Copyright 2000 Carol Ann Waugh

Getting a handle on instructional materials expenditures and how that translates into a "per student" annual expenditures is not an easy task. But as more and more companies are porting their products and services to the Internet, or creating new products strictly for Internet delivery, understanding this issue is becoming more critical as companies are beginning to change their pricing strategies from "perpetual site licenses" to annual "per student" subscriptions.

This is a huge change in the education market and one that is yet unproven as a long term business model.

Let's take a look at how schools have traditionally budgeted for instructional materials. According to MDR, $8.547 billion was spent in the 1998-99 school for instructional materials in the K-12 market. Enrollments for that year were 46,398,619. Extrapolated, this means that an average of $184.21 was spent on a per student basis. This includes all types of materials from textbooks to video tapes, software, books, workbooks, reference materials, etc.

Traditionally, about 50% of the instructional materials budget was spent on textbooks, leaving about $92.00 per student to support the rest of the materials. According to SIMBA, a total of $911.1 million was spent for electronic media in 1998. This would equate to about $19.64 per student spent on software and online subscriptions.

That's not a lot of money.

Granted, all projections point to an increasing pool of instructional materials expenditures in the future as enrollments rise and governmental budgets increase. But, historically, schools have been frugal with their instructional materials budgets and have expected these investments to last over several years of use and not be vaporized after a year of use. In many cases, schools establish priorities for their purchasing such as "this year, we're buying science materials for the middle school because last year we bought language arts materials for the elementary school."

The closest our industry has come to implanting the idea of a "license" to use instructional materials was the introduction of the "site license" model for the purchase of software. This entailed establishing a price per computer or per student but in fact, these licenses were perpetual licenses and allowed the school to use the software forever. Now, companies are trying to sell Internet services to schools that allow unlimited use but for only one year. This means that schools must find a way to fund this type of service not only for the first year of use, but forever.

The implications of this new pricing model raise many questions that are yet to be answered. Will schools rob Peter to pay Paul in order to fund Internet online subscriptions? Will they reduce their spending on print and other traditional instructional materials? Will they insist on having "current" information rather than seven year old textbooks and therefore expect their textbooks to be delivered online instead of print? Will they increase the instructional materials budget from its historic 2.5% of all school expenditures?

If schools agree to this new model, what implications does this hold for publishers? One thing that comes to mind is something we've never had to think about before and that is the "use" of our products in the classroom. Another is the "outcome" of the use.

Perhaps lessons can be learned from the Academic library market where annual subscriptions are a large part of the budget. As more subscriptions were offered and the prices of subscriptions increased, librarians paid more attention to usage as they decided whether or not to renew. In the beginning, they reduced their book budgets to offset increased subscription costs. Now, they are canceling selected subscriptions.

So now, not only should we be concerned about helping schools find the money to purchase annual subscriptions, but we also need to ensure that our subscription products and services become a "must have" part of the educational process for both teachers and students. Otherwise, when money gets tight or a new competitor enters the fray, schools might decide to cancel their subscription when the time for renewal arrives.

Here are four things to start thinking about if you are offering an annual subscription product to schools:

1. Establish a close relationship with your customer. Not only to train the teachers how to use your product, but also during the first year of use.
   
2. Implement an independent third-party study of your product to “prove” that it increases student’s learning.
   
3. Begin thinking about renewal strategies to encourage continued use of your product. This could be lower prices in the following years, extended product features to renewing schools, providing off-line products and services.
   
4. Consider ways to build subscribers into “evangelists”. Hold regional subscriber meetings, invite them to special events at national conferences, send them premiums or other awards.

Delivering instructional materials over the Internet to the K-12 market is an industry in its infancy but if all the research reports I've been reading lately are correct, it will grow at an astonishing rate over the next few years. It will be interesting to see what marketing, pricing and delivery strategies will be successful and we'll keep you posted on what we learn over the next year.

ABOUT THE AUTHOR
This article was written by Carol Ann Waugh, President of Xcellent Marketing, a marketing and new business development firm specializing in the educational and library market. Xcellent Marketing offers a variety of marketing services to help publishers increase their revenues and profits from identifying new markets, providing critiques of web sites and marketing communications such as direct mail, catalogs, advertisements, etc. as well as developing effective traditional as well as Internet-based marketing plans. Carol can be reached at (303) 388-5215 or at cwaugh@xcellentmarketing.com.