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This is the second post in a series about the key pivots our company has made in the past few years. In part 1, I discussed our first major pivot: the decision to begin producing and owning our own content. That pivot led to the creation of our Milestone Documents series of reference books. We had a great time producing those sets, and they were well received by critics and customers alike. And yet, a couple of years into that effort, some clouds began to appear on the horizon.

Hat tip to our managing editor Ben Painter for finding the video clip. I suppose I play the part of Ross, only shorter and with no hair.

Recession Times

In 2010, on a rainy evening in Ann Arbor, Michigan, Andrea Betts (our former vice president) and I convened a gathering of informal advisers and friends, all veterans of the reference industry, to help us brainstorm about the future of our Milestone Documents product line. The talk naturally settled on the troubled state of the library market. It had been hit hard by the recession, and many of us had begun to think that in an era of chronic public funding shortages, it might never recover. One person in the group made a startling pronouncement:

“If I were you, I would spend at least 10% of my time thinking what we would do if the library reference market disappeared altogether.”

As we had only just begun our drive to build a business as a full-fledged reference publisher, this was sobering indeed. And yet the notion struck a chord on a couple of levels. First, it was clear that the market WAS under severe pressure and that the trouble might be not merely long-lasting but indeed permanent. Second, we faced a practical dilemma familiar to many small businesses: Go big or go home. That is, in order to increase our profile in the marketplace and make a larger splash, we needed to invest substantial funds not just in new products but also in new marketing and advertising efforts.

What Do We Want Our Company to Be?

The issue of where to invest our limited funds dovetailed with another dilemma: Leaving aside the troubled market, did we even want to be a reference publisher in the long run? Having created a cohesive body of content around a topic that we excelled at and loved, not just collectively as a company but individually as well (my own college degree was in history), did we really want to reinvent the wheel repeatedly for new products on new topics? That, after all, is standard procedure for reference publishers.

The full answer revealed itself only much later. But even at that time, we made the conscious decision not to abandon the brand we had worked so hard to build (Milestone Documents) but instead to double-down on a side experiment we had begun in 2008, around the time our first reference set was published: selling our content directly to individual students and educators via the Web, as opposed to reaching them through an institutional middleman (the library).

MilestoneDocuments.com

From the beginning of our Milestone Documents content effort, we knew we wanted to dip our toes into the direct-to-consumer market. Thus, in early 2008, we hired a web developer to create a simple e-commerce site where students and teachers could purchase our content by the article for a few dollars each. We thought we might see incremental revenue from this effort, and we wanted to experiment with a paradigm that others in our industry were talking about but hardly anyone was doing. For our part, we had nothing to lose by experimenting.

By 2010, when we were seriously questioning whether to continue as a reference publisher, we knew there was a market for our content via the direct-consumer model. But we didn’t really know how big that market was. Our Web sales had been extremely modest, but at the same time our site was very rudimentary, and we had done no outreach whatsoever. Also, most of our content was not yet on the site; we hadn’t yet added the content from our other sets that had subsequently been published. We felt that we hadn’t really given the direct model a fair shake.

In the end, faced with investing in a new reference set or giving our direct model a more serious chance to succeed, we decided on the latter route. It was perhaps a riskier move, but we were increasingly convinced that it was the only viable long-term strategy. If the library market was in permanent decline, we obviously had to move quickly into another market.

In the last half of 2010, we hired a new design firm to overhaul the look and functionality of the site and a new development firm to beef up the back end. And we made another crucial decision: We would switch the site from a per-article sales model to a subscription one built around monthly or annual plans.

MilestoneDocuments.com 2.0 was launched in December 2010. And the rest, as they say, is history. Right?

Not so fast. By the time of the 2.0 launch, we had yet another pivot staring us in the face, daring us to reconsider our strategy yet again. Did we have the energy to pivot once more? Did we have the resources? In the next installment, I’ll tell the story of pivot #3.

I saw recently that Malcolm Gladwell’s next book is going to be about underdogs. In this interview at the New Yorker’s website, he talks about some examples from his forthcoming work: a girls’ basketball team, a cancer researcher, the Impressionist painters. One of the points he makes is that underdogs can win only with the right combination of effort plus strategy. Effort alone won’t cut it.

In the business world, one of the key factors in any underdog’s success (or lack thereof) is the general state of the industry in question. There are plenty of industries where the barriers to entry are so high, and the market so mature, that it’s difficult for underdogs to compete. However, there are many others that are experiencing some measure of upheaval. Consider publishing, for example. In an interview at Digital Book World about book publishing and e-books in particular, Kobo executive Michael Tamblyn made this observation:

When industries are stable and things are ticking along steadily, industries tend to be dominated by insiders; you have to grow up in it and pay your dues. During times of upheaval is when outsiders get in, when start-ups get in, when innovators get their shot.

Disruption in Education

Or consider the higher education market, which is abuzz these days with talk about MOOCs (Massive Open Online Courses). Several entities have formed to offer new online courses in this area (Coursera, EdX, Udacity), and they include some of the most famous universities in the country. Despite the lack of any clear business model or any evidence that online learning is as good as (or superior to) traditional classroom learning, huge amounts of investment money are being poured into this marketplace. It’s like a modern-day gold rush, only no gold has been found. A good many people had a chuckle about this remark in a New York Times article about Coursera’s latest expansion announcement:

Coursera does not pay the universities, and the universities do not pay Coursera, but both incur substantial costs.

So in other words, it’s a win-win situation! Obviously, these new online players are making a bet that a revenue model will be found at some point. And maybe they are right. If they are, then MOOCs will indeed prove to be enormously disrupting to many organizations in the higher ed field. In this case, the disruption may lead to a consolidation of power at elite universities at the expense of the rest, a point made by Mills Kelly of George Mason University.

Looking for an Edge

Like every other company that services the higher ed market, we are watching these developments closely and wondering how they might affect us. And there is no doubt that for a small upstart like our Milestone Documents service, online education represents a significant opportunity. I say this even though personally I’m quite skeptical about online learning. We didn’t design Milestone Documents specifically for online learning (and most of our customers use us in a traditional classroom setting), but it happens to be perfectly suited to an online environment. At the same time, the competition will be fierce, from the established heavyweights at the top to other upstarts at the bottom. A market in the midst of change may open up spaces for small innovators, but the journey is still long and difficult.

What about your market? If you’re an underdog in your industry, how do you succeed? What’s your strategy for changing the rules of the game so that it tilts in your favor? These are the questions that a lot of us in the higher education industry—companies and institutions alike—will be working on in the next few years.

In the business world, “change” is a hallowed term. If your business isn’t constantly assessing the changing market and figuring out ways to adapt, it will be in trouble. As a business owner, I understand this well. Like most owners, I have long since grown accustomed to not just adapting to a changing marketplace but also figuring out ways to disrupt it, to heap more change upon it.

In our industry (educational publishing), for example, plenty of companies and nonprofit organizations have looked at the dynamics of the traditional academic textbook model—particularly as it relates to pricing—and decided that it was sorely in need of having some change foisted upon it. I referred to this in my recent post “Competing on Price.” 

Size Matters

Small companies have an advantage here over big ones: they can pivot quickly, turning on a dime to take advantage of a new opportunity or to fine-tune the path they are following. Still, this capability carries a large risk: small businesses must take care not to change too quickly, not to act too impulsively. If your company, like mine, operates in an industry undergoing major upheaval, this is a very real danger. Making sure you install some checks on your decision-making process is critical.

At big companies, the challenge is the reverse: turning the ship around takes time, skill, and finesse. Leaders must convince staff throughout the organization that change is not only important but, indeed, essential, and they must provide a vision for executing that change in a way that doesn’t threaten the existing business. To my mind, one of the most fascinating experiments going on right now in the corporate world is taking place at JC Penney, where former Apple exec Ron Johnson is trying to overhaul this large retailer from the ground up. It has not been a smooth ride so far, to no one’s surprise. Have they moved too quickly on some changes? Can they survive the rough road ahead and reposition themselves on the retailing landscape? It will be interesting to watch.

Not Everything Is a Business

What about educational and governmental institutions? One hallmark of our times, at least in the United States, is our mania for infusing “business thinking” into organizations that are not businesses. Certainly, there are many who advocate for this approach, and not surprisingly many who do are business leaders themselves. But failing to consider the different missions of a business and an educational institution can jeopardize any effort at change.

Consider the recent fiasco at the University of Virginia. A minority of the governing board, all of them business leaders, decided that the university was not changing fast enough and that the university president, Teresa Sullivan, was the one responsible for putting the brakes on. So they fired her, only to encounter such vehement pushback from faculty and alumni that they had to back down and reinstate her. Not only did the board not account for the other stakeholders in their organization (thus mistaking their university for a business, where top-down decision-making is more acceptable), but they also appear to have reacted too impulsively to various well-hyped changes taking place in the educational industry. The juxtaposition of Sullivan’s measured approach to change and the governing board’s reckless follies would make for a great business school case study.

Managing Change

Managing change successfully is one of the biggest challenges for any leader, whether in business or some other sphere. I’ve certainly made plenty of mistakes in this arena. As a result, I think the smartest approach to change management is to keep your skeptic’s hat on at all times. When considering a new course of action, here are some good questions to ask yourself:

  1. Is this change really necessary?
  2. Will it benefit our customers?
  3. How do I successfully persuade our organization’s stakeholders to get on board with this change?
  4. What are the potential risks of action and nonaction?

Competing on Price

July 23, 2012 — Leave a comment

The academic textbook industry is rather crazy. For example, the people who decide what product to use are not the ones who have to pay for it. A professor selects his/her preferred textbook and other supporting materials; the students pay for them.

Except that, increasingly, the students don’t pay. They borrow a friend’s copy. They rent. Or they just do without and hope for the best. Why? It’s not that they are displeased with the product or find it too bulky or hard to use. Rather, it all boils down to one simple fact: high prices.

E-textbooks: More of the Same

When digital textbooks began to appear a few years ago, many observers hoped the new versions might herald an era of more affordable products. But they failed to consider that the companies making most of those textbooks have very little incentive to lower prices, because professors care more about what’s in a book than its price. What’s more, publishers are under enormous pressure to keep prices high—from their own bottom lines. Last week Phil Hill made this same point on Twitter:

Textbooks marketed 2 faculty & most institutions very poor as intermediaries; therefore no mechanism for student market dynamics.

In other words, with faculty making the adoption decisions, there is not much room for students to influence the market.

Our Dilemma, Our Opportunity

While I agree with Phil on this point, I think there is still room for students to make a difference, via upstart publishers looking for an advantage. As it happens, the increasing groundswell of student complaint and frustration about high textbook prices has coincided with the digital revolution. Thus, companies looking to break into the market—a market poised to reward publishers that offer effective new digital solutions—happen to have a handy new stick to wield against the established players: price. Perhaps it’s a small stick, but it shouldn’t be discounted at a time when other elements of the market are in such flux.

We are one such upstart publisher. When we launched Milestone Documents in 2011, we knew from the outset that we wanted to compete aggressively on price. That is hardly enough to guarantee success for us: As both Phil Hill and my friend and customer Jonathan Rees mentioned in that same Twitter conversation, faculty still care more about quality, pedagogy, and completeness than price.

Nevertheless, it’s clear we are part of a larger trend. The various open-access textbooks beginning to appear on the scene are priced even more aggressively than ours. While “free” isn’t the right choice for us, such products can only increase pressure on the established publishers to lower their prices.

Phil brings up another point, too: the advent of institutional licensing deals with publishers for e-textbooks presents another opportunity to exert pressure on prices. These licenses sometimes provide cushion for the publishers by ensuring that every student enrolled in a course is charged money for the textbook. With the guarantee of 100% buy-in from students (as opposed to 50-60% with traditional textbooks), publishers can safely offer lower prices without their bottom lines taking a hit.

Are there other factors that could lead to lower prices? I’d love to hear your thoughts. I maintain that innovation and competition from smaller publishers offer the best hope. Still, let’s revisit this in 1-2 years to see where the market has moved.

“Information wants to be free.” So goes the famous saying attributed to Stewart Brand about digital products and services. And perhaps it’s true in a lot of cases. Wikipedia was revolutionary, and it’s become a great resource for basic data on all sorts of topics. I use it myself all the time—not for serious editorial work or formal writing, mind you, but certainly for casual questions that come to mind. And consider government data: there is no question that such data should by and large (if not always) be free.

By “free,” I mean (in this context) “free of charge.” As opposed to “free to share,” for example.

The Textbook Industry

In my industry (academic textbooks and related materials), there has been a wave of interest in so-called Open textbooks. Both private companies and educational institutions have created free textbooks. Students, naturally, tend to love the idea. And why not? They’ve dealt with punishingly expensive textbooks for years now, with prices going ever higher and publishers searching for creative ways to keep the used textbook market at bay.

However, consider me a skeptic on free textbooks. Trust me on this: quality educational materials are neither cheap nor easy to create. And with the future sure to be increasingly digital, educational materials will have to be kept up to date. Again, not cheap. Not easy. The groups funding the “free” materials are going to have to earn their money back sooner or later. Then what happens to “free”?

Business Owners: The Case for the Middle Way

Rather than rush from one extreme (“hideously expensive”) to another (“free”), it seems to me a better case can be made for the middle way: modestly priced, but not free. Naturally I would think that, since that’s the path I’ve chosen for our Milestone Documents service. But I think this approach is a good one for any number of companies in any number of digital industries, not just textbooks. Consider the advantages:

  1. The company can earn money. Isn’t that ultimately the goal (if not a requirement) of a for-profit company?
  2. The company has a stream of revenue that it can use to continually improve the product/service.
  3. If the price is reasonable, customers (in our case, students) can still save lots of money, or at least see your product as a great value.

If your company is operating in a mass-market industry, or one where the scale is such that your venture can ultimately be funded by advertising, then perhaps free is the right approach for you. For everyone else, I’d urge caution. Charging money for a good product/service is not unethical. Even better: charging a modest fee for a great product/service is eminently sensible. That’s our goal with Milestone Documents, and it’s one that I think can apply to many digital businesses.