Des Moines Register
12-06-07
Elbert: As textbook prices soar, ISU grad sees promise in rentals
By DAVID ELBERT • REGISTER BUSINESS COLUMNIST • December 6, 2007
Aayush Phumbhra was a student at Iowa State University in Ames four years ago when he created an online textbook exchange. He and his partners are now retooling the idea as a Web site where college students nationwide can rent textbooks.
"It's a very different way of getting books," said Sarah Williamson, an ISU senior who leased all of her textbooks for the current fall semester from Chegg.com, the service that Phumbhra's group has launched.
Book leasing is not new, but it is creating a lot of buzz in the textbook industry because of skyrocketing textbook prices, said Lynette Seymour, manager of the University Book Store on the ISU campus.
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In the past, she said, leasing has worked best at smaller schools, where instructors tend to use the same text for longer periods.
"He may be onto something," she said of Phumbhra's plan. "But I'm not sure he has it all figured out yet."
Phumbhra met with University Book Store officials recently seeking a partnership for Chegg.com, Seymour said.
That's not going to happen. At least not right away, she said.
But, she said, ISU officials will watch with interest to see how Chegg.com does, and to see if leasing is an option the university-owned bookstore should consider.
Williamson placed an order with Chegg.com after seeing an advertisement for the service. Although she discussed the service with others at the time, she said none were willing to try it when she placed her first order in August.
The service worked glitch-free for her, and she said others will likely sign up once they realize the savings.
"I saved 65 percent," or more than $400, on the six books she is now leasing,
Williamson said.

Phumbhra said, "Textbooks is where students spend most of their money; $700,
$800 a semester. We wanted to provide a cheaper alternative, and renting makes a lot of sense."
Chegg.com's business model calls for setting up centrally located warehouses around the nation and leasing books to students by the semester at 35 percent to
40 percent of the list prices. The average life span of most books will be two to three leases, Phumbhra said.
The lease rates, along with the discounts the company receives for buying in bulk, should cover expenses, including shipping and warehousing, and provide a profit, he said.
Used books at the ISU bookstore sometimes go through as many as six owners before being retired, Seymour said. So the Chegg.com model is, if anything, conservative on the expected life span of books.
The bookstore's turnover rates make it possible for students to buy and resell used books at a lower cost than the Chegg.com rental rate, she said.
For example, she said, the ISU store charges 75 percent of the original price for a used book, but buys the book back for half the new book price. That means the cost to the student can be as low as 25 percent of the list price, which is even lower than rental price, which is 35 percent to 40 percent of the list price.
With a purchase even of a used book, there is a buyback risk, Phumbhra said. It is common for instructors at schools like ISU to change textbooks, or upgrade to a newer version of the same textbook, thereby eliminating any resale value for the student.
What Chegg.com is doing is spreading that risk beyond a single university. With more schools, there is a better chance that the book can be reused somewhere, even if it is not at ISU, Phumbhra said.
The key to Chegg.com's success will be whether it is able to create that interschool trade, Seymour said.
The name Chegg, Phumbhra said, is shorthand for the expression: "Which came first: the chicken or the egg?"
The India native was getting a master's degree in marketing at ISU when he and
Osman Rashid, a friend at the University of Minnesota, launched the first Chegg site in 2003.

That site was designed as a textbook exchange site, but it quickly became a site where ISU students also traded furniture, electronic gear, housing tips and other information.
After graduating, the pair kept the Chegg site going while they worked other jobs, decided on a business plan and raised capital.
The thing that made the most sense, Phumbhra said, was leasing textbooks.
He went to work full time on the business in 2005, acquiring a stock of mostly used textbooks and an initial warehouse in Indiana to handle shipments.
Phumbhra moved to Chicago to handle Midwest operations, while Rashid relocated to Fremont, Calif., where investors in the company live, and to handle
West Coast operations.
The young entrepreneurs did an initial test of the business in August with a lowkey rollout in select markets, including ISU. That's where Williamson saw a promotion and decided to try the service.
The fall test worked well, Phumbhra said, and the company will "go full throttle" for the spring semester, which begins in January at most universities.
Chegg.com has a wide selection of textbooks, he said, and will provide a new environmental incentive for students.
The textbook industry consumes an average of 4 million trees a year, Phumbhra said, with each student purchasing an average of one tree per year in the amount of paper consumed.
To help offset that loss, he said, Chegg.com will pay Eco-Libris, a worldwide environmental group, "to plant one tree for every student's textbook rental."