Wednesday, January 14, 2009

Cheap is Good, Free is Better

As I mentioned in a previous post, the book Predictably Irrational by Dan Ariely [amazon], people overestimate the value of free. At the same time, students and parents have a keen sense of prices that are too high. For example, textbook prices come to mind. In some cases, fees for college do too--if the student can't see the benefit.

In a staff meeting recently, the issue of textbook costs came up, so I was interested to see this article in Inside Higher Ed, which talks about the experiments at Northwest Missouri State University in reducing costs. They currently rent textbooks for cheap, and are transitioning to an online textbook system. This isn't free, but is at least cheap. And it's high-tech, which may be a selling point.

Can you do free? As a thought experiment, consider how many textbooks your students buy annually. Let's take a nominal population of 1000 undergraduates, each purchasing $1000 in books per year: 10 courses at $100 for each textbook. This is an implicit $1,000,000 investment that the institution makes each year. That is, if that money were not going to textbooks, it could as easily go toward a technology fee or financial aid (cost reduction). At a large institution, this scales up linearly: 30,000 students = about $30M per year. No wonder the textbook companies can afford to send professors free review copies. I used to sell them back to the book weasel (they guy who comes around buying them), and then use the cash as rewards for math problems given to my students. [As an interesting aside, I noticed it was hard to give the money away. If I made the prize too high, most students assumed the problem was too hard for their ability to solve and didn't even try!].

But back to the idea of free. In some evening programs particularly, adult students learn that they can take out more loans than they actually need for college (at least before the recession hit). The word on the street is "go to college at night and they give you free money!". Of course, it isn't really free, nor would textbooks be free, but they could be paid for out of tuition or anonymous fees, so it's a normal operational expense. Free textbooks at Your College.

How many of these texts do you think are actually being used at any one time? If we assumed we could eliminate the need for textbooks in class (using electronic editions projected onto screens or something), what is the maximum number that would be used at any one time? This is a typical IT kind of question. How many simultaneous phone calls need to be made at peak periods? How many wireless connections? Except in this case, we could circulate physical textbooks in the library as a low-tech solution. The most practical version of this is to buy a couple of textbooks for each type in the bookstore (used if you can) and circulate them in the library. Many students would opt to buy their own books, but not all. As demand increases, increase the number of texts. The electronic version is much cleaner, of course. Physically buying and circulating books is not attractive. Much nicer is having a set number of electronic copies that can be simultaneously accessed. Then all that's required is the infrastructure to deliver them to the students. "Free" textbooks plus high tech access is a winner.

We can't afford to miss a trick in this economy. Reducing cost and increasing customer satisfaction are paramount. I predict more institutions starting to use Customer Relations Management systems...

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