Flat World Knowledge: Paying Authors to Write Free Textbooks

Jeff Shelstad, co-founder and CEO of Flat World Knowledge, Inc. (FWK), needed to decide how to pay authors to write free textbooks. The issue had been discussed for several months, both formally and informally. There had been meetings, reports, consultations with the company's advisory committee, presentations, and informal discussions in the hallways, and at company grill-outs and volleyball games. He had hoped that over time a consensus would emerged, but it hadn't, and a decision was overdue. As CEO, it was his job to make it. The question was simple in a way, but surprisingly complex, and it would have long-term ramifications for the company. Although he knew the decision wasn't irreversible, it would be difficult to modify down the road, so it was important to get it right from the outset. Background Jeff Shelstad, together with Eric Frank, had founded FWK in 2007 with the intention of disrupting and reinventing the college textbook market (Weir, 2009). FWK was a publisher of open textbooks--textbooks that could be accessed by anyone on its website for free. Its business model was designed to deliver quality college textbooks for free and then derive revenue from charging for alternative methods of access. Students could view its textbook for free using a standard browser. They could purchase a physical copy of the textbook or purchase the textbook in a downloaded PDF format. Other formats included ePub, .MOBI (Kindle), mp3, and abridged mp3. Both Jeff and Eric had experience working for other large textbook publishers, including Pearson, McGraw-Hill, and Cengage. They understood the traditional textbook business and the college textbook market. It was characterized by oligopolistic competition by both publishers and distributors. The college textbook market was approximately $4.5 billion in 2010. The founders designed FWK to function like a traditional publisher in some respects. For example, FWK contracted with authors to write textbooks and paid authors a percentage (or royalty) of the revenues stream associated with the content they produced. FWK typically paid authors a 20 percent royalty on this revenue stream, while traditional publishers generally paid authors between 7.5 and 15% of the list price of their textbooks. FWK recognized the need to provide an attractive educational product, complete with test banks, lecture outlines, and other ancillary materials to university faculty. Once FWK developed a textbook, however, similarities between FWK and traditional publishers ended. After FWK produced a textbook, they provided free access to it on their web site. Even more revolutionary than this aspect of FWK's business model, however, was their effort to transfer control of the textbook content to the faculty that adopted it. Textbooks were published under a Creative Commons Non-commercial Share-Alike license. In contrast to traditional copyright, this type of license allowed faculty that adopted a textbook to adapt and/or revise it as they saw fit. The faculty member could then "adopt" their own modified version of the text, and students in their classes would receive the revised version. Jeff argued that one of the most revolutionary aspects of FWK's business model was the potential to make the process of writing textbooks cumulative. He envisioned a situation in which the company would produce one textbook for a particular class, for example, an introductory management course, and then thirty or forty different management faculty would modify the initial text in different ways. Then each of these faculty would make their versions of the original textbook available as part of FWK's catalog. In this way, new faculty would build on and improve existing textbooks over time, and the cumulative nature of this process would be much more efficient and effective than the existing environment in which each new textbook author started from scratch (Shelstad, 2011). Faculty considering adopting an FWK management textbook would then have numerous different versions of the text to choose from. …