This fall, Cengage, one of the world’s largest textbook and educational companies introduced Cengage Unlimited, a new digital subscription service offering students access to all of its digital learning platforms, e-books, and online homework and study tools for one price. It’s a massive, and long overdue model shift, says Cengage CEO Michael Hansen. Ahead of this year's Frankfurt Book Fair, PW caught up with Hansen to find out why he believes the textbook’s long reign needs to end.
It's been a long road for Cengage. How did you come to see the light about digital subscription?
It’s a really good question. There was not a moment when it hit us—it was more of a continued observation that the old business model of textbooks had become a game of the cat chasing its tail. Our customers have been telling us for some time that the textbook is not worth the money they pay for it. And, increasingly our customers—the students—have been finding ways around buying the product. In some cases they opted not to buy it at all, only to find out during midterms that was not such a good idea. Then the used book market developed, then rental. And the industry responded to this by continuing to raise prices—which we could, because the faculty, not the student, was actually the decider, and the faculty’s decision was not price sensitive.
So, what I mean by the cat chasing its tail is that as more customers figured out ways not to pay for the books, the more the industry just kept raising prices. And while the number of units sold was declining, this was masked by the revenue—because we kept raising prices. When I came on six years ago, Cengage was one of the biggest players in this insane game. The pivot for us came with a simple realization: you can’t sustain a business if your end user is unhappy about the price/value relationship of the product. You just can’t. So that’s why we started to work on a radically different model.
Cengage recently did a survey with Morning Consult, which found—no surprise—that students do find textbooks to be way too expensive. Did that survey reveal anything new to you?
I would say the degree of pain was surprising. When you see that 43% of students skip meals in order to afford textbooks, or when you see that about a third of the students said they don’t take a trip home from college because they had to pay for their textbooks, I think that makes it real. This is not just some concept. It has a real and direct impact on students’ lives, and on their education. And frankly we were delighted by the fact that the underlying message coming back from the survey was exactly in line with what drove us to make this pretty bold and risky change to our business model.
The move to does seem both bold and risky, if only because the textbook business is so entrenched. Is that how you perceived the move, as bold and risky—or, was it just necessary?
I think all of the above—a change of this magnitude doesn’t happen if you don’t want to take a risk. If you say I’m just going to preserve my business model, and I’m going to defend it until the last hour, nothing changes. And I think the industry has for too long been in this kind of defensive mode, and not addressing the real problem. So, yes, there is risk. But we’re encouraged by the reaction from students so far.
Do you think we’ve hit an inflection point for the textbook? When one of the world’s largest educational companies moves so aggressively to digital subscription, does this not suggest the business at large needs to get more aggressive about digital too?
I think they do, I really believe that. We’ll see what they do. But I do think eventually we’re going to be on the right side of history, removing a significant barrier for students, and equally importantly, enabling students to access material digitally, I think is the way of the future, and I think it will make the content even more useful.
That of course is the other part of this: in addition to better pricing, digital also offers a more powerful experience. One of the selling points of Cengage Unlimited is the supplemental material the service offers. Do you think making the model switch gives you an advantage as we move toward into a more interactive learning environment?
Yes, and it’s a massive change. I think that the easiest way to summarize the potential is that, with this model, the users of the content—the students, as well as the faculty—have the power to better inform and influence what works. We now have real time data, about the content, usage, assessment data, and how different people understand different concepts. And that is really the underlying power of technology, and what will enable us to be much faster in terms of doubling down on what works, or pulling back on what doesn’t.
Now, some of this is still somewhat futuristic, we’re in the first inning so to speak. But that’s certainly where we want to go. We want to make the learning experience commensurate with so many other experiences in the 21st century.