Anecdotal evidence among educators and the 76 million American students alike shows a resounding "yes" to the question of whether education should transition from traditional textbooks to those in e-reader formats. This technology is also clearly shifting economics of media. Amazon (AMZN) reached a tipping point in 2011, as its e-book sales surpassed traditional book sales in its online store. Book bags weighted down with heavy textbooks seem costly, cumbersome, antiquated and perhaps even a barrier to learning in the style in which this generation of laptop and smartphone users have come to pioneer. While the e-reader concept seems automatic to many, the logistics have posed some questions. While not all of those answers have been trouble shot, the promise of the technology will likely make investing in an e-reader both personally and in the market a potential win-win.
The New College Try …
College is an ideal environment for e-reader implementation. The independence, technology and responsibility factor lessen the issues concerning adopting this tool educationally at younger ages. Tangible college textbooks can cost upwards of $1100 per academic year according to a recent CollegeBoard study. Unlike K-12 education, textbook costs are footed by the student.
For today's college kid who thinks "online store" and not "river" when they hear the word "Amazon", an updated, most cost effective Kindle e-textbook may be a preferred, cost effective medium. Amazon's prorated textbook rental option offers a cheaper choice for students who already have its Kindle or wish to invest in one for a fraction of the price of a single textbook. Apple (AAPL), already the technology giant in the college demographic, launched its iBook® 2 for iPad® in early 2012. Playing to the educational market, the iBook App is available for a free download and can offer an increasingly dynamic and interactive textbook experience for students. iBook also offers rental options.
The monopoly bookstores once had on the college course material market has been busted by this new technology. Building a brand monopoly for e-readers may be essential Amazon, Barnes & Noble (NYSE:BKS) and Apple for a foothold in the college market. Unlike portable music devices, the product offered is required and choice is not an option. Offering the technology to all students at a college or university would strongly encourage purchase of the same product offered by other digital and brick and mortar book sellers from the e-reader's online store. Further, the student's personal patronage of the device's online for-purchase products could offer additional avenues for revenue. Barnes & Noble is shifting its stake from its focus on its 600 some brick and mortar college bookstores to its Nook e-reader and online store.
Today's K-12 Textbook Market
Publishers, e-readers and educators see the writing on the wall and want to be positioned for the transition to digital textbooks. Unlike some emerging technologies, this revolution will not necessarily increase market demand for the product. The high cost of the academic development of the published product will remain, but the physical production costs of paper, binding and shipping will all but disappear. The fight for market share will be fierce. Publishers will strategize to partner directly with one e-reader exclusively or offer its product across a range of e-readers for download.
The current K-12 textbook market rakes in $5.5 billion annually, According to the Association of American Publishers. Current major players in the market share include Pearson (PSO), McGraw-Hill (MHP), John Wiley & Sons, Inc. (NYSE:JW.A), and Scholastic (SCHL). At present, these publishers court school systems with bundled book packages for a subject which often include online text, interactive media support and teacher resources. When a system selects a book for adoption, it is implemented system-wide and often used for up to a decade if not longer. On the surface, it appears as bound books offer a reusable, cheaper option compare to digital technology, but the cost of replacement for lost, stolen and damaged books is huge. In large districts, it is not unheard of for $1 million to be allocated to replace books each year. In this light, the cost of a basic e-reader and reduced digital texts that cannot be damaged or lost makes more sense.
Like the college market, the e-reader competitors must establish themselves. With the controlled market of K-12 education, students do not have the choice factor of course materials or formats necessarily. Will the future see e-reader manufactures courting school systems with partnered textbooks offered on only their product? Apple has integrated a select number of K-12 systems through partnerships and grants. Pearson, already an iBook partner, brought in $2 billion in digital sales in 2011 and seems pleased with its representation through Apple.
Offering the technology at little or no cost to the cash strapped school-system and malleable student, may open larger markets those in the classroom. Depending on student iPad, Kindle or Nook accessibility, which has been a sticking point, an entrance into a school may also be an entrance into increased youth demographic marketing and sale of non-school related media.
Who Wins, Who Loses in an E-Textbook Atmosphere?
Non-affiliated online textbook stores offering an array of digital and tangible texts may see a boost from the big e-reader manufacturers' competition. Already in the digital game are competitors including bookrenter.com and CourseSmart, launched in 2007, which has 90% of textbooks used in core courses which can be read on a variety of e-readers. The largest of the online market share however belongs to the privately held company Chegg. Chegg offers online tangible book purchase, rental and buyback as well as digital book purchase. Chegg has estimated revenues of nearly $100 million annually and has been gobbling up smaller college-focused websites offering course rankings and tutoring. While Chegg CEO Dan Rosensweig has stated the company will not go public, investors could bank on a potentially tempting IPO of over $1 billion in the future if the educational e-reader/e-textbook market surges. Chegg could be a huge winner in this atmosphere.
A less lucrative ripple effect of the e-reader revolution in colleges is a reduction in the need for additional educational tools. A 2009 Princeton study showed a significant reduction in paper usage for students in the e-reader pilot group over a control group. Educational systems cutting costs may see this as a solution to the wasted renewable cost of paper supplied by the likes of International Paper Company (IP). Further, traditional educational items, like calculators, may easily be overtaken by Applications downloaded to an e-reader for a nominal cost. Texas Instruments (TXN), the expensive scientific calculator giant, may see reduced revenues in this shift.
Lucky college students on scholarship or mom and dad's payroll may lose out on a time honored source of income - selling back textbooks at the end of the semester. Who doesn't remember celebrating finals using the cash from a semester's worth of books or making it home for the holidays on the gas purchased with book money? University scholarships and grants strapped for funds could save money in a more economical e-text market by not footing the bill for high cost books to see students reap buy back revenue.
The question remains if the K-12 educational system and student will win. Can e-readers save budget restricted school systems much needed money? Averaging over $460 in texts per student per grade-level in a system could be replaced by an e-reader and book rights at a fraction of the cost. But can young students be trusted with expensive technology? Does having this technology pose threats of theft or misuse? Will offering technology in the classroom actually improve education and spark motivation? These are all interesting questions that will be met with many different answers over the coming years. If this technology will work in education is ready to be tested in more and more markets. In the race to the educational market share, banking on a supporting player such as a potential Chegg IPO or Amazon, which offers both tangible and e-Textbook options online, look to have bright futures.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.