Textbook Rental: Web-Rejuvenation Rocks Post-Secondary Market
Nelson B. Heller, President, EdNET, MDR — Friday, June 03, 2011
The Rental Phenomenon
In the past two years, the post-secondary textbook rental market has exploded. Driven by the outcry over book prices, federal legislation, readily available pricing information on the Internet, and sophisticated web-based rental management platforms, old and new competitors are disrupting the $10 billion college textbook business. Book rental isn’t really a new phenomenon—a few college stores have been renting books since the Civil War. The National Association of College Stores (NACS) proclaimed fall 2010 as the “Year of the Rental.” Players include long-timers like Follett and Budgetext, institutional stores and fast-growing start-ups. BookRenter, started in 2008, netted $40 million from investors in a funding round this past February. Chegg, started in 2007, has raised $200+ million in venture capital and attracted senior management from Yahoo and Netflix. The same drivers are growing trade in used books, eBooks, and online instructional content. Rental is also driving new business models for sourcing and distributing educational materials that may carry the industry forward into digital. Having book inventory isn’t necessarily required—at least one high-flying firm, BookRenter, exists mainly as an online marketplace. Read on to see how this change in distribution is impacting the higher education market. Next month we’ll look at what all this means for K-12.
College Students Increasingly Drawn to Rental
A new survey from Student Monitor, which polled 1,200 full-time students at four-year institutions in March, reported by Inside Higher Ed, “found that the proportion of students who rented at least one textbook this spring doubled from last spring, leaping from 12% to 24%. Students who rented reported an average savings of $127. And the renting trend shows no sign of slowing: 36% of underclassmen said they’re either likely or very likely to rent at least one textbook next semester. The most popular rental source was campus bookstores, many of which made a big push to get out ahead of the rental trend by expanding (and publicizing) their rental operations prior to last fall. But students [polled in this survey] appeared to be most satisfied with their experiences with the independent book rental site Chegg.com, which they gave superior marks for price, punctuality, and ease of use.” (Other renters are getting good marks too. For example, 85% of BookRenter customers say they would recommend it to a friend or family member.)
Dave Reeves,VP of Public Relations, South Eastern Book Co., whose firm last July announced a $10 million equity investment in College Book Renter, told me, “The higher education textbook rental market is growing at triple-digit rates. Founded in early 2009 and initially funded through seed capital, College Book Renter’s business doubles every semester.” Based in Murray, Kentucky, and founded over 30 years ago, South Eastern Book is a privately owned wholesale textbook distribution firm.
The Web as a Market Disrupter
Anyone familiar with Amazon’s impact on book sales will understand how the web has changed the playing field for the textbook business. For example, FindersCheapers.com advocates that its “new technology finds [the] best deals on textbooks for college students” by combining real-time new, rental, and used textbook pricing with daily information updates from major brick-and-mortar retailers. Textbook rental firms covered by FindersCheapers include BookRenter,Chegg, CampusBookRentals, and CollegeBookRenter. It checks key marketplaces, such as Amazon Marketplace, Alibris, eBay, and Half.com, in addition to store retailers, such as Barnes & Noble and Wal-Mart. With over 55 million product listings that span all product categories, including school supplies and other back-to-school items, FindersCheapers describes itself as “one of the most comprehensive consumer product search engines on the Internet.”
Similarly, operating since 2002, Direct Textbook calls itself “the premier online resource for families seeking the best deals on textbooks, eBooks, textbook rentals, and textbook buyback programs.” It claims, “The company’s web-based tools and iPhone application allow parents and students to search more than 200 online bookstores, including eBooks.com, eCampus.com, Cengagebrain.com, Coursesmart.com, and Textbooks.com.”
Along the same lines, last August, Akademos, an operator of online bookstores and marketplaces for educational institutions nationwide, announced TextbookX.com, “the first marketplace for textbook rentals.” In addition to renting books directly from Akademos, students are able to rent books from third-party sellers. In 2002, “Akademos pioneered the textbook marketplace, where students could buy their books directly from other students and professional sellers at fair market values.” The firm offers educational institutions a full-service solution “to give students variety and value.” Its turnkey school-branded services eliminate the operational costs of running a bookstore, reduce the costs of books to students, and provide a platform for digital distribution of course materials. With TextbookX.com, students can see the condition of a book and its market value and then decide whether or not they want to rent it. When users list their books for sale on TextbookX.com, designated titles are also listed with a rental price. Brian Jacobs, the President & CEO of Akademos, said, “It was important for us to deliver a completely transparent platform where customers could rest assured that they’re not only receiving the best value but also know exactly what they’re getting.”
The Value Proposition for Students
Among many provisions of the Higher Education Opportunity Act (HEOA), which went into effect July 1, 2010, was a set of important regulations to help make textbooks more affordable. One segment requires colleges and universities to provide lists of assigned materials prior to registration to give students more time to search for textbook bargains. (It also requires that publishers sell all items in a textbook bundle separately.) Beyond boosting price competition for new books, this has also spurred rentals, used and eBook sales. FindersCheapers founder James Krewson was one of many textbook supplier executives who told me, “Rentals are popular with college students because they reduce the initial cost of textbooks and alleviate the stress of having to sell the textbook back to recoup expenses.” Regarding buyback, CampusBookRentals.com puts it this way at their website, “You don’t have to worry about disappointing buyback prices at the end of the semester. Let us take the risk that your textbook will be worthless next semester; you don’t have to anymore.” The firm claims it has already served thousands of customers on more than 5,000 U.S. college campuses.
In August 2010, Barnes & Noble College Booksellers, calling itself the “leading operator of college bookstores and the world’s largest bookseller,” announced an expanded multi-channel textbook rental program at hundreds of college and university campus bookstores managed by the firm, highlighting as student benefits:
- The convenience of renting books either in the campus bookstore or from the bookstore’s
website, eliminating the need to pay shipping costs or wait for books to arrive in the mail
- The choice to return rental textbooks to the campus bookstore or via mail using free return shipping
- The flexibility of a wide variety of rental fee payment options, including financial aid and campus debit cards as well as cash and credit cards
- The ability to highlight and take notes in rented books
- Assurance of getting the right book because “we work directly with faculty members”
- The freedom to keep books for up to ten days after the last day of finals
- Automated email alerts that the rental period is ending and books are to be returned
Another benefit, according to Charles Schmidt, Director of Public Relations for NACS in Oberlin, Ohio, is “the student gets the saving up front, risk-free. Typically rentals go for one-third to one-half of the cost of the new print book.” For a new $100 book, he said, “The student pays, say, $40 to rent, and he’s done if he brings it back in decent shape. The used book, if available, typically costs $75, so with purchase the student is fronting the $100 or $75. Buyback policies for new or used books are usually 50% of new, but the student takes the risk that book will still be in demand and has to wait for the resale cash after use.”
The Business Case for Vendors
Schmidt of NACS gave me a great overview of why college stores—and start-ups—have jumped in so enthusiastically. In the fall of 2009, of NACS’ 3,000 members, some 300 were renting; by fall 2010, it was 2,200; by this coming fall, he expects all NACS stores to be renting. “Stores are looking to counter political pressure and bad PR by offering lower-priced books to students, and renting is one way to do it,” he said. “For individual stores, it’s complex, expensive, and risky,” he added. “For example, to control ownership risk, you have to get faculty to buy into using the same book for three to four semesters. Also, stores have to finance buying the books up front. This hardly means institutional stores can’t be successful renters, either on their own or by adopting a rental platform (for example, the BookRenter platform is free and, according to the firm, “offers rental programs that are more full-featured than many others on the market”). The big contract store management firms like Follett, Barnes & Noble, and Nebraska Book Company are also active players. Rentals don’t work well for lifelong professional materials or for books bundled with online resources (that is, ones access-controlled by the publishers). Renting is more labor-intensive than selling, and warehouse space is needed to store books during off terms. Schmidt says stores make only $4 to $6 selling a new $100 book and are experiencing increased competition from eBay, Amazon, and online “peer-to-peer” platforms. “Their real profit comes from branded ancillaries, like clothes and supplies,” he said, adding, “Compared with online renters, college bookstores have a solid value proposition: you see the book and verify its condition; and you’re buying locally from stores that employ fellow students and put the money into the local economy.”
George Fisher, VP Sales, Follett Virtual Bookstores, a division of Follett Higher Education Group, said, “Our virtual stores have built on the knowhow and capabilities of our brick-and-mortar stores supplying new, used, and rental books; handling book buyback; and delivering digital content. We’re handling non-book merchandise too, such as school-logoed clothing, supplies, and equipment, just like a campus bookstore, to give students a great shopping experience.” Britt Hinton, VP & General Manager, Follett Virtual Bookstores, put it in a more strategic perspective, “Rental is filling a gap between the printed book and the digital textbook by giving students a less expensive alternative to book purchase. We started our higher education rental program just two years ago in 27 pilot stores, testing our infrastructure and customer satisfaction compliance requirements to support renting online or on-site. Since then we’ve already saved students over $100 million. Three years ago we decided on a very simple strategy for the future: ‘RED’—Rental, E-Commerce, and Digital. We were one of the first to go online, with eFollett.com, letting students buy books online in 1999; first again with ‘rent-a-text’ online; and have made a serious commitment to digital textbooks going forward. The customer demographic for rental is very broad, and we’ve determined that everyone wants low price and product choices along with shopping convenience and great customer service.”
The BookRenter Story: “Look Ma, No Inventory!”
Whitney Glockner Black, BookRenter’s Director, Corporate Communications, told me, “BookRenter’s mission is simple: make education more affordable and accessible. Our bookrenter.com website and the more than 560 virtual bookstores it powers are equally simple for students to use and save up to 80% on their textbooks.” Behind the scenes, however, their business model is a fascinating mix of Web 2.0 and Wall Street: it’s an online market-maker, a virtually bookless book supplier. According to a February press release, “Since enabling college stores to launch their own textbook rental site, the BookRenter Platform has gained tremendous traction ...college bookstores using it, including eight of the ten largest independent bookstores, serve six million students. This growth is propelling the company to expand by 600% year-over-year—it’s one of the fastest-growing start-ups in Silicon Valley—and saved students $60 million in the past six months alone.” The firm claims it has “the largest selection of titles in the industry (5.5 million), at the best price, and with the highest level of service. Through BookRenter’s RapidReturns™ service, students can easily return their rented textbooks at any of a number of participating college stores that benefit from increased buyback activity and merchandise transactions… According to NACS’ OnCampus Research, from January 2011, compared with last year, customers of stores that offer BookRenter rentals are 21% more likely to rent from their college store and 10% more likely to shop at the bookstore for items other than textbooks.”
Mehdi Maghsoodnia, BookRenter’s CEO, told me their system is “hyper-optimized for cost savings.” Simply put, he said, “We’re taking fat out of the book business to the benefit of the students.” He estimates there are “$4 to $5 billion of inefficiencies in the way textbooks are produced and sold, which can be taken out of the market and returned to the student while still letting BookRenter make a profit.”
To illustrate, Maghsoodnia explained, “Many buyers are keeping their books, not reselling. This reduces the supply for students wanting used books, so many have to buy it new. The availability of rental books solves their problem.”
BookRenter’s platform is a critical part of their secret sauce. He said, “It gives us a comprehensive understanding of book adoption details across the U.S., so we can accurately forecast demand. This allows the company to provide students with greater flexibility, better pricing, and more favorable rental terms. Accurate forecasting allows us to offer more lower-demand books while controlling the risk of being overstocked.” To use an analogy, he points to the business of pharmaceuticals market-making for hospitals and drug suppliers. “We’re one of largest purchasers of textbooks in the U.S., so we gain advantages on both ends, aggregating both supply and demand. With the drugs analogy, individual hospitals can’t negotiate optimal prices but a national buyer can.”
BookRenter has no warehouse and almost no physical inventory. “We’re effectively a software-based exchange company like in other industries you may know. We’ve 100 employees but most never see a book.”
The Big Picture
Hinton of Follett sees the education market evolving. “How students get information and learn is moving to more interactive, problem solving, social networking digital textbooks. Publishers have the books, with great content, but haven’t yet made the majority available digitally. The faculty is transitioning to this new form of pedagogy as well, and it will take time. The technology piece is changing as device prices drop, with an unresolved battle over the reader of choice. More than one eReader will have significant penetration. Our policy is to be device agnostic to give students and schools choices. Regardless, we feel that the rental option is going to be an important offering to students and parents for a long time to come.”
Park Anders, CEO, Budgetext, a textbook supplier which also supplies literature, reference books, and supplemental materials for bookstores throughout the U.S., also sees the delivery of educational materials at a crossroad. “The market is still sorting out what format or modality students want—print, audio, video, digital replication of print, more interactive digital, ownership, or rental.” For Anders, “What’s already clear is that Amazon and others, by disseminating pricing information, are making a big difference. This seems to be driving new book prices down.” He sees an analogy to recorded movie pricing. “Remember when it used to cost $70 to buy a VHS movie cassette? That opened the door for rental which was a lot cheaper. Now prices for movie ownership are much less, and there are new channels and forms of delivery.”
Book rental, which seems at first blush a straightforward distribution alternative, is clearly sending ripples out across the market for post-secondary instructional materials. The value proposition fueling this also fits parts of the K-12 market, most immediately for private and parochial high schools, and is starting to catch on in some public school districts. Next month we’ll look at how those ripples are lapping on the shores of K-12. The big post-secondary rental firms, having dabbled quietly in K-12, are already announcing or operating services specific to it.
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