Major Book Retailers Vie for Deal
With California Virtual University
By BROOKS BARNES
Staff Reporter of THE WALL STREET JOURNAL
Last fall, when state officials started working to link the on-line offerings of
California's colleges and universities into one Internet-based catalog called
California Virtual University, providing basic study materials wasn't a top
priority.
After all, most students enrolling in the
distance-learning courses listed at CVU already
had the elemental tools of cyberstudy -- namely,
a computer and Internet access.
But it turns out that even students at a virtual university need that hoariest of
educational accouterments, a textbook. And now, Joe Rodota, CVU's
executive director, is trying to capitalize on that need, leveraging potentially
millions of textbook sales into an income stream for his upstart organization.
Mr. Rodota is looking for a book retailer to provide all the texts and other
school supplies for students learning on-line -- in exchange for a cut of the
proceeds. The book suppliers have until July 10 to submit their proposals, and
CVU will select a partner by late August.
A Growing Industry
Mr. Rodota, who also serves as a top aide to Gov. Pete Wilson, won't say
exactly how much he hopes to raise through such a deal, because the
negotiations are "too tricky." However, he estimates that CVU students could
spend $1.5 million on textbooks in the next school year, and $25 million by
2002-03.
At that level of sales, a partnership could easily generate more than $1 million
a year for the fledgling CVU, according to Jim Baumann, president of Follett
Corp.'s Educational Group, the nation's largest operator of college
bookstores. Follett, which plans to seek the CVU contract, was selected to
supply books for CVU's virtual rival, Western Governors University, a joint
project of 16 states encompassing 100 colleges and universities.
"This would be a very, very significant contract -- one of the largest," says
Mr. Baumann, noting that California is the nation's biggest textbook market.
"Such a partnership would mean a lot to a company strategically because it's
an opportunity to increase presence in one of the industry's fastest-growing
areas."
On-line sales, which reached nearly $600 million last year, are energizing the
college-textbook business, which had 1997 sales of $5.3 billion. CVU's offer
illustrates why companies like Follett, of Valpariso, Ind., want a piece of the
action.
"No one knows how big this could go," says Andrew Herd, director of
business development for Specialty Books, Athens, Ohio, which operates
on-line book ordering for nearly 50 campuses nationwide, including the
University of California-Berkeley. "The market is so vast we could be turning
over millions in sales and only be scratching the surface." (In addition to
Specialty, owned by Nebraska Book Co., Mr. Rodota says the biggest
contenders could include Seattle-based Amazon.com Inc., Barnes & Noble
Inc. of New York, Borders Inc. of Ann Arbor, Mich., and Follett.)
Portion of Sales
Here's how the plan will work: CVU expects to select one company as the
primary provider of textbooks, compact disks and other supplies for its more
than 700 on-line courses, which are offered at 89 California campuses. In
return for allowing direct access to students, CVU will get a cut of sales --
probably between 5% and 9%. The choice of partner will be based in part
upon the sales cut CVU gets and any other services the suppliers offer.
Students will be able to order materials at the same time they register for
courses. Books should arrive by mail within a few days, Mr. Rodota says,
because the provider will stockpile required materials.
Based on his own price research, Mr. Rodota says he is "highly confident" the
books won't cost more than usual. But shipping and handling fees will raise
the total cost by at least $5, depending on how quickly the buyer needs the
material.
"We wanted to figure out an innovative way to support California Virtual
University over time without tapping into fees paid by the student," Mr.
Rodota says. "Keeping book prices low is just as important."
Of course, students won't be required to buy books from any specific store.
But CVU says it still expects to profit handsomely, as vast numbers are bound
to buy from the recommended source because of the ease of placing orders.
Grants and Donations
Mr. Rodota sure hopes so, because the Wilson administration aims to operate
CVU as a self-supporting nonprofit enterprise. While CVU just won a
$250,000 grant from the Alfred P. Sloan Foundation, and six companies have
agreed to donate $75,000 apiece, that's a far cry from the annual cost of as
much as $2 million to maintain equipment and software and update Web pages
and course listings.
And while CVU's estimated enrollment figures seem astronomical -- 900,000
students taking some 16,000 virtual courses by 2003 -- Mr. Rodota insists
such numbers are realistic considering the "explosion in distance learning
currently taking place."
Because the boom in on-line education has already seen disputes among
booksellers trying to muscle into the market, CVU board members know their
search for a partner could spark a brawl. But that's the point, says Jonathan
Brown, president of the Association of Independent California Colleges and
Universities and a member of the CVU planning board.
"I'm not worried about Barnes & Noble and Amazon.com and all the others
fighting it out over this or similar contracts," Mr. Brown says. "The student is
only going to benefit and that's what we are aiming for."
So far, the big players seem to be biding their time. But executives at Follett,
Specialty and Amazon.com -- the company that pioneered on-line bookselling
in the early 1990s -- all say they want the CVU deal.
On the other hand, Borders spokeswoman Elisa Klosterman says her company
won't pursue the contract because it is "in such an early stage" of the on-line
business. Barnes & Noble executives didn't return calls for comment.
Independents Complain
Meanwhile, CVU's partnership plans have California's independent
booksellers, who already feel under pressure from the giant retail chains,
grumbling. This past spring, the independents' trade group, the American
Booksellers Association, filed suit alleging a host of unfair competition
practices by Barnes & Noble and Borders. Now, the independents say, they
can't compete in cyberspace because of technical costs -- and they say CVU's
agreement will further erode competition.
"I would love to be a virtual partner, but I don't have the resources to
compete with an Amazon.com," says Ned Shure, who owns Ned's Books in
Berkeley and four other small college stores in Michigan. "This partnership
will let the big companies squeeze more breath from little guys like me."
Larry Daniels, an executive with the 3,100-member National Association of
College Stores, agrees. "The book giants are really moving in and we've got
to start finding ways to deal seriously in this arena before we're ruled out," he
says.
In response, Mr. Rodota says CVU plans to keep its options open and would
consider designating more than one provider. For example, a major
bookseller could be paired with an independent store that specializes in used
books as long as the small store can process orders on-line. But Mr. Rodota
says there are too many smaller operations to name any as front-runners.
And Mr. Brown insists independent stores won't suffer a scratch from CVU's
deal. "It will expand opportunities," he says, "not cannibalize existing ones." |
