Campus Store Weights In on Rental Debate

In an opinion piece earlier this month in Inside Higher Ed, a University of North Dakota professor claimed that rental textbooks limited student access to course materials and stifled critical thinking and conversation. Jason Katzman, CCR, assistant director for academic resource support, CU Book Store, University of Colorado Boulder, says he understands the prof’s points but argues rentals are a symptom rather than a cause.

“Twenty years ago, a student bought a book, sold it back at the end of the semester, and maybe received something close to half (although probably not) of what they had paid if the book was being used again the next semester,” Katzman wrote in his Inside Higher Ed rebuttal. “Of course, professors complained then that the buyback process devalued the educational experience by encouraging students to part with important materials they might need for another class or later in life as a reference. Then, along came the Internet and Amazon, and the model that traditional collegiate textbook retailers had been using for years was upended. For many stores, renting textbooks is a way to compete while remaining financially viable.”

Market forces determine where students decide to get their course materials. Selling a textbook for $400 has become unthinkable, so rental has become a way for bookstores to remain relevant and viable. The current trend of providing students low-cost digital course materials as part of tuition or course fees is another solution that helps publishers and bookstores stay in business while driving prices down for students.

“If the higher-education community wants to spend large amounts of energy working on the high cost of course materials, they should. It’s important,” Katzman wrote. “However, we’re being shortsighted. In addition to course materials delivery, another model that’s broken is higher education itself. What happens when Amazon or somebody else finds a way to offer a bachelor’s degree for 75% of its current cost?”

Prof Vents about Textbook Rentals

Does renting textbooks save students money or cost them the real value of a college education? Sheila Liming, an assistant professor of English at the University of North Dakota, Grand Forks, makes a case for the latter in an opinion column for Inside Higher Education.

“A degree used to mean learning from texts and racking up a cumulative store of skills and reference materials along the way,” she wrote. “But with the rise of textbook rentals, the rules of learning are getting rewritten, and not by education professionals, and not in accordance with the needs of student consumers, either.”

Her issue with rentals is they’re promoted as a cost-savings option but there are limits to how students can access and use the materials. Those are roadblocks that inhibit critical thinking and conversation, according to Liming.

“Rental companies insist that a given book can only be ‘useful’ to a student for the duration of a single semester, and so encourage students to see their own learning as fated for expiration and uselessness,” she said. “Even worse, rental companies and vendors—including campus bookstores—actively discourage students’ efforts to use the text they have rented, since wear and tear threatens the longevity of a book that a vendor wants to re-rent over and over again.”

To Liming, rental is just the latest “scheme” to make a buck, and is doing so at the expense of students’ education, depriving them of the ability to look back at previous classes or assignments to gauge their progress.

“Students are paying more and being coerced into renting because they are told they must, and  because they have not been made aware of their options,” she concluded. “It is therefore up to education professionals to show them—and to fight for the expansion of—worthy, cost-friendly alternatives, including both OER (open educational resources) and affordable print editions. Those alternatives do exist, and anyone who says differently is, as the saying goes, probably selling something.”

Liming may have a point when it comes to affordable alternatives for her English classes, but what about required texts for introductory biology or chemistry classes? Do students with other majors actually want to keep them to reflect back on and will they ever consider those textbooks affordable?

Students Aren't Spending as Much on Books

The news is full of reports on textbook costs in higher education. OnCampus Research, the research arm of the NACS, found student spending on course materials actually decreased during the 2016-17 academic year.

Student Watch, Attitudes & Behaviors toward CourseMaterials, a survey of more than 20,000 college students, noted that average spending on 10 required courses was $579 per student, down $23 from the previous year and $122 from 2007-08. Students also said they spent another $500 on technology and school supplies.

The report found an increasing number of students cut their course materials costs by borrowing, sharing, or downloading free information needed for class, and by using formats such as open educational resources. A quarter of the students reported using free course materials, up from 19% in spring 2016 and 15% from spring 2015.

When obtaining course materials, 82% of students purchased and 57% rented from their campus store. Nearly three-quarters bought new textbooks and 70% said they purchased used copies. Just 23% bought digital, but that was an increase of 8% over fall 2015. On average, the campus store was the main source for students' course materials.

The cost of the Student Watch report is $199 for NACS store members and $999 for everyone else, and includes the final report along with data tables from both fall 2016 and spring 2017 surveys. To purchase, email mmeyer@nacs.org or go to the Insights link at oncampusresearch.com. 

Chegg Goes All-In on Digital

Chegg rented $213 million worth of textbooks online to students in 2014. The company recently turned that part of its business over to Ingram Content Group so it could focus on digital products.

Students will continue to be able to rent textbooks through the Chegg platform, but Ingram will be managing and shipping the physical inventory. Chegg plans to put more time, money, and effort into improving and enhancing its digital operations, which range from college admissions to internship placement.

“The rental model is where we started; the real product is what you’re seeing today,” Chegg CEO Dan Rosensweig told Fast Company. “Everything we think students want is online.”

The strategy could cost the company in the short term, since Chegg will only receive 20% on the books Ingram rents. Chegg earned $91 million last year, but projects revenues to increase to $133 million-$143 million in the next two years as more colleges and employers pay it for leads and students pay for learning materials and services.

Ingram will start taking over the physical textbook rental business for Chegg by May 1 and be running all warehousing operations by the end of the year, according to a report in Ink, Bits, & Pixels.

Rental Firm Making Inroads with Students

Packback has received plenty of attention since its founders earned a $250,000 investment on the ABC program “Shark Tank.” The startup is an e-textbook platform that allows students to rent titles for 24 hours at an average cost of $5.

Founded by a pair of Illinois State University undergrads in 2012, the company already features 2,500 titles, has deals with the University of Chicago Press and Sage Publications, and provided content for a pilot program with McGraw-Hill Higher Education last fall.

During the pilot, 27% of students on campus rented or purchased a digital textbook from Packback. That percentage was considered successful since a student survey found that 47% said they already had the course material when the program was launched.

“We’re disrupting the used-book market disruption and paving the way to organic student adoption of the next great learning tech products,” co-founder Mike Shannon told The Washington Post, “all the while kicking back significant new revenue streams to learning content providers.”

Chegg Going Public, Issues IPO

Chegg used to be a Craigslist-type of business for selling and renting textbooks. Now, it bills itself as a “student hub” offering textbook solutions in both print and digital formats, scholarships, study tools, and a place to resell course materials.

Having grown over the years, Chegg is filing an initial public offering that it hopes will raise $150 million. The company is valued at $800 million, generated a net revenue of more than $213 million last year, and has raised nearly $200 million from investors, according to an eCampus News report.

While the company value is impressive, it’s also been piling up impressive losses such as $26 million in red ink in 2010. But the bleeding is beginning to slow with a net loss of $21 million in the first half of 2013, compared to a first-half loss of $32 million in 2012.

“What Chegg must prove to investors is that its growing revenue can be converted to profits,” wrote Alex Wilhelm in a TechCrunch post. “However, given the scale of its raise compared to its current cash position, it doesn’t appear to be in a hurry to reach the black.”

Amazon Restricts Rental Book Travel

Warehouse Deals, an Amazon.com subsidiary, was launched as a place where consumers could find deals on returned, warehouse-damaged, used, or refurbished products. It has offered print textbook rentals since last summer, but has added a new policy that prohibits students from taking rental titles from one state to another.

The policy on renting a textbook from Warehouse Deals is spelled out on the terms and conditions page at Amazon.com. It states, “You may not move the textbook out of the state to which it was originally shipped. If you wish to wish to move the textbook out of that state, you must first purchase the textbook.”

These conditions only apply to books rented from Warehouse Deals, and Amazon did not respond to requests for comments from Inside Higher Education. Two competitors in the online textbook rental and retail field—Chegg and Rafter—have no policies that prevent students from taking rentals across state lines.

The policy may not appear to make sense, unless it’s viewed in the light of Amazon’s efforts to avoid charging state and local taxes, according to Kenneth C. Green, director of the Campus Computing Project.

“Presumably the concern is that if Amazon owns rented textbooks that cross state lines, state authorities could argue that Amazon has an official business presence in the state—a business presence that would require Amazon to collect and pay state sales taxes,” Green wrote.

Chegg Spots a Need, Changes an Industry

Chegg, the Silicon Valley textbook rental company, started as an on-campus classified service listing everything from electronics to kung fu lessons to hamster sitting. But its most popular category was buying and selling textbooks.

The company founders noticed that and decided to try an experimental rental web site offering 2,000 textbooks to its users. It proved to be such a great success that now Chegg rents millions of textbooks each year and employs 150 people.

“We had raised $3 million and we had hired a great team and we were sitting on a problem that was still unsolved,” said founder Aayush Phumbhra in this FastCompany video series called “The Pivot” which looks at decisions that helped companies turn into successes. “The cost of textbooks was still very expensive and the market was just waiting to be disrupted.”

The message should be a powerful lesson for those in the textbook industry in general and collegiate retailers in particular, according to Mark Nelson, chief information officer of the National Association of College Stores and vice president of NACS Media Solutions.

“I think the idea behind how they recognized an opportunity and unmet need provides interesting insight into the minds of entrepreneurs and the types of folks who are trying to disrupt our industry,” he said. “Whether stores like it or not, our industry is viewed as one that is ‘ripe for disruption’ and we need to learn to think like these guys.”

Custom is the Next Rental

There is a great article on the Grow Custom initiative in this today's Campus Marketplace.  The piece compares the current developments in Custom to what occured in college stores with Rental textbooks over the past two years.  Stores are well positioned to retain and grow market share in this space, but as with all things there is a window of opportunity.  

The Grow Custom Sponsor's page is also now live with links to each of the companies who are sponsoring this initiative and their booth number at CAMEX.  Check them out.  The new smart custom and tools to help faculty create them may not be the custom you remember.

Book Rental Expanding Fast -- and moving into Digital

Business Insider recently interviewed Chegg CEO Dan Rosensweig who says the four year old company has services available on about 8,000 campuses and processes millions of orders a year.  Yes, the article reported 8,000 campuses. Chegg’s additional services than other their core book rental business include Student of Fortune, a Q&A homework help site, and Notehall, a class notes marketplace.  According to Rosenweig, Chegg wants to provide as much digital content to students as possible including class notes, books, and study groups.

Incidentally, Notehall ran into some legal troubles over its note taking business with some California State University students which violated campus copyright policy.  Chegg has acknowledged the policy and has agreed shut down their note taking business at specific universities effective January 1, 2012.

Finally, Kno, which spun out of Chegg, is working on e-textbooks and a related delivery platform.  Previously the company was working on a tablet type device, but subsequently withdrew that initiative.  However, this month they unveiled their "free textbook campaign" where they tend to give away one free e-textbook to every user.  A copy of their campaign ad appears below.

Follett Sees Growth in Both Rental and Digital

PR Newswire reports that Follett saved students close to $90 million in three months mainly due to their Rent-A-Text program.  According to the article, Follett textbook rentals doubled in 2011 compared to 2010 and expects to see saving of up to $200 million for the 2011-2012 academic calendar.  Follett also saw digital textbook sales double in 2011 compared to 2010.

We have heard other anecdotal information that digital sales, where the inventory option exists, doubled in sell-though this fall, growing from 2-3% up to 5-6%.  This data has not yet been verified or examined across a larger pool of stores. 

Rentals Keep Print the Top Choice on Campus

A survey from Student Monitor found that devices such as the Apple iPad are making gains on campus, but the printed textbook remains alive and well thanks to rental options. The study, detailed on Inside Higher Ed, found that 24% of the surveyed 1,200 full-time students at four-year institutions rented course materials, up from 12% the year before.

Those who rented saved an average of $127. The rental trend should continue to rise, since 36% of underclassmen said they are likely or very likely to rent a textbook next year. Campus bookstores remain the most popular source for rentals, thanks to their efforts to get out in front of the trend. Yet students said they were most satisfied with their experience using the textbook rental site Chegg.com because of price, punctual delivery, and ease of use.

On the electronic side, just 5% of those surveyed said they purchased access to an e-textbook during the spring, and only 2% bought e-texts for more than one class.

However, that may be about to change. The survey found that while just 8% of the students owned an iPad, nearly half expressed interest in buying the device. Students also placed the iPad alongside coffee—but behind beer—when asked to rate media and “lifestyle” choices.

In fact, “drinking beer” was the only nontech pastime students listed in the top five, alongside Facebook, iPhones, texting, and laptop computers. More than half (54%) of those surveyed own smartphones, up from 41% from a year ago, reinforcing the notion that print rentals may be a short-term solution.

CAMEX questions answered: rental

This week's CAMEX questions relate to textbook rental. Here are two questions representative of the ones submitted on this topic:

Q1. Has rental deterred stores from progressing as they should in digital?
Q2. Is rental a short-lived/temporary solution?

Both good questions. The first question is the more complicated to address, and in doing so, much of the second question will also be touched upon. I will apologize in advance for some of the "doom and gloom" that follows. If a different question had been posed, I probably could have inserted more optimism for how we could leverage rental to be more successful at digital, and in business in general, as collegiate retailers.

A1. Related to the first question -- yes, I have heard that some stores believe that "rental will save them." Personally, in my opinion this is a flawed assumption. Certainly there are benefits to rental programs. They can reduce course material costs for students. They can be a source of positive PR on campus. Certainly there are a growing number of programs and offerings that make it easier for stores to offer rental programs with less risk (although depending on the approach taken by a store, less risk is not guaranteed). Rental can be a means to both recapture market share and increase store foot traffic. With these benefits, it is not surprising to see that the number of college stores in North America offering rental programs has soared from roughly 300 to over 2400 in less than two years, and we expect the number to be even higher by this fall. From a market share perspective, rental has negatively affected digital sales within stores, leading some stores to conclude that digital is even further off from the mainstream.

The last two sets of stats provide an interesting challenge, though. Rental programs have been around for more than 40 years at some schools, yet very few schools participated in these programs prior to two years ago. When the right set of enabling factors arise a technology, in this case rental, can take off remarkably fast. What happens when the right set of enabling factors come on stage for digital? Will stores be able to make that transition as quickly?

Relatively speaking, rental is fairly easy to implement given some of the program options out there today for stores. Programs like those offered by Chegg, BookRenter, Follett, and others help leverage and dissipate risk across the industry. While there are contracts involved, the transaction is still fairly easy to understand and students know how to use the product once received.

In contrast, consider digital products. These are far more complex and often require more education at the point of transaction for the consumer to be able to utilize the product. Could the industry make the shift to provide digital products effectively as quickly? Adoption by stores seems to have stalled somewhere in the early majority, but with the right set of enabling factors, it could move toward larger adoption quickly. Stores and the channel would be unwise to deter experiments or establishing the necessary infrastructure just because rental is currently providing a short reprieve.

The effect of rental on used is just the ebbing of the tide that warns us about the tsunami that digital could create. A bit extreme, but both possible and plausible if digital were to take off as quickly as rental has in the past two years.

A2. Related to the second question, let me answer it by proposing a different question to consider: is rental a bridge technology?

Let me explain what I mean by a bridge technology. While we refer to digital as a "subscription," the actual business model is not much different from the rental model. Rental models change the mindset of the student to accept business models where they pay a price and get their savings up front, and then get nothing when they return the product at the end of its lifecycle. With one catch: we have seen stats that up to 20% of students fail to return their rental book, resulting in charges for the replacement book at the new book price. If I were a publisher, I might consider a sales pitch along the following lines: digital textbook rentals -- more convenient than physical book rentals, because at the end of the rental period the book returns itself. As physical book rentals get a new business model embedded in the mind of students -- a business model that looks a lot like many of the current digital textbook business models -- then yet another enabling factor for digital will be in place.

So if rental is a bridge technology, like print-on-demand (POD) in my opinion, then it probably has a 5-10 year lifespan where it will have effective returns in this market. It may extend market share and the role of the store, but at the same time it further enables the transition to digital. Stores might be able to concentrate more on rental for the next year, maybe two. At the same time they have to be looking ahead to how they will participate in the digital environment that is coming. That means improved e-commerce and m-commerce capability, and the ability to be format and device agnostic providers of content. That is something few if any traditional college stores are ready for today, but that the industry must be ready for in the near future. Rental, like POD, might buy the industry a small amount of breathing room, but they are relatively short-term rather than long-term solutions to the radical innovation challenges ahead.

BookRenter Becoming Bigger Player in Textbook Rentals

Textbook rentals are big business on campus and BookRenter is upping the ante. TechCrunch reports that the Sunnyvale, CA, firm has raised $40 million in investment capital to help it add resources and products.

BookRenter’s strategy is to partner with college bookstores and provide an automatic platform for content distribution. To date, the firm is the official rental platform for 560 college stores in the U.S. and is expected to report revenues of $20 million-$50 million in 2010. But it still trails Chegg.com, which projects revenues of $130 million for 2010, by a substantial margin.

The infusion of new capital should help BookRenter give the bigger firm a run for its money.

DeepDyve academic journal rental program

A recent article from The Wired Campus discusses a new online rental service for scientific, technical, and medical journals known as DeepDyve. The company is working to make journal articles more accessible by allowing users to rent articles for 24 hours or via a monthly pass for a small fee. The articles must be read on screen and can not be downloaded, printed, or shared. Chief Executive of DeepDyve, William Park, commented that the company’s model could encourage users to purchase more content from journals because often journal websites only provide the title and an abstract so users do not know exactly what they are buying. In addition, the website will give more people access to more journal content. This is a great example of a company that is rethinking the business model and thinking about what role they can play in the market.

Cengage Learning launches textbook rental program

There was some big news for our industry last week when Cengage Learning announced that it will be the first higher education publisher to offer a textbook rental program. The publisher entrance follows hundreds of college based rental programs already in existence —some running for more then 100 years. According to the press release, the rental titles will be available through the CengageBrain.com website at 40 to 70 percent less than the publisher’s list price. For students that participate in the rental program, the first chapter of the book will be made available in e-book format while the book is sent to the student. Students can select a rental term of 60, 90, or 130 days and then choose to return the book or purchase it.

The New York Times recently featured an article about this news and it became one the Times most e-mailed articles for a few days proving that there is growing interest in finding alternatives to purchasing traditional textbooks. Rental programs are becoming more popular because they may give students a lower upfront cost option.

Follett Higher Education Group, McGraw Hill, and Barnes & Noble College Booksellers as well as a number of independent college bookstores are also initiating new programs for the fall semester. Follett will begin a pilot rental program at several college stores including: State University of Buffalo, Grand Rapids Community College, and California State University. McGraw-Hill will soon announce a partnership with Chegg.com, an online service for renting and selling textbooks, which will make 25 books available on the Chegg website. McGraw-Hill is also reportedly in discussions with a number of college bookstores to launch similar programs. Barnes & Noble College Booksellers will also begin a pilot rental program at three of its stores.

A possible difference between the new publisher based programs and those offered by campuses through the college store is the campus based model allows institutions a certain level of control over the rental price and lifecycle of the adoption, thus providing greater potential savings for the students. In contrast, a publisher based program establishes its base rental price on the current print price of a new book. In many cases this price escalates annually or even biannually. As a result, the publisher based model could eventually lead to rental prices at levels above what students believe to be acceptable. A parallel to this is what has happened with publisher based subscriptions for digital journals.

Stores must become even more creative in developing and supporting new business models. The rental model being developed by Follett for example is an interesting one as it brings more options and choices for students and limits start-up costs. There are opportunities for groups of stores to collaborate with both publishers and used book wholesalers to make similar models work that include the college store.

Stores still bring many important value propositions to the table. However, they must be prepared for significant changes in how their businesses operate. We must be innovative and provide alternatives that leverage advantages of the new models while also leveraging our core strengths and advantages. Failure to innovate will result in continued loss of market share and relevance for the college store and other booksellers.

Note: The posting has been revised to reflect new information.