Online Startups Target College Book Costs

A wave of startups such as Flat World Knowledge hopes to use technology to change the economics of higher education
Shelstad left traditional publishing to start on online book service Ethan Hill

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 U.S.

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 accessible.

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