As one door opens…

• Article 2 of 15
• EducationInvestor, February 2011
• View the original article online

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At the moment these costs are being subsidised: MIT pays for only half of that budget directly, with the rest covered by grants, corporate underwriters and donations. In Britain, the Hewlett Foundation has been responsible for a number of OER investments, while the Higher Education Funding Council for England provided the initial £5.7 million for the first phase of the JISC/Higher Education Academy’s piloting.

But such subsidies can’t be relied upon forever. Sarah Porter, head of innovation at JISC, asks, “In the longer term, how will we pay for this? What are the business models? People are worried about the bottom line.” In other words, the big question is whether OER providers could create a self-sustaining model that could threaten publishers over the long term.

Flat World Knowledge, a US start-up created by two ex-Pearson employees, offers one promising OER business model. The company was seeded with $12 million of venture capital, and recently received $15 million in series B funding from Bertelsmann Digital Media Investments. The company, which now has over 100 authors under contract, makes its books available online for free as web pages under a creative commons licence. Anyone can edit them, print them off and use them. Despite the fact all this is free, Flat World co-founder Eric Frank predicts that the company will break even within two years.

The company has several revenue streams that’ll help it achieve this feat. Flat World provides its books in a number of other formats, for devices such as mobile phones and e-book readers, and it also offers a printing service. All these the user has to pay for. It charges, too, for study aids, flash cards and other tools related to the textbook. Although the author gets paid relatively little to write the book, he or she gets 20% from sales of all these formats, even though the study aids are usually created by someone else. The company is also turning the creative commons licence to its advantage: anyone creating modified versions of the textbook is also able to give the work back to Flat World Knowledge and sell it through the company, getting a percentage of the royalties determined by the scale of the changes they’ve made.

Frank says the model is working well. “We’re hitting about the same penetration rate [as other publishers] in courses at the moment: we’re very close to less than half a per cent off, being used in over 900 colleges by more than

100,000 students in 44 countries.” And although the company has made few efforts to expand overseas, its books are now being used by 80 universities around the world, including ones in the UK and China.

Flat World is not alone in embracing OER textbooks, and smaller companies in the US and Europe are producing books using similar models. The effect on mainstream publishers’ margins is notable. “A drop in price of 50% is the predominant response,” Flat World’s Frank says.

Schofield & Sims’ Nick Platts says the value added by his company is what now differentiates it in the market. While Flat World and other professional OER publishers might be producing high-quality materials, the ‘bittiness’ of most OERs, which frequently only cover parts of courses, means adoption of these OERs also takes additional resources to make them usable. “What we’re finding is we’re persuading schools that dropped workbooks years ago to take them up again,” says Platts. “They have so much more structure than those pulled down willy nilly off the internet.”

But this message, notes Flat World’s Frank, isn’t one that other publishers are shouting too loudly, particularly in respect to his company’s texts. “They try to broadcast the message that our content is no good. But more than half our authors are their authors, so they can’t push that message too hard.”

Another response from the publishers has been to offer traditional books in new formats. In part to combat OERs, Macmillan and other publishers have begun to offer e-books, in response to student and faculty demand. A consortium called CourseSmart, including Pearson, Cengage Learning, McGraw-Hill Education, Bedford, Macmillan and John Wiley & Sons, claims to offer 90% of core textbooks in electronic formats at much cheaper rates than print, usually through a rental model in which the ebook is no longer readable after a certain time.

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