A Textbook Case of Digital Disruption

In the era of tablets, smartphones, and general integration of electronics into everyday life, it should come as no surprise that textbooks are going digital. However, the transition from paper to screen is in its infancy, and the field is wide open to produce stock market winners and losers. Let's look at the current state of play.

Killing trees
Old-fashioned, paper-based textbooks present a variety of problems and benefits, depending on your point of view.

•   They're expensive. Really expensive. And they are aimed at a customer base that subsists upon ramen noodles.
•   They're big and heavy, and take up lots of space.
•   They cannot be updated or modified without issuing a whole new edition. (Problem for students, windfall for publishers.)
•   They are the perfect product for secondary markets, where students can buy used books for far less than list price, and resell them at the end of the semester. (Problem for publishers, big savings for students.)

So go digital. Simple, right?
While a switch to digital might seem obvious and straightforward, it's not. Thus far, there is significant variety in platforms, business and pricing models, and delivery mechanisms. There is also the question of whether e-textbook providers generate their own content or act as distributors for existing content. In a field that will require collaboration with major universities, standardization is probably an inevitable outcome.

Let's look at some of the current e-textbook providers and how they compare on key points.

Sources: Individual company websites; USA Today; Washington Post; Wired.com; Chronicle.com; CNN; New York Times; PCMag.com; Forbes; Edtechdigest.wordpress.com.

Let's look a bit more closely at two of those columns. As you can see, pricing schemes are all over the map. Some are pursuing a per-book pricing system, much like paper publishers. Others have chosen a razor-and-blades model. Inkling is trying the course-packet model, offering individual chapters for sale.

The bottom line is that e-textbooks appear poised to save students money in the long run, no matter what the pricing scheme, while still eliminating the trade in used books that cuts publishers out entirely. Importantly, recent studies show that these savings have not yet materialized. Because adoption has been patchy, and publishers have not yet fully committed to cheaper pricing on e-textbooks, study participants realized only modest savings. The trend is heading in the right direction, though, and e-textbook prices continue to fall. As this space matures, I expect it to yield significant benefits to students while preserving publishers' access to all trades.

The question of content ownership is also important. Ultimately, it raises the same debate that we see with Netflix in the television and movie space: Is distribution the magic bullet, or do market winners have to own their content? If the latter, to what extent must content be wholly reinvented? How critical is the platform?

As you can see from this snapshot, companies are trying a variety of approaches, and it is not clear which model(s) will win.

Who benefits?
In my next article, "E-Textbooks and the Textual Revolution," I'll investigate who might benefit from these developments, and discuss what factors investors ought to consider.

If you want to read about other companies that are benefiting from the switch to digital, have a look at our free report: "3 Hidden Winners of the iPhone, iPad, and Android Revolution."