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Tomorrow's Business Models: Freemium and OER Growing Up

In an earlier article, Tomorrow’s Business Models: The Un-Wikipedia, OER Money-Making Educational Publishing Gambit, I looked at the Monterey Institute for Technology and Education (MITE)’s interesting business model for e-texts developed by its National Repository of Online Courses (NROC). Gary Lopez, MITE’s Executive Director, whose educational publishing career spans commercial as well as OER experience, has an interesting perspective. He positions foundation-supplied capital as the seed for the heavy lifting required for creating rigorous OER instructional packages, sustained by institutional membership fees for a bundle of enterprise-level services. What we used to call a free trial, and what the digital world now speaks of as freemium, is morphing into a series of business strategies that give customers a free taste and then offer fee-based elements that enhance the value proposition. Let’s look at some from the education arena.

Not Crowd Sourcing but Crowd Guidance

When I asked Gary Lopez about freemium, he told me he’s seeing a maturation of thinking in this space as a consequence of greater educator acceptance of digital resources as interventions. He cited Flat World Knowledge, which serves the higher education market and terms its business model “free online and affordable offline.” They’re essentially giving away the core textbook—available to be read free online—and selling other formats and resources, such as printed editions; e-books for the iPad, Kindle, Nook, and other e-readers; audio book versions; print-it-yourself PDFs; and study aids. The firm uses traditional author acquisition and peer review processes and offers author royalties it claims are equal to or better than for traditional mainly print books. Its modular design format gives instructors control over the content available to their students. As of December 2010, the publisher had over 74 textbooks in development or published.

As highlighted in the previous article, Lopez sees a new publishing model evolving with users interacting extensively in product development, as opposed to traditional publisher development by a small team using lead authors and, probably, feedback from target educator focus groups. In the new paradigm, the initial capital investment pays for coders, graphics talent, and editors continuously working with a large community of users.

NROC’s institutional members pay about $1 per year per student for access to everything. This, he says, “opens the door for a new way of publishing in which investment is made ‘once’ and scholars get back to owning scholarship. It’s not a wiki and not wide open but has the flavor of a community.” He sees much more freemium publishing going in this direction. Making creation costs cheaper through the community’s sweat equity (except the community doesn’t own any of the IP) creates a new business model. This strategy still requires “true capital” for now from foundations.

Lopez sees this as modeling changes taking place in the music and news industries. “It won’t work in every market,” he said, “but the education market’s limits on curricular coverage, goals, and delivery make education a good space for this. I see the possibility of sufficient penetration of the e-texts so that even with very low enterprise pricing, it can cover operating costs and generate capital for new product.” He sees it as a more sophisticated use of the energy and spirit of the community, not crowd sourcing but “crowd guidance.” “We’d hit the wall with our old NROC model of polishing up orphaned content for OER use, so this is an evolutionary development.”

Hippocampus, the NROC website, gets 250,000 visitors per month, 70% of whom come during school hours in U.S. time zones, so most usage is in classrooms. As pointed out in the previous piece, free use and paid are converging in the classroom, with students, educators, and parents taking products free off the web but also via NROC delivery, so the models aren’t mutually exclusive, one or the other.

In another project creating complete OER textbooks using crowd guidance as an element and offering the resulting e-texts free, the Utah State Office of Education (USOE) is funding the creation of two texts, one for English and language arts instruction and the other for secondary mathematics. According to Rick Gaisford, Chief Educational Technology Officer for USOE, the project’s crowd guidance comes from reaching out to educators across the state using the UT Education Network to react to instructional content and modules created by teams of teachers hired by the agency. “OER isn’t free,” he said, noting that in addition to the costs for the authoring teams, to match a good commercial text, the state’s products will require ongoing updates, technical support for users, and professional development. The state hopes to lower its schools’ overall cost of obtaining instructional materials, thus keeping the UT community sufficiently energized by the process and the free materials to create a virtuous circle of low-cost crowd-guided texts, which can be seen as yet another variation on the freemium theme.

Other Educational Publishers’ Experience With Freemium

Michael Ross, SVP and General Manager of Education at Encyclopaedia Britannica, told me, “Free is incredibly important in the consumer market where we’re experimenting with app models and providing robust web services at the same time. You can’t get traffic in the consumer space without providing some useful offerings, either through apps or specially designed web products, but we don’t use ‘free’ in the school/institutional space other than by offering free trials and pilot programs for new products and for potentially large adoptions.”

He added, “I don’t see spillover from our (consumer) website to school sales, but I do see some with our educational—really edutainment—kids apps: it’s very useful to have popular consumer apps for kids to get the attention of, and build awareness among, school buyers for our school products. Of course, we can’t sell iPad versions of our apps to schools without Apple’s marketplace, but at the same time, for us, Apple’s marketing power is a plus and a more proactive environment than Android for now. Kids’ apps don’t really exist in the same form in our web products and are designed specifically for tablets and to appeal equally to kids and their parents and grandparents who may be sharing devices. Apps and web services provide different kinds of content and different experiences, and we’re still experimenting with how they work together to enhance the user experience and generate revenue critical for new product development in both platforms. In the end, I think we’ll discover that apps are a transitional platform for delivering certain content categories and will cease to serve an important function in the education space once there’s a seamless look and feel for web products across all devices, from the PC to the smartphone.”

At the other end of the spectrum of learning materials, in late April the Pearson Foundation and the Bill & Melinda Gates Foundation announced a substantial initiative to create comprehensive digital learning programs—essentially e-texts—some of which will be offered free. According to the press release, “Over the next three years, the Pearson Foundation will develop 24 courses covering math for Grades K-10 and reading/English language arts for Grades K-12. The courses will enable teachers and students to access the latest and most effective digital learning technologies as they prepare to meet the internationally benchmarked college readiness goals of the Common Core Standards.” It adds, “The courses will be made available in 2013, before the Common Core Standards are implemented. Funding from the Bill & Melinda Gates Foundation will support four courses to be offered as free open educational resources, with the intent of widening access and spurring innovation around the Common Core.” While Pearson’s involvement is through the non-profit Pearson Foundation, it’s hard to believe that the resulting e-texts won’t compete in some way with other Pearson offerings. With 24 courses being developed and four to be offered free, the firm appears to be sharing the risk and cost (easily many millions of dollars) of creating viable products and business models for a digital future in which freemium is an unavoidable part of the landscape.

When I asked Jim Hurley, Founder & CEO, Lesson Planet, and Bill Goforth, VP of Sales, about their take on freemium, they wrote, “We don’t employ a ‘freemium’ model currently but are looking at it as a way to extend influence to individuals who’ve in essence showed an interest in Lesson Planet. There’re many instances of freemium models on the Internet now, and we see them as a way to feed into a paid subscription model on an individual basis. When the prospect is ready or has determined that the proposed solution delivers the value they’re looking for, they’re still within reach by extending an appealing offer to them.” After reviewing a draft of this article, Hurley added, “I agree that finding sustainable models is the key to the future of the emerging mash-up/hybrid world of traditional publishing meeting the Wild West of OERs. Another OER crowd-guided site to consider would be WatchKnowLearn.org.” WatchKnowLearn has indexed over 33,000 educational videos, placing them into a directory of more than 3,000 categories. The videos are available without any registration or fees to teachers in the classroom and to students at home 24/7. It’s a program of the non-profit 501(c)(3) Community Foundation of Northwest Mississippi and is directed by Dr. Joe Thomas. It isn’t clear from the WatchKnowLearn website that the organization currently uses freemium to generate funds.

A Bigger Picture of Freemium and OER

Few in the world of educational publishing have a broader perspective on freemium than Bobbi Kurshan, President of Educorp Consultants Corporation and former Executive Director of Curriki. When I asked her what’s new in freemium, she said she’s seeing a lot of interesting models. She cited the Flat World Knowledge model, mentioned above, which she described as “free content but you pay for services,” and CK12, whose “content is free but isn’t highly edited by the community.” The Perkins School for the Blind wants to make OER blind-accessible using the sorts of funding models it’s developed for creating Braille versions of instructional materials.

For another interesting freemium business model, Kurshan pointed me to Agnite in India. “They run American Digital University (ADU), which offers vocational certificates and diplomas, and TuitionEdge for high schools.” The freemium connection is that, “at ADU they provide the courses free, but you pay for certification. TuitionEdge will use a similar model but is just being released outside of India.” ADU, which is certified by the State Council of Higher Education in Virginia, describes its offerings at its website this way,

Free, Open, and No-Cost Online Courses – The United States is trying to recover from a debilitating recession by implementing various ways to improve the economy and increase investment in infrastructural spending. There’s a massive political effort in creating jobs which will require new skills. ADU is playing a crucial role in getting Americans back to work by training thousands of workers through our online technical programs. Our goal is to provide people new opportunities and jobs.”

Kurshan is also interested in OpenStax College, a relatively new program somewhat akin to the new NROC initiative that seeks to improve student access to quality learning materials by providing free e-texts for five of the most-attended college courses in the U.S. Eventually, the books will be available in translations to broaden their impact worldwide. OpenStax’s website has this to say about the initiative,

“It’s innovation in education. And the time is right. OpenStax College offers students free textbooks that meet scope and sequence requirements for most courses. These are peer-reviewed texts written by professional content developers. Adopt a book today for a turnkey classroom solution or modify it to suit your teaching approach. Free online and low cost in print, OpenStax College books are built for today’s student budgets.”

Developed at Rice University and backed by the Hewlett Foundation, the Bill & Melinda Gates Foundation, the 20 Million Minds Foundation, and the Maxfield Foundation, OpenStax College published its first two books—College Physics and Introduction to Sociology—in March. The books are “available for free via computers, tablets, and smartphones. A print-on-demand feature makes it possible for students and colleges to order low-cost print copies. OpenStax textbooks are readable, accurate, and meet the scope and sequence requirements of the course in question.” The organizers believe the programs could save students $90 million in the next five years if the books capture 10% of the American market.

In a recent EdNET Insight  webinar on OER and what it means for K-12 education industry firms, Kurshan listed as business models being used to make OER and freemium financially sustainable:

•    Sponsorships
•    Sustainability fees or contributions from users
•    Membership fees
•    Licensing the platform instead of the content
•    Charging for value-added services (e.g., professional development, assessment, content evaluation, etc.)
•    Contributions from states or countries
•    Charging fees for content and curriculum development

Kurshan observed, “Everybody’s trying to figure out how not to give away their business model’s revenue in the face of competing technology and products. The phone companies now understand they’re not in the voice business but in the data business. Textbook publishers soon won’t be in the book business but in the service business. I think the days of the free trial as a textbook sales model are dwindling fast, with too much competition from other free services. We’re likely to see models based on a first free app followed by up-sell.”

For an insightful monthly report on what apps are selling, Kurshan recommends checking out DISTIMO.com. According to the website, its publishers provide “valuable insight into the app store market for developers, carriers, and device manufacturers.” Despite the buzz being generated by iPad and Android apps, for the education space she sees firms increasingly bypassing apps that command average prices of $2.99 to $4.99 and up to go to the Apple iBook market because unit pricing can be higher, say $10.99 to $14.99. Some publishers, she noted, plan to do this even with the same product they’re offering in the app stores. Commenting on tablet hardware, in the face of the iPad’s raging popularity, Kurshan thinks there’re other options—such as the Samsung Galaxy Tab, which for “$499 gets the Tab and a new Android phone.”

When I asked her if she’s aware of app publishers getting serious education traction, she pointed to two app firms in the UK, Toca Boca (which she describes as a game-oriented Kid Pix, engaging kids with robots and painting) and The Land of Me. According to The Land of Me website, apropos of freemium, it is

“the BAFTA-nominated interactive learning adventure from Ladybird. Designed by child development experts to nurture your child’s creativity and imagination, The Land of Me combines onscreen and offscreen activities that’ll have you singing, dancing, building, and playing in no time. Why not try it for FREE right now?”

She also likes Root-1, a U.S.-based firm with resources in India, which describes itself on its About page,

Root-1 is interested in effective and engaging solutions related to learning. We started off targeting algorithmic transformation of middle and high school content—our XWords app was the first result. Since then, we’ve moved on to work on detailed event tracking, user/expertise profiling, and machine learning in an effect to build better language learning products, initially focused on the vocabulary space. We bring to bear large-scale public resources, such as web repositories, news headlines, and images, as well as game theory and motivational tools.”

The Genie Is Out of the Bottle

In the “old days” before the Internet, free trials of everything from toothpaste and bus service had earned a regular place in the pantheon of marketing options. The Internet, with its ability to aggregate millions of users, social authoring, and innovative business models, has had the effect of putting the free trial on steroids. Freemium, OER, and the general availability of valuable resources in exchange for context-based advertising, to mention just a few trends gaining serious traction in the consumer space, are morphing into models that reach into educational products and services. As evidenced by the situations highlighted above, the Genie is definitely out of the bottle. Now it’s up to traditional education businesses to learn to co-exist and/or morph. The original idea behind OER educational resources, that motivated educators would eventually author and offer for free whatever is being bought today, is proving not up to the task. Instructional materials publishers, it turns out, have been doing the necessary work all along that OER hasn’t been able to match. The future, though, isn’t going to be that either traditional or OER wins, and finding that sustainable middle ground will be occupying us all for a long time to come.

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Dr. Nelson Heller is President of The HellerResults Group, a global strategic consultancy serving business and non-profits seeking growth opportunities in the education market. He’s the founder of The Heller Reports newsletters and EdNET: The Educational Networking Conference, both started in 1989. The EdNET News Alert, successor to The Heller Reports publications and now published by MDR, reaches over 31,000 education executives worldwide every week and features a regular column from The HellerResults Group each month. You can learn more about Nelson and his industry leadership at The HellerResults Group. If you need strategic insight, business partners, international connections, stronger boards, keynoters, or entrepreneurial savvy and want the insight of 30 years at the business and technology crossroads of the education market, you can reach Nelson at 858-720-1914, by email at nelson@hellerresults.com, and on Twitter @NelsonHeller.