The Once-Hot Textbook Rental Market Is Already Shifting to Ebooks
By Erin Griffith
On February 9, 2012
For the past few years, Chegg’s textbook rental business has been the hottest way for college students to get their books. It still is, but the company is also bracing itself for a new disruption to the $5 billion textbook industry–e-textbooks.
Chegg’s CEO Dan Rosensweig, who’s been at the helm for exactly two years, explained the company’s vision for going beyond textbook rentals: As Facebook owns the social graph and LinkedIn owns the professional graph, Chegg wants to own the “student graph.”
The company has invested some of its $219 million(!) in venture backing into aggressive expansion around new services for students. It’s been on an acquisition spree, buying six different companies in the last 18 months including CourseRank, which helps students schedule classes, and Zinch, which helps high school seniors navigate the college admissions process. Rosensweig estimates that 30% of all college students in the US use Chegg’s services in some way, and since it’s expanded to high school students through Zinch, each year more freshman enter college as users than outgoing seniors leave.
The goal is a comprehensive set of services, anticipating (although not explicitly stating) that physical textbook rental will become a smaller part of its business as e-textbooks make their way into the classrooms. Chegg has invested significantly in its HTML5 e-textbook reader, which makes e-books available on phones, tablets and the web and offers functionality like asking questions to other students, highlighting, dictionary definitions, and notes. The reader launched two weeks ago already has one million pageviews, Rosensweig told me.
That’s not to say Chegg is abandoning rentals. Reports peg the company’s revenue on rentals at $130 million last year, the majority of which came from textbook rentals. But E-textbooks the next logical step in bringing the classroom into the 21st century. It’s a long process–professors are slow to make their classrooms more interactive and publishers are struggling to nail down a digital business model. Colleges may be forward-thinking but they operate separately from the book vendors and publishers and therefore lack influence over the book situation. And, because e-textbooks still cost about as much as a hard copy without adding much value, students haven’t jumped on e-textbooks as rapidly as one might expect, Rosensweig said.
The question is whether, once e-textbooks become prevalent, Chegg’s services couldn’t be immediately displaced by Amazon or iTunes. The closed nature of iTunes’ new e-textbook offerings will hinder it because its counterintuitive to the problem everyone is trying to solve in higher education, Rosensweig said. The answer is ubiquity and openness at a lower cost, which is why Chegg is focused so heavily on its HTML5 reader.
But Amazon is a different story. Thus far, Amazon has stayed out of the physical textbook rental game, partly because it wants to keep taxes low. Chegg has to buy every book it rents and in turn pay taxes on those rentals. Chegg has also built up relationships with the publishers, something Amazon doesn’t seem to care about. Amazon is happy to skip the rentals and disrupt analog textbook vendors by selling them cheaply itself or through its marketplace. The digital textbook market is a whole new opportunity.
Chegg isn’t the only one looking to capitalize on the digital classroom. Inkling is a platform that boasts “the best digital textbook experience ever.” It essentially sells interactive versions of existing textbooks in partnership with publishers, including McGraw-Hill and Pearson, two of its investors.
Then there is Boundless Learning, which aims to be far more disruptive than Chegg, Inkling or iTunes or Amazon. The company, which raised $1.7 million last year, is taking on the big institutions holding back students’ access to free and open information (publishers mostly) with what it calls “free textbook replacement.” Basically, Boundless Learning users can get a hacked version of their textbook made by robots and Wikipedia. The company, still early stage, bills itself as more like “Google than a media company” because it organizes existing free content in a usable way rather than actually producing it the way a publisher might.
Considering the many revolutionary internet phenomenons that started on college campuses, it’s amazing that the colleges themselves have been slower than, say, the movie, music, or media industries to undergo major disruption in the way they deliver and share information. With e-textbooks, that’s about to change.
Erin Griffith covers New York startups for PandoDaily. She's worked as staff writer for Adweek and a private equity blogger for peHUB. Her writing has appeared in VCJ, Time Out New York, Huffington Post, FT.com, and BUST. She plays keyboard in a band called Team Genius and Tweets as @Eringriffith.
