One week ago Cengage announced Unlimited, an all-you-can-read subscription for their digital course materials. For $120 per academic term, students get access to any and all of Cengage’s 20,000 digital titles with the ability to also get a print rental for $7.99 (shipping costs) per title. Once the subscription ends, students keep access to up to six digital textbooks for another year at no additional cost.
When interviewed for an Inside Higher Ed article, I commented:
Phil Hill, the co-publisher of the blog e-Literate and a partner at MindWires Consulting, said that he was “impressed” by the Cengage announcement. “It’s like someone at Cengage woke up and decided to take this digital content transformation seriously,” he said. “If you combine Cengage Unlimited with the OpenNow announcement, both of them really represent a rethinking of Cengage’s business model.” While Cengage and other publishers have dipped their toes into digital-first models, Cengage is “taking the lead,” he said.
To me this is big news – a real change in business model from one of the big three academic publishers in higher education. Publishers have long suffered from their own historical success in two key areas. One is the restrictive content licensing terms that have restricted student and faculty to narrow usage while also restricting the publisher based on author rights. The other is the business model that treats content as a scarce resource, leading to high unit costs (the $300+ textbook) and a focus on top-line revenue. Both issues make it difficult for the publishers to rethink models and take advantage of digital content to address growing concerns on affordability, but Cengage Unlimited appears to represent a rethinking of how to get past these barriers and bet on future usage patterns.
Initially, the main person who seemed to throw cold water on this interpretation was Cengage’s own CEO Michael Hansen from comments also at IHE.
While Hansen said that the announcement of Cengage Unlimited was significant, he said he didn’t think it represented a big shift in strategy for the company.
This comment confused me. Is Cengage Unlimited a marketing ploy rather than a significant change in strategy? The Netflix of Textbooks usage in national media certainly adds to the skepticism.
Michael and I had the opportunity to interview CEO Hansen along with EVP and Chief Product Officer Fernando Bleichmar last week. Both Hansen and Bleichmar were quite direct in answering our questions, and I came away reassured that this move does represent a significant change in strategy that goes beyond what we have seen from academic publishers in the past.
When asked about how to read interpret his comments, Hansen replied that “nothing changes and everything changes”. What doesn’t change is that the executive team believes digital experience is better experience for students. They have built products over five years that they believe serve this purpose, and Cengage have set a strategic goal of being 90 percent digital by 2019.
What has changed is that Cengage executives now fully recognize that affordability is a barrier for students. According to Hansen, while faculty tend to appreciate the better learning experience possible through digital technology, “we in the industry have put our heads in the sand on affordability”, thinking students and faculty would ‘see the beauty’ of what publishers produce and be willing to pay higher prices. Yet Bleichmar pointed out that 70% of students are not using digital, largely due to affordability.
From our perspective, publishers have in general recognized the problem of affordability and have made efforts to reduce prices particularly through digital offerings. Cengage Unlimited, however, is the first time a publisher has made affordability the centerpiece of their strategy -both in business model and in branding.
There will be real implications to the changes due to Unlimited. One is that it will now be very difficult for Cengage to get more than a handful of students paying for $200 or $300 textbooks. The $120 price along with print rental option should place a cap on what it makes sense to spend on any one book, particularly for general education courses. Take the infamous Greg Mankiw’s Principle of Economics textbook. Currently the MindTap (digital platform) access for six months costs $130, and if you add the bound book it costs $355. If Cengage Unlimited is successful, the days are over when the publisher can get these unit prices. There will also be a cap on what Cengage can make with multiple digital offerings. Bleichmar acknowledged that Cengage would have to make up in volume what they are giving up in price-per-unit.
A recent model that several publishers have been trying lately is ‘inclusive access’ as described by Inside Higher Ed just a month ago.
Major education publishers — including Pearson, Cengage and McGraw-Hill Education — report that the number of colleges offering “inclusive-access” programs has grown rapidly in recent years. Where previously students might have been assigned textbooks individually, now many institutions are signing up whole classes of students to automatically receive digital course materials at a discounted rate, rather than purchasing individually. The “inclusive” aspect of the model means that every student has the same materials on the first day of class, with the charge included as part of their tuition.
According to Hansen and Bleichmar, Unlimited is a much bigger deal than inclusive access, moving from à la carte to a all-you-can-eat model. Cengage will offer both, but they believe Unlimited will have a bigger impact on affordability.
There is absolutely short-term risk involved in this move, but Hansen pointed out that this risk should be compared to that of the current trajectory. “The risk of doing nothing is much higher than what we’re facing right now” without a change.
Cengage’s short video on YouTube actually plays to this idea that Unlimited represents a change from the past, no longer seeing previous boundaries as limitations to live within. Yes, it’s marketing material, but in this case I believe it represents the thinking of a company coming up with new strategies.
Will this model work? That we do not know. One factor to consider is that college textbook adoption has never been a rational model. The consumer (student) has had limited ability to choose products based on affordability, even if that situation has changed somewhat with rental and used book options, piracy, and the choice to not acquire required course materials. In addition, the ability to find different options is typically tricky and requires time and know-how. It would be a mistake to think that even if Unlimited represents a rational better choice students will automatically jump at the chance. Furthermore, open educational resources (OER) have made real inroads recently and represent even lower-cost options (often free, often $25 per textbook when bundled in platform).
What I do feel confident about is that Cengage is making a big bet with a new model that is more significant than ‘inclusive access’ or previous attempts from publishers to go digital. This is not just a marketing ploy, it’s a change in strategy driven by new understanding of affordability concerns.
Update: Cengage no longer goes by Cengage Learning. Post edited accordingly.
