Flat World: Freemium Made Workable

After Thursday's column about open textbook publisher Flat World Knowledge, I got in touch with Flat World co-founder Eric Frank and talked about many of the things I'd worried about. How do you make things that are free and open, but also useful and profitable?

After Thursday's column about open textbook publisher Flat World Knowledge, I got in touch with Flat World co-founder Eric Frank and talked about many of the things I'd worried about. How do you make things that are free and open, but also useful and profitable?

We started by examining Flat World's business model from the bottom up. Web versions of all the textbooks are free. PDFs are $19.95, and can be ordered for $1.99 a chapter. Black-and-white print-on-demand softcover versions are $29.95, and full-color versions are $59.95. They also sell audiobook versions of everything (also available in a la carte pricing). Not long from now they'll have Sony Reader and Amazon Kindle editions of everything, too.

Apart from selling the slightly more upscale versions of each product, Flat World makes money through auxiliary sales, such as digital study aids for each chapter -- flash cards, executive summaries, practice quizzes and so on. In some ways the web version is even better than its paper counterparts, he argued, because it's linked out to primary source material whenever possible.

And yet despite the basic version being free, 70% of their customers end up buying a printed version of some kind, or picking up a for-pay digital copy. Only 30% or so stick with the free version.

The end result: because of the nature of their market, they can deliver a free core product and still pay everyone.

So what will happen to the print editions in a few years, I asked, when digital reading devices really take off? (That is, if they really take off.)

"Digital readers in the textbook space have slow uptake," Eric replied, "largely because the pricing of the content is all wrong. The guys who own all the content, like my former employers, are pricing their e-reader versions irrationally. I can see why: they're priced relative to their existing print products, so as not to cannibalize print sales too quickly. So a Kindle edition is 45% of the print book -- which means $70 for an e-reader version of a $150 print version. It's a complete disconnect as to where the value is for a digital book. I think that's going to slow the rate of adoption." (And from what I have seen, it already has.)

"As for the Kindle being some kind of ubiquitous digital textbook reader -- well, I think we've had our one ubiquitous format already. It's print. And from here on out it's just going to get more fragmented, with more devices and more formats, with more content to go with it. That's actually good for us, because we set out believing that would happen. We have a document-flow process so that everything we create (originally in XML markup) can be built automatically for any number of formats. That way we can get, say, the Kindle version of something out quickly for everything once we have the transform down pat."

The biggest concern I had when I first heard about Flat World, I said, was the quality of the product. I'd seen a few free textbooks before and the quality ranged from okay to absolutely awful. How did they attract and vette quality content and producers?

"We were certain of something from the beginning. If we can't attract the world's best authors and produce work indistinguishable from market leaders, it will fail. People will pay for the value of open, but only if the baseline content is at least as good as the conventional competitors. We're confident that authors can make more money with our model, with the same number of class adoptions, than they can traditionally.

"With the traditional model, the author of a textbook only gets paid on the sale of a new text. In the first semester when a new edition of a book comes out, they see a big spike in sales because it flushes the market; people want to get the right edition of the book. But after that it's all downhill, so the publishers try to recoup as much as they can in that first semester.

"Under this model, the author gets paid a 15% royalty. With our model, there's a lower per-student figure, but there isn't as steep a drop-off, and we pay our writers a 20% royalty. After four semesters, the total adoption rate is only slightly lower than what the traditional textbook makers have."

Something else that has eaten into this is piracy. Up to 20% of texts that end up in students' hands for some subjects are actually foreign knock-offs that have been imported and sold at cut-rate cost. There's a personal angle to this revelation: my own father, a professor of mining engineering at Columbia, found that one of the statistics texts he'd used for years was turning up in this form!

So apart from having a baseline-free version of a textbook, I asked, how else can you compete with what's already out there? "You can't build market share on really minor levels of differentiation," he agree. "But if you take something of the same baseline level of quality, and open it up -- make it useful to the teacher as raw material -- suddenly you have a market entry strategy that wasn't available to you traditionally. And authors do get excited about growing market share rapidly, and then cashing in on this new models."

He came down hard on the fact that they're trying to build a model that is as attractive to authors as it is to teachers and students.

"Textbook authors generally set out to write texts because they feel they have a better way to teach a subject and make an impact on the discipline. Thing is, they've gotten lumped in with publishers as the bad guys. With our model, they're the good guys all over again. You can open up access to knowledge all over the world and make money at the same time."

Their current author slate -- about sixty writers -- consists of people who already have successful textbooks with other publishers, and who opted to write for Flat World. Some of them had been professors for quite a while but had been burned by previous experiences with writing texts -- one of the many things Flat World wants to fix.

"What matters most," Eric concluded, "isn't just being 'open', but delivering quality that also happens to be open." Emphasis mine, but as he put it, the best customer experience is the right value. That doesn't change if the customer is a student, a teacher, or just someone who wants to broaden their mind and not empty their pockets at the same time.

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