From Forbes.com:
Adapt quickly or die.
forbes.com
A New Chapter For
VarsityBooks.com
Penelope Patsuris, Forbes.com, 08.21.01, 2:07 PM ET
NEW YORK - Selling discounted college textbooks online should have
been a gimme for VarsityBooks.com. After all, undergrads constantly
complain about waiting on long lines at university bookstores to spend as
much as $100 per tome. And college kids are plenty wired; most of them
get online every day. They each spend an average of $390 a year on
books, creating an industry worth $6.8 billion.
But Varsity is tanking. For the second quarter the company reported a
$954,000 loss on $887,000 in sales, off 61% from second-quarter 2000
revenue of $2.3 million. Its shares got booted off the Nasdaq in March and
are now trading over the counter at 45 cents a pop. Not surprisingly,
Varsity has abandoned its original plan to go head-to-head with college
bookstores.
What went wrong?
The business that seemed like an e-commerce natural was in fact
stymied by students' unwillingness to buy books long-distance through a
third party. "Students are concerned about shipping charges and being
able to return books when a class is dropped or canceled," says a
spokeswoman for the National Association of College Stores (NACS).
Another Varsity misstep was to underestimate the battle against
well-endowed schools for the hearts and minds of their students.
While only 6% of textbooks are now sold online, according to NACS,
students who do shop online use a site that's affiliated with their college
store. Indeed, 75% of students say they'd be willing to buy books online
from a site run by their own college. "They'll shop online as long as they
can walk to the store if they have a problem," says the NACS
spokeswoman.
Traditional textbook players recognized this early, which is why they're now
this market's leaders. Players like privately held Follett ($1.4 billion in
2000 sales) have since stepped in to work with college bookstores to
bring them online instead of working against them, and they've snapped
up the lion's share of that business.
Follett runs 681 physical college bookstores and has also partnered
online with 1,000 campuses like Stanford, Notre Dame and Georgetown
that pay a flat fee for the service. "Since we're already on campus, we can
immediately update course and professor changes online," says a
spokesman for the company. Efollett's books are shipped from their
campus stores so students can return them easily.
NACS itself created software licensed to 350 college bookstores that want
to sell online. Recently that technology, which is used by schools
including The Ohio State University, Cornell University and Boston
College, was sold off to bookstore services company Sequoia
Peripherals.
Varsity also wants to team up online with college bookstores now, but the
only dance partners left are small colleges, private high schools and
vocational centers. These schools can't necessarily operate their own
stores in cost-effective ways, so they have Varsity manage a store online
instead. Varsity Chief Executive Eric Kuhn says that the switch in business
model is why last quarter's sales dropped so steeply. Last year the
dot-com was still marketing to lure students to its site to buy
second-semester books. Since most of its new customers are private
high schools, Kuhn expects that most of its sales will take place in the
third quarter as they return to school and buy the year's books.
Varsity has probably hit upon the right strategy, but it may be too late for
the company to turn itself around with this new model.
The tony New York City prep school The Dwight School is now one of
Varsity's 90 partners. "If you think about all the steps in process [of
ordering and distributing books], outsourcing the bookstore electronically
becomes very attractive," says chancellor Stephen Spahn.
Varsity has $16 million in cash but needs little capital for its new model.
"Now we don't have to pay for marketing or discount the books to draw
students," says Kuhn. "We post the schools' book lists and we know
exactly how many people will buy a title, so we can stock inventory
accordingly."
Kuhn says he makes money on the books, but has yet to ask schools to
pay a fee for Varsity's services. "Our expectation is that we will reach
profitability in the third quarter," he adds.
He admits that he has about 1,000 potential customers, which is a small
customer base upon which to build a successful business. And even if
Varsity does manage to get into the black before it burns its remaining
funds, its success will clearly be a tiny one.
The textbook purveyor has learned a textbook lesson: Adapt quickly or die. |
