Entrepreneurs Target Rising College Costs

By John Tozzi
     Sept. 23 (Bloomberg Businessweek) -- When Dennis Passovoy, a
lecturer at University of Texas' McCombs School of Business,
selected a new textbook for his Organizational Behavior class
last year, his students didn't even have to buy it. They could
read the book online for free, or purchase it in several formats,
including as an audio book, PDF, or $30 paperback version ordered
online that would be printed and then shipped to their doors. "It
was equally as good as this $160 textbook, but what really got my
attention was if the students adopted the book online, it was
free," says Passovoy, who got the new textbook from startup
publisher Flat World Knowledge.
     Flat World was launched in 2007 by two textbook industry
veterans to provide an alternative to expensive course books,
such as Organizational Behavior, a standard text from Prentice
Hall that lists for $180. "It was so obvious to anybody in the
industry that students are running as fast as they can to avoid
buying a new book," says Jeff Shelstad, Flat World's 46-year-old
chief executive officer. CourseSmart, a joint venture by major
textbook publishers including Pearson and McGraw-Hill,
distributes digital versions of textbooks for a fee. Six months
of digital access to Organizational Behavior, for example, costs
$98, according to the venture's website.
     Flat World, a 32-employee Irvington (N.Y.) company, is among
a wave of startups trying to change the economics of this corner
of higher education. "In the last six months there's been a huge
explosion in this area," says Vic Vuchic, program officer at the
Hewlett Foundation's Open Educational Resources project, which
supports efforts to offer learning materials online for free. He
says at least two dozen companies now use technology to make
learning more affordable and accessible, up from about a
half-dozen two years ago.
     These entrepreneurs want to use the innovations that have
upended other media—e-readers, online video, and social
networking—to transform the way people learn. Education "is by
far the biggest information industry," says Jose Ferreira, a
former executive at Kaplan (WPO) who founded online test prep
startup Knewton in 2008. Like Flat World, Knewton hopes to lower
costs for students by moving traditional elements of classroom
learning to the Internet. The New York company sells online test
prep lectures with technology that tailors lessons to individual
learning styles. More than 10,000 students have taken Knewton's
classes, and Ferreira is talking to publishers and colleges about
delivering textbooks and lessons via its technology.
     The backlash against rising prices is giving a boost to the
startups. Entering freshmen this year will pay 32 percent more
for textbooks than the class of 2010 did four years ago,
according to Bureau of Labor Statistics data. While Flat World
makes no money from free versions, Shelstad says about half of
students in classes that use the company's books make some type
of purchase. (In classes using traditional textbooks, about 70
percent of students buy the book, he says.)
     Colleges also increasingly offer course materials online.
Richard Ludlow founded Academic Earth two years ago to aggregate
videos of university courses. "Since we've started, more and more
universities have added to the open courseware movement," says
Ludlow, a 24-year-old Yale graduate. The site now offers 150 free
courses and has 300,000 unique visitors monthly, more than half
from outside the U.S.
     Knewton and Flat World also hope to cater to growing demand
abroad. Students in India, South Korea, and Malaysia are among
the 70,000 who will use Flat World books this year, and a quarter
of those taking Knewton's most popular test-prep program, the
GMAT exam for graduate business schools, come from outside the
     Education is "a massive global market undergoing a huge
amount of change," says Bo Fishback, a vice-president for the
nonprofit Kauffman Foundation, which promotes entrepreneurship.
In July, Kauffman announced a program to foster 20 education
startups with intensive assistance next year; more than 1,200
have applied. Fishback predicts more companies will seek to make
education affordable because "the fundamental cost of what it
takes to get a four-year degree is just growing and growing."
      The bottom line: Entrepreneurs want to use technology to
change student behavior and make education more affordable and
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