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Friday, March 21, 2008

Why stores should not wait to experiment with digital...

I received the following e-mail inquiry in the past week, and thought it would be worth sharing. I changed the content a little to make the identity of the writer more anonymous, but in essance, this is what the person wrote:

Dear Mark-

I seem to remember a discussion from last year where we
came out feeling like things (digital) might be 5 years off. I thought I
heard at CAMEX that we are now looking at 18 months. What is your latest
& greatest crystal ball look like? Any of your current thoughts always

From Crystal Ball Reader

The following was my response -- updated to include a new development from the last few days.

Hi Crystal Ball Reader,

5 years seems realistic for perhaps the bigger shift, but 18 months is more realistic for the point by which more stores will start feeling a bigger impact of digital. If they wait more than 18 months to do anything it could be too late. Why? A couple recent events have spurred this.

  • First, Amazon's recent flirtations with entering the market. They have approached several institutions - large, small, public, private and for-profit. From what we have been able to learn from a couple of those institutions, it appears that they are proposing a model where the campus deliver the Kindle via a laptop-program-type initiative (which can be done several ways). Students could then download the textbooks to the Kindle at a reduced cost and some money would go back to the institution. So far it is IT that is being approached, not us. I have not been successful yet at getting a contact at Amazon to talk with us. If they tackle this market full-force, they could change things for us quite radically, quite quickly. And you know they will be advertising their sales not ours. I just received a draft article from a CIO proposing a program like this where 80% of the student textbooks would be delivered over the Kindle on ampus and what that would mean for campus stakeholders - although he forgot to mention the stores. I am supposed to review and provide feedback as an anonymous reviewer. So, Amazon could speed things up.

  • Apple is rumored to be working on a reader. We also know that they have signed agreements with publishers to offer a large number of textbooks via iTunesU within the next 2-4 years. I hope to have another update on this before long, but if Apple enters the market in force, it again could mean trouble for us.

  • About 10 days before CAMEX I was at a publisher meeting. One interesting point made there was a statistic given by one of the academic publishers who noted that the conversion rate from print to digital this year hit the 2-3 percent mark. Seems low, yes? That happens to be the same conversion rate from traditional media to digital that iTunes had in its first year. Four years later 85 percent of college Freshmen were carrying around iPods and buying music digitally.

  • Another item out of that publisher meeting, that I have now heard repeated in other venues, is that the publishers plan to approach institutions and push licensing of digital textbooks. They described this as "the solution" - reducing textbook costs and eliminating the used textbook market. It was how they saw getting the textbook to quote "appear to be as lose to free as possible" for students. I find this approach troubling, as licensing is not as innocent or inexpensive solution as it might appear on the surface. I expect to see a big push on this going into the fall. If an institution decides to digitally license the content and provide textbooks electronically via this method (and you know some will) the impact on the ampus store could be significant. This item seems to be the most logical or realistic threat to our timeline at the moment.

  • Open source content could be a threat. It probably will eat only a small chunk, and it is something that we may be able to work with, so that is a minor concern at this time, but much of that content is likely to be digital - increasing available inventory and alternative solutions.

  • There is CourseSmart, which will have the largest collection of digital textbook assets. They are popping up all over and will be working with many more institutions over the next year. There may be other companies they are in conversation with as well (I would assume). At least one institution has seen adoption figures of the CourseSmart option at 10 percent of enrollment across the courses tested, with one class reaching 20 percent of enrollment.

  • McGraw-Hill made some interesting remarks regarding digital this week in a call for the financial media. Of particular note, I thought, was their plan to have all of their front list available for sampling by August. This signals, yet again, that the barrier of insufficient digital inventory is dropping.

  • Finally, the recent tests in Ohio under the OhioLINK program are going to make things much more difficult for us. In their pilot tests, they got over 90 percent of the students in the trial courses to adopt the digital option. That is not a typo - 54 out of 55 students in one class, 54 out of 56 in another, adopted the digital. When compared against a class using just print, those students using the digital performed equivalently. I spoke to one professor involved in a pilot on another campus this semester and he has over 100 students in his large intro-psych course using the digital/e-book option this semester. Their prototype will be expanding to other institutions and large-adoption courses over the next few semesters - but we are already hearing about some of their results in other states.

So - while it may be five years before we see high levels of adoption across the board, I think we will not have that long before we have a larger critical mass of these anecdotal instances of higher adoption. Some of these models could change things overnight. I would rather plan on 18 months and find out we have five years to work with than the opposite.

All that being said, at NACS we are working hard at helping address these challenges for stores, while at the same time trying to provide lower cost solutions for students. For stores this can be doubly difficult because of the complex nature of store economics. Most college stores give revenue back to the institution, which is perhaps most often used to support student activities and student resources on campus. So stores are under pressure to increase revenue. At the same time stores recognize that students have options, and that price is a great concern. In some cases the institutional sources telling stores to generate more revenue are also the same sources telling stores to reduce prices. That is a difficult set of demands to balance - particularly when revenue for most stores comes primarily from textbooks. As digital course materials become more prevalent on campus, these pressures will get tighter for those stores who have not begun to work on campus relationships and rethinking their store capabilities, products and services in advance. Thus, it is better for stores to work for a future that may be just 18 months away than believe in the hope that we may have five more years before the digital impact is felt.

Thoughts or opinions?

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