Textbook Sellers Get an Education

SAN FRANCISCO (07/05/2000) - Two years ago, Bigwords.com and VarsityBooks.com Inc. shook up college bookstores with splashy campaigns that included students in bright orange jumpsuits, superball stunts and deep discounts.

But the competition to sell textbooks online soon heated up with the entry of new players such as Ecampus.com Inc. and Efollett.com, a site that brings together 627 campus bookstores online. In February, VarsityBooks suffered a disappointing IPO; after VarsityBooks reduced its offering price to US$10, its shares still closed down on the first day of trading. Its stock is hovering just under $2. In May, VarsityBooks and Bigwords laid off 13 and 28 employees, respectively, to trim costs.

Squeezed by the textbook market's growing competition and relatively thin margins, Varsity and Bigwords are looking for other ways to make money. Both are sticking with the college market, but they're broadening their businesses.

Varsity and, to a lesser extent, Bigwords are leveraging their college marketing expertise to help other retailers get a toehold on campuses. Varsity is redeploying its army of 1,000 student reps to do the marketing legwork for companies such as office supplier Staples Inc. and outdoor-gear merchant REI.

Meanwhile, Bigwords' reps have begun touting Yahoo Inc.'s finance site and music site Riffage.com, among others.

"We're accelerating our strategy to build out our marketing business, which has higher profit margins," says Jonathan Kaplan, VarsityBooks' VP of strategic planning.

Marketing services enjoy comparatively fat margins. Charging a flat fee to fill students' inboxes with announcements and employ reps at $9 an hour to market to students 18 to 24 years old can yield gross margins from 45 percent to as high as 75 percent, according to Varsity and Bigwords. Compare that with the 10-percent to 25-percent margins the sites get from textbooks.

San Francisco-based Bigwords is relying on more than marketing for additional revenue. With $30 million in new financing from NBC and advertising agency Young & Rubicam, Bigwords plans to beef up its content and product offerings - which already include music and clothing - with housewares to outfit dorm rooms, health and beauty goods, and a greater variety of music and clothes.

Bigwords declined to detail how it will expand its content. Bigwords CEO Matt Johnson says the company's revenues are currently split evenly between e-commerce and "sponsorships," the term he uses to describe its online marketing campaigns for other companies. The site will relaunch in the fall, and Johnson expects Bigwords to be profitable sometime next year.

There's no question that there's plenty of money to be made on college campuses. Student Monitor, a Ridgewood, New Jersey-based college marketing research company, estimates the 15 million-plus college-student population in the U.S. spends about $105 billion on goods and services per year. Students at four-year universities spent a fraction of that - $3.1 billion - on 71.3 million textbooks during the most recent academic year. Student Monitor estimates 13 percent of students purchased from an online bookseller in the spring. Varsity led the way among college textbook sellers, followed by Bigwords. Varsity saw an $18.8 million first-quarter net loss on $12.2 million in sales.

That online textbook sellers are broadening their business comes as little surprise to those familiar with the industry. College stores' bread and butter has long been apparel and other goods with college logos, not books, according to Sherry Natoli, marketing director for College Store Online, which has helped 350 members of the National Association of College Stores develop Web sites.

"If the bookstores only sold textbooks," she says, "they could not stay in business."

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