Frank is telling textbook authors that if they offer students their work for free online they can make it up on the back-end, through reprints, study guides and ancillary products.
"We are using free and open as a market entry strategy. We may not have everything right, and we may not know what additional sources of revenue we can generate," he said.
The present college textbook market is broken, Frank said. Some 20% of students avoid full price even in the first semester, and by the fourth semester of use 80% of potential revenues may be lost to used books, opt-out and piracy.
"The professors capitalize on fewer than half the students. They feel they are no longer being compensated."
The response by publishers has been short-sighted. They raise prices, bundle other products, speed revision cycles, even create separate ISBNs for different schools to foil the used book market.
Flat World's model, now being tested at 20 universities, moving toward a full market roll-out next year, is to offer the HTML version of the textbook free, then offer print and other electronic versions at reasonable prices.
For just $30 students will be able to buy a one-color print version, $80 for color. There will be iPod versions by book and chapter, versions for the Sony Reader and Amazon Kindle, and print-outs available at just $2/chapter.
"Professors still pick the book, but students decide how to consume it," Frank said. Professors get a 20% royalty on everything.
When compared with traditional publishing, "Their revenues are 15% higher than ours, but we pay a 20% royalty on all sales, so at the end of the day our authors walk away with more money than in a traditional space.
"We wind up with less revenue but higher profits, with automation and cost of sales savings."
That's what the models say. The proof of any pudding is in the eating, and by next semester Flat World will be publishing at almost three dozen pilot sites -- a good mix of public, private and junior college campuses.
Then there are those additional revenue streams, building communities through the online books.
"We might do a peer to peer tutoring network, students using our network to get tutoring revenue. Or a homework service, where we partner with software providers and populate a grade book at a subscription fee." It's wide open.
"Our model is a core, then we plug in other revenue streams, testing those which work. And whenever we generate any revenue the authors get the 20% royalty, so they're invested in it. We want them to feel it's the right relationship for them."