Uns

aved

Doc

umen

t / 4

/16/

2011

/ 16

:46

Making Information Pay for Higher Education Publishing

Gary Shapiro SVP Intellectual Property

Follett Higher Education Group

Follett Corporation Founded in 1873 Revenue: $2B+ 930 Physical; 330 Virtual Stores 5M + students 400K Faculty/7M+Parents/Alumni/Fans eFollett is the 56th Largest US

ecommerce site w/13+M Unique visitors Integrated Inventory Mgmt System CafeScribe econtent platform (2007) Staff: 8,000 Regular full and part-time

FSLG: Library, Educational Services;

Software

Follett Higher Education Group (FHEG)

February 17, 2012 Page 1

2

Follett Offers Course Materials Across All Formats and At Many Price Points

Follett provides complete coverage of the course materials business spectrum

New Textbooks/

Digital

Used Textbooks

Rental

Over 140,000 titles Bundles and custom products represent

significant share of volume 25-30% new text sales are digital

content, monetized by a print sale CafeScribe 2.0 launched July; contracts

with all top publishers; growing catalog

Attractive option for students seeking to manage costs Generally retails for 75% of new price

Introduced in Fall 2009 with national roll-out Fall 2010 Answered market demand for low

price alternative

FHEG Textbook Revenue – FY12 YTD

3

New/Digital Course Materials by Product Type

What Do We Know?

The cost of textbooks is a real issue But hype exceeds the reality (students don’t pay full new price)

Students are acquiring required materials (89%) But not as much from traditional channels College stores have seen a dramatic decrease in market share

79% buy some materials from college stores 42% buy at least one item online; 1/3 of all purchases online

Rental has become significant in Higher Ed Channel(s)

Digital content accounts for about 30% of textbook revenues, but etexts a very small share Monetizing digital through print sales Like publishers, Follett is making significant investments in digital and

partnering with new technology providers

Channel Impact of Text Rental

FHEG (incl. eFollett)

Off-Campus Store

Online Trad. (Amazon, Half)

Peer-to-Peer (& “didn’t buy”)

Pub Direct

Online Rental (Chegg. Book Renter)

“Post-Rental” Market Share Competitiveness in a world with rental

• Ability to spread inventory risk and systems investments across 900+ stores

• Market intelligence allows optimized title selection • On campus presence provides convenience advantage

• High inventory risk (local) • Systems investments are substantial

• Without acquisition, difficult to enter rental due to lack of “title intelligence” and organizational considerations; “point of

presence” sales tax concerns

• Rental options available to students keep P2P prices low • Rental books returned to store not available for P2P

• Number of students not buying should also decrease (?)

• High cost to administer B2C rental program • (Has advantage on titles with pass codes, custom and

supplementary online materials)

• Low cost, centralized model with ability to spread inventory risk • Agility to re-price quickly, focused marketing

6

Stakeholders Have Diverging Interests

Students Very price focused Tech savvy Engaged with

social networks Beginning to

accept digital course materials content

Institutions Concerned about affordability Interested in digital

alternatives; market differentiation

Changes in financial aid distribution

Need commission income Faculty requiring fewer titles;

using Web-based content

Environmental Factors Poor economic climate Enrollment changes/declines (“For Profit” Institutions; Community Colleges) Competitive bidding for clients Startups/venture investments leading to significant noise; sales impact OpenSource endorsed by PIRGs, legislators Investment(s) needed to compete

Publishers Rental, Marketplaces,

OpenSource impacting sales

Driving digital, custom, direct-to-student sales and institutional relationships

Want more control over terms/conditions

7

15%

20%

25%

30%

35%

FY08 FY09 FY10 FY11

Positioning to Win Against Local and Online Competition

booknow allows students to purchase all new and used textbooks and course materials at time of class registration

First and only registration integration system in the industry

Allows Follett to maintain and gain share in an increasingly competitive environment

Stores

Marketplaces

Rental Sites

Publisher Direct

All text formats available (Used / New / Rental / Digital) X Limited X Accepts all tender types (Cash, check, credit card, campus card, financial aid)

X X X

Offers in-store pickup X X X

Integrated with campus systems (LMS, SIS, registration system) X X X

Assurance of right materials from one place

X X

Growth in financial aid as tender – a strategic advantage (% of tenders using financial aid)

X

8

Traditional texts 6 major publishers One text per course Significant pedagogy 2 page spreads; graphics,

color; chapter exercises Highlighting and underlining;

memorization Publisher support Average Price: Over $75

% o

f New

Equ

ival

ent R

etai

l $’s

Tra

nsac

ted

100%

80%

60%

40%

20%

0%

60% 40% 20% 0% 10% 30% 50%

% of Titles

100% of retail = 142,762 titles (100%)

80% of retail = 15,066 titles (10.55%)

50% of retail = 3,585 titles (2.51%)

The majority of titles are trade books and monographs

The majority of dollars of sales are

traditional texts

The Majority of Sales Are From Traditional Texts

Trade books and monographs 8,000 publishers / distributors Original materials Multiple books per course Linear reading Average Price: Under $50

Source: Internal FHEG data

9

Textbooks

Evolving into native digital

(adaptive learning) products

9

Evolving into enhanced

print products

The discipline will determine how technology will change course materials and how fast they will evolve – significant differences in

product types leads to different impact from digital

Supplementary content

Homework management tools

Assessment products

Other digital components

Product Evolution Will Differ Based on Discipline

10

Textbooks

Evolving into native digital

(adaptive learning) products

10

Evolving into enhanced

print products

The discipline will determine how technology will change course materials and how fast they will evolve – significant differences in

product types leads to different impact from digital

Supplementary content

Homework management tools

Assessment products

Other digital components

Product Evolution Will Differ Based on Discipline

• Problem-based disciplines • Digital = Interactive • Technology replaces print • Solo learning • Digitization leads to better

student performance, engagement, retention

• Driven by publisher investment • Format = faculty decision

• Theory based disciplines • Digital = Digital replica;

enhanced print • Technology enhances print • Social learning • Digitization = lower cost,

convenient access, search capability, note sharing

• Format = Student Decision or Campus Requirement

11

Native Digital/Adaptive Learning Enhanced print course materials

Books on reading devices

11

Device requirements Large / quality display Good connection, significant memory Optimal devices Multimedia-optimized tablets Applications Highlighting, note-taking and sharing Links to other resources

Devices and applications will differ by category

Key questions: • Does it support the unique content critical to teaching and learning? • Will students use a dedicated reading device or want a multipurpose device? • Is the device affordable for students; esp. with the additional cost of the content? • Does the primary content provider support all platforms and devices?

PLATFORMS Download, Cloud

DEVICE REQUIREMENTS Quality screen (eInk)

OPTIMAL DEVICE SOLUTIONS Tablets and Readers, Smartphones, eink devices

Monographs

APPLICATIONS • Interactive

• More like traditional software or web- accessible content PLATFORM

• Student uses on publisher servers (Cloud) DEVICE REQUIREMENTS

• Fast connection • Speedy Input (Keyboard) OPTIMAL DEVICES

• Laptops, desktops, netbooks. • Possibly larger format tablets

APPLICATIONS • Highlighting, note taking and sharing

• Links to other resources

PLATFORM • Cloud, download

DEVICE REQUIREMENTS • Quality (larger) screen

• Good connection; significant memory OPTIMAL DEVICES

• Laptops, desktops, netbooks • Sophisticated tablets

Digital “Tailwinds” in Higher Ed

Rise in availability and use of quality homework management, assessment tools

Standards are making it easier to integrate econtent with LMS

Declining print sales challenging publishers to create new models

Rapid rise in tablets & smartphones

Availability of digital content (& favorable pricing)

Growth in distance learning/use of digital

Rapid growth of ebooks in trade and professional markets

February 17, 2012 Page 12

Digital “Headwinds” in Higher Ed

Tablets not affordable option for many students

Most digital content unexciting replica of printed text; extended reading on desktop/laptop is difficult for most

Premium digital content selling for premium price

Digital, while cheaper than new print, is more expensive than traditional (buy used/sell back) model; rental countering cost savings of digital

Student access to quality bandwidth not ubiquitous

Some faculty still resistant to technology The number of classes taught by adjuncts

ADA concerns

February 17, 2012 Page 13

Channel Impact of Digital

FHEG (incl. efollett)

Off-Campus Store

Online Trad. (Amazon, Half)

Peer-to-Peer (& “didn’t buy”)

Pub Direct

Online Rental (Chegg. Book Renter)

“Post-Digital” Market Share Competitiveness in a world with digital

• Access to the customer becomes even more critical as publishers move toward agency pricing reducing price competition

• Customer-centric systems which provide convenience (virtual), easy purchase and access are key

• Unlikely to survive as course materials outlets due to investments required to support digital

• May have significant position depending on ability to be customer access point of choice

• However, will lose share to institutional decisions (licenses) and one-fee-like programs

• Not a legal option

• Potential for publishers to disintermediate all other channels, IF they remain the primary content providers

• Would have to fundamentally revise business model to play in this space, and even at that unlikely to have significant customer access

required for success

15

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

Traditional Print Custom Text (Print) Bundles (Print + Digital)

ebooks Native Digital

Today 5-7 Years

New/Digital Course Materials by Product Type

16

FHEG is Encouraging Institutions to Think Strategically About Course Materials

Mitigate risks Managing number of platforms and applications adopted and used Assuring productivity increases, not decreases Faculty can teach, not provide technical support and/or have to learn to effectively

use multiple technologies (from LMS to publisher platforms) Students focus on learning the material, not different but similar technologies Managing demand for bandwidth and infrastructure

Minimize costs Potential new administrative and legal costs (i.e., managing licenses) Integration with technology infrastructure and support

Selling the need for strategy Choosing among options (both by students and faculty) becoming complicated Good strategy leads to improving student success while:

Optimizing their investment in course materials Ensuring quality of instructional content Sustaining faculty's role in selecting course materials and instructional resources

Student success leads to better engagement and retention Ability to capitalize on technology investments

The “Endless Aisle”

The “Endless Aisle”

Objective: Increase revenue and wallet–share through implementation of

broader inventory visibility and order management functionality – leveraging the entire enterprise

How? Fulfill any order, any channel, from any location Centralized customer service support Increased assortment through 3rd Party Vendors Full tender availability from original store Inventory visibility across the network Centralized distribution support

Order Management – Product Sourcing

Online Order Placed at Boston

College

Order Management

System

Proximity to Destination

Nationwide Proximity

FHEG Distribution Center

3rd Party Drop Ship Vendors

New Distribution Center

New, 550,000 sq. ft. Distribution Center adds needed capacity to expedite “click & mortar” strategy

Featuring state-of-the-art Kiva

Robotics Increased order put-through

capability to respond to increasing demand:

Further mission of driving

sustainable practices

Page 21

Follett’s Hammes Notre

Dame Store at Eddy Commons

Not Just a Bookstore

Thank you!

Questions?

22