more money back. Or what if they sold it in year two of the lifecycle of the book, which means they bought it used and were able to sell it back to someone used? Then it's a little more difficult to say, OK, for sure, the IU deal was better. That's the hard part in making that statement.

Overall, given the data that we have collected, and the data we collected prior to pushing forward at a certain price point. I think overall for 110,000 students, that e-text deal is a better deal. But again, there's always going to be that person in the room who says, "I bought a book for $50 and I was able to sell it to somebody for $40." That's great. But could 110,000 students have done that? The answer to that would be no.

One thing to think about too as you look at the entire e-Text initiative is that there are some other benefits to the initiative outside of money.

Some of the things that the digital software through Courseload can allow faculty and student to do and how they interact, I think there's some added value there that you don't get just from the textbook.

For faculty that have really embraced this initiative, they are truly utilizing that software. And they are interacting with their students in ways that they cannot do in a textbook. They can add in different content and grab a section of the book and help the student focus on that section or grab a video and throw it into a textbook, so that after reading a paragraph the student can go watch a video to have a more visual understanding. Those are values that are outside how much the textbook costs.

Also we heard from the faculty when this initiative was getting started about how valuable they feel it would be for that the student to maintain access to their books. For example, if you're taking Biology 101, you're going to use a certain textbook. You're going to annotate it, highlight it, and you're going to have a lot of value you're going to add to that book. If you sell it, you've just lost all that. The faculty were very vocal in expressing that that's valuable to them, to know that their students in Biology 102 have that book, have all those annotations and highlights and feedback from the professor for that introductory course.

In the current marketplace, there are not a lot of students who are going to hold onto those books. They're so expensive, they want to get some money back out of them. This initiative solves that problem a little bit. When they're seniors, they can go back to the book they used as a freshman.

Then, of course, at any time they can get a print-on-demand version of that book if they want to really keep it forever and have that physical copy even after they've graduated.

One of the things we've been trying to educate people on is, why is it that some of the deals that are coming out limit access past a year or past a semester? If you think about it, there's really no reason. I've spoken to a lot of publishers, and some have said they have contracts with certain copyright holders that do increase the price on the publisher if they allow access for longer amounts of time. But those are few and far between.

Quite honestly, the publisher has put their cost in developing the book. When you've taken away the printing, shipping, and storage costs, and you're just left with your digital document, for the publisher to press "Send," that doesn't really cost them anything. In our initiative, it's not the publisher that has to continue allowing access. It's Courseload. So once the publisher has sent that PDF file or Epub file over to Courseload for students to access, it doesn't cost the publisher anything if they allow access for longer than a semester. They don't maintain the servers.

That's something we're trying to educate more and more people on. There's teaching and learning value to having the continued access. Then there's' just the question of, why not? What is the additional cost? What does it hurt to allow them to have access? In four years, if you allow a student to buy something as a freshman and then have it as a senior, the publisher has probably created a new edition by then. So now we're talking about access to an older edition of an e-text.

Now the IU approach has been picked up by a bunch of other universities. They'll be doing that as part of Internet2's NET+ service. But do you have advice for other institutions that may not be part of Internet2 regarding e-text programs?

There are so many different kinds of institutions out there with different demographics and different focuses. For IU this process makes sense. If it makes sense for IU, it probably makes sense for a lot of other schools. But that doesn't mean it makes sense for every school. What we're really trying to get all these institutions to start doing is just to start thinking about this shift to digital--and what steps they need to take at their institution to be prepared for it.

We're pretty sure that a shift to digital and print is going to happen. It seems to be where the publishers are going. It seems to be where the Department of Education is trying to push people, as the software and the devices get better. There are just going to be things in the next three to five years that you can do on an e-text that you can't do on a textbook. Not only in higher education but in the K-12 market there's going to be even more of a push to digital.

The NET+ [program] is great because for those institutions that are interested in IU's process, they can--for a low rate--try something like IU is doing very easily at their institutions without a lot of work on their end because of the way we've set it all up.

In the next week or so we're going to have some exciting news out of IU around this that will really push the initiative even further.

Institutions need to know they don't have to do this on their own. There have been a lot of steps taken already. We should be able to unite and learn from each other in higher ed, so we're not all on an island doing this by ourselves.