The Xplanation

Introduction

In April, we published a report on Digital Textbook Sales in U.S. Higher Education, in which we outlined sales for e-textbooks over the next five years based on current trends and variables. This series — The Transformation of Textbook Publishing in the Digital Age — provides an in-depth look at textbook publishing in Higher Education, and offers a roadmap for evolution and profitability in the industry. In the first installment we discussed New Business Models. Specifically, we listed these four shifts that current textbook publishers should consider to remain competitive in their market niche.

• The Disaggregation of Content
• A Focus on Lifelong Learning
• Embracing Self-Publishing
• Partner with Open Content

In the second part of the series we looked at four new product models

• Content Libraries
• Subscription Products
• Self-Publishing Products
• Apps

In this post, I want to step back for a moment and outline briefly how textbook publishers can measure product value and measure potential profitability in a digital world.

A Formula for Profitability

As I have pointed out in the previous posts in this series, the digital future of learning materials translates to greater competition for textbook publishers. It will also require them to adopt agile business practices that bring products to market more quickly and generate more revenue streams from existing content.

As we look at the next decade, the following general product categories represent the primary product niches for textbook publishers. Let me provide a brief description of each, and then move on to my formula for measuring viable and profitable products.

• Traditional Print — This category represents the traditional textbook as it exists today along with its business models and workflows.
• Discount Print — This product model refers to lower-cost, paperback models such as Cengage’s 4LTR Press. The goal is to provide a low-cost, print alternative with essentially the same benefits of the traditional textbook and with less exposure to the used textbook market.
• Generic Print — Generic print books are a crossover from the trade industry. These are true low-cost alternatives with generic content that emphasize content over author brand. There is little used market for such books and there is no author royalty to pay.
• Digital Textbooks — This refers to digital models of all the above products and anticipates new workflows in which digital workflows precede print as opposed current models.
• Custom Digital — These products assume hybrid mashups of publisher and customer/public content via online tools accessible to the end user.
• Digital Subscription — This category refers to libraries of digital content — subject, discipline, or course — that customers can access via monthly and yearly subscription rates.
• Digital Assessment — This product model is similar to current assessment offerings but assumes a detachment from specific textbooks so that they can be part of subscription or custom digital packages.

Within each of these product categories we will see many individual product types. This means that publishers will need to spend ample amounts of time with experimentation and the valuation of content and products. Products will evolve more quickly and companies will no longer have the luxury of multi-year product planning and development. As a result, publishers will need to be in a constant mode of experimentation with product types and their potential value. The problem is that all of our models to date are based upon a single product vision — the print textbook. As we move into a mostly digital world, we will need to work on new models for product valuation and forecasting.

With that in mind, let me offer up some preliminary thoughts on how to evaluate learning products in the digital age (the next decade). First, here are the general criteria that all products must meet to even make it off the drawing board.

• They must have value based on uniqueness (can’t be basically like all the other products) — This means eliminating the creation of many, similar products in the same course area. In the digital age learning content must become more than the convenience that textbooks are today. They must have worth based on true differentiation.
• They must be based on flexibility — Additionally, all products in the next decade must be designed for multiple forms of use and for easy customization. This requires granular segmentation and robust content/information management strategies.
• They must be sustainable — Profitable products in the digital age must be created with efficiency in mind. Once they are launched, they must be simple/cost-effective to maintain, update, and re-purpose.

With these factors in mind, we can establish a basic formula for product profitability as the ratio of product cost to product value, multiplied by the product’s flexibility value. In this formula, flexibility is represented by a value of 1-10 based on a quantitative scale measuring product flexibility (not shown here).

(cost : revenue) * flexibility = product value

Here are two graphics that show how this formula for product profitability, as well as the assumption behind it, can be applied in order to measure product viability.

The first graphic shows a grid that breaks down the value components of the major product categories for textbook publishers over the next decade. Each value component in the grid is assigned a value of High, Medium, or Low that correspond to unique numeric values for each category.

In this quadrant diagram, you can see the various products charted in terms of their value based on the formula for profitability.