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Flat World Knowledge: The Textbook Case for Disruption

Now that they have their first full sales cycle behind them, it's time to check in with one of my favorite examples of a startup bent on upending a publishing industry segment that is ripe for disruption -- the college textbook oligopoly, dominated by a handful of huge companies.

Flat World Knowledge concluded its first semester of operation successfully, supplying some 480 classes in 430 institutions with relatively cheap, open-source, digital textbooks. The response from educators and students has been positive; thus, the company has added 150 classes at 130 institutions to its spring semester lineup.

Although its percentage of the overall market for textbooks in higher education is still quite tiny, Flat World has definitely caught the attention of the industry's giants. "We hear whispers from friends in the industry that we're being talked about," says co-founder Eric Frank. "There is a high level of interest, especially at the board level. We hear statements all the time like 'We're keeping our eyes on where you are headed.'"

Maybe that is because Frank and his cohorts, former industry insiders, know where the sweet spots are in the textbook business. "We can have a disproportionately large impact on the market if we concentrate on the 25 biggest gen-ed courses," explains Frank. "For example, Introduction to Psychology is the number one course in U.S. colleges, and we have a strong textbook for that offering."

Flat Earth has no intention of taking on the entire educational catalog - just yet. "You could publish just 50 books and disrupt this industry," says Frank. "So far, I figure we have about ten."

What makes textbook publishers vulnerable is not only the highly concentrated nature of the market (five companies controlled 80 percent of all sales five years ago and it's gotten only more concentrated since), but the runaway price inflation publishers have imposed on students and faculty to keep their margins high.

As the U.S. Government Accountability Office (GAO) found in 2005, for decades "college textbook prices have (been) increas(ing) at twice the rate of inflation."

Over the past year, for example, prices went up by another 11 percent or so, and Frank believes this is "partly because the publishers cannot get out of the way of accelerating problems in the market, including piracy and rentals."

In other words, as the costs of textbooks reaches ever higher levels (most estimates suggest the average student now has to fork over $900-1,000/year), this problem is reaching a crisis level not only for students and faculty members, but for college administrators as well.

Students are turning to eBay and Craigslist or to rental agencies to reduce their textbook costs, and exit interviews with students by colleges are consistently turning up complaints that enough is enough, already.

In the complex ecosystem of higher education textbook publishing, university administrators, state governments, and college bookstores all play a role. Everybody shares a piece of the action, which is how the big publishers have maintained their hegemony -- until now.

But the big boys may want to keep an even closer eye on Flat World Knowledge going forward, since I see they've just hired as CTO a guy with a background at Kaplan's and iVillage, i.e., someone who knows how to help their business scale.

"Could we quickly scale from 20 original textbooks a year to 200?" Frank asks rhetorically.

Stay tuned for the answer.

Earlier BNET Media link:
Flat World Knowledge: A Disruptive Business Model