economics

Potential cost savings of OER – Part 3

Posted by on February 1, 2010 in Uncategorized

This is the last in a three-part series on the potential cost savings of OER.

In part 1, I established that the cost of print was not a very significant cost savings. (A bit more on that below.) In part 2, I looked at the development costs of multiple publishers and the savings that could result if just one program were purchased by all schools (which brings up many more questions.) In this final part 3, I’ll look at some other possible areas of cost savings.

Print vs. electronic distribution – At somewhere between $100 and $200 for a student computing device, the economics become feasible to do one-to-one implementations in K-12 schools. This would enable printed versions of textbooks to be replaced electronic ones, thereby eliminating printing and distribution costs. Some have maintained that over a several year period, this would save considerable amounts of money. I think that the costs might break even, but given obsolescence and other costs like support, it is doubtful that money would be saved.

Another option would be to allow students to use computing devices that they already have, namely cell phones. While this could save money and improve educational opportunities for students, it is unlikely to be embraced by schools for policy and control reasons.

Ancillaries – Currently, the model most textbook publishers follow is to give away extensive ancillary packages with a textbook sale. Many states, such as Texas, encourage this by specifying a set maximum price for textbooks but allowing additional ancillary components to be given away. Of course, nothing is “free” though, and the cost of these increasingly expensive ancillaries must be factored into student textbook prices. This problem is exacerbated by schools who, enticed by glitzy and voluminous ancillaries, tend to “buy by the pound,” thereby encouraging publishers to produce more and more, driving book prices up and up.

In many classrooms, it is easy to find boxes and boxes of unused and even unopened ancillary components. Conversely, I have talked to many other teachers and administrators who have wanted to buy only the ancillaries (especially electronic ones), but have been “forced” to take the textbooks as well.

The answer to this problem is for states to ask publishers to uncouple the pricing of student textbooks and ancillaries and to prompt schools to choose what they want to purchase based on real costs. The state of Florida is doing just that. It will be interesting to see what results, but I would predict lower prices for purchases that are more educationally appropriate (and actually used).

Materials that could be marketed across states – Textbooks for the largest states, e.g. Texas, California, and Florida, are developed for those states’ specific standards and adoption requirements. Another “national edition” is then produced for other non-adoption and smaller states. If one version were able to be sold to a larger market, costs for everyone would be lower. The much-maligned Common Standards initiative could be one path to this. However, even with this, states have considerable latitude to include their own unique standards (up to 20%). Also, not all states have signed onto Common Standards, with one of the largest textbook-purchasing states, Texas, being a notable holdout.

Another way to accomplish savings in this area would be for states to collaborate on developing common specifications for a reduced price textbook that could be used by all. See below for more on this.

Another potential approach would be to create materials that are more modular and can be remixed at a state, district, school, or classroom to address different standards or different student needs. This is what OER is all about, and in addition to improving instruction, it could save money.

Closer participation of states in the development process – Currently, adoption states issue a call for textbooks to which publishers respond. The call may or may not reflect the needs or preferences of the actual school districts who will be making the final purchase decision. The calls often leave publishers with many questions about what will be acceptable or desirable in the state’s adoption committee’s eyes. Publishers spend a huge amount of money just to submit an offering to be considered; this offering may or may not be accepted. Even if it is, it is possible that no schools may ever purchase it.

While to some extent, this is the peril of competing in an open market in textbook publishing, it is very expensive and very risky to compete. The result is that smaller players are effectively prohibited from taking part, and larger players must charge a premium to cover their risk. (Another result is that schools often report not having access to the kind of instructional materials they really want.) This is not cost effective for end users or for the taxpayers who fund textbook purchases. If the states were to take a bigger role in helping publishers to understand what they really want AND to lower the risk to smaller players, the market would benefit.

Some specific examples of how the former might take place would be through state co-development projects or state and district participation in the actual development of materials. Examples of the latter would be to eliminate high performance bonds that must be paid before the adoption and to ease the burden of sampling and use of textbook depositories.

Improvement the first time around instead of expensive interventions – Hundreds of millions of dollars are going into costly interventions to remedy the achievement crises in schools today. Beyond that, it is impossible to calculate the financial burden of high school drop-out rates. If instruction were more effective and engaging, a lot of this expenditure could be avoided. While the challenges our schools face are certainly too large to be solved by differentiation and OER alone, their effective use could certainly make a huge difference.

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Potential cost savings of OER – Part 2

Posted by on January 26, 2010 in Uncategorized

This is a continuation of the discussion of the potential cost savings of OER and an assertion that Texas might save a significant amount of money, possibly as much as $200 million, by adopting “open textbooks.”

In the last post, we established that the printing costs of a program like this are a relatively small percentage of the total cost, so that doesn’t account for a huge savings (ignoring the costs of technology to replace print…but that’s another  post).

If you haven’t figured it out already, one significant cost issue is related to how many different programs are produced.

In the last literature adoption in Texas, there were between six and eight successfully adopted programs for each grade level. (There is significant, but not perfect, overlap in the publishers from grade to grade.) This doesn’t take into account the programs that were submitted, but not adopted.

So instead of the $15 million that was estimated for development of such a program, the actual cost was something in the neighborhood of $15 million times more than eight publishers. Even if this number was only 10, that makes up most of the $200 million in possible savings.

If, when Texas funds the development of its own curriculum (presumably  under the recent RFO for “state-developed open-source textbooks”), it were adopted by 100% of the schools, the full amount of savings mentioned above could be realized. However, there is a parallel process for adopting conventional commercial textbooks in the traditional manner, some of which will undoubtedly be chosen by some schools. Assuming that roughly the same number of programs are adopted, the total development cost will be roughly the same. The question of whether these costs are ultimately borne by the state depends on which textbooks are chosen by how many districts.

To the extent that the state-developed program is chosen by a large number of schools, the state could save considerable amounts of money. If the state-developed program is not chosen by many schools, the state will not save money. Of course, Texas’ recent change in legislation that incentivizes schools to choose less expensive programs may influence this.

That brings up many interesting questions. First, is it in our schools’ (and ultimately our students’) interests to have choice among various textbooks? And how much “choice” is provided given the current adoption process? What is the ideal number (economically? pedagogically?) of programs to have? Beyond this, who (state board, ed commissioner, state ed agency, districts, schools, teachers, students, John Q Public) should be determining the direction of which parts of this agenda (standards, format, curriculum, etc.)?

All questions that probably deserve their own post. But in the meantime, at least we’ve solved a big part of the conundrum of where this savings might or might not come from.

In the final post in this series, I’ll look at a few more ways that OER might help save states money and improve education.

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Potential cost savings of OER – Part 1

Posted by on January 19, 2010 in Uncategorized

I’ve been thinking a lot about the potential cost savings of OER in K-12. I know that in these times of state financial crisis, a silver bullet like free textbooks is very appealing.

Personally, I think that the educational advantages of having resources that are licensed in a way that they can be legally remixed and adapted to differentiate instruction are much more important than the economics. Having said that, I understand that cost savings are likely to be an important driver in OER adoption.

Recently, Texas State Representative Scott Hochberg, who was a leader on the “open source textbook” legislation* there, was quoted as saying “We were due to spend about $225 million to replace the grades six through 12 literature books in the state. We can buy the content for under $20 million. Someplace between $20 million and $225 million, there’s a cost savings.”

This sure got a lot of people’s attention. But where did these numbers come from? We’d need Representative Hochberg to tell us for sure, but here are my thoughts. The $225 million appears to be drawn from the total maximum cost figures (what TEA will pay for these textbooks) in the Proclamation 2010. (The figure for just grade 6-12 literature books is more like $195 million; the figure goes up to $227 million when you add in things like ESOL and AP English books.)

In another article, Hochberg was reported to have asked a company for the cost to deliver digital files and was told it would cost $14 million. It is unclear whether this was for statewide rights, a work-for-hire type arrangement, or actual open licensed content. (I’m guessing the first.) Based on my own experience, development costs for one grade level of a major basal textbook series can run in the $2-3+ million per grade level range, which is roughly in line with Hochberg’s figures. That doesn’t include printing or distribution costs, which may be a part of the difference in figures.

So the question then is how much does printing cost? This has long been a subject of wiggling on the part of the publishing industry. When pushed on pricing of digital materials, they have long contended that the vast majority of curriculum costs are in development. I do think this is true, based on the relatively low cost of printing in the large volumes they run.

My very rough cost for printing and distribution of student and teacher editions is somewhere around $17 million. So…$14 million + $20 million (rounding up) is still quite a lot less than $225 million.

What’s left? Ancillaries (a big $ number and an interesting discussion). Sales expense (also a big number). Profits.

More on those and other potential areas of savings for OER in Part 2 of this post.

* It is worth noting that as the proposed rules on this currently read, these materials do not appear to be intended to be open-licensed, but rather state-funded and owned. While this is may not be relevant in terms of this cost discussion, it is very relevant to others who might or might not benefit from Texas’ initiative. Hopefully, this will be resolved in the final rules.

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