Spotify helped pave the way for a new model for consumers to listen to music: pay a monthly fee to stream whatever you want, with no need to own any physical or digital versions of it. Now, a startup called Perlego, which has been applying that concept to academic textbooks, has picked up $50 million to expand its business after seeing its platform boom through COVID-19. The London startup currently has 400,000 paying subscribers who get all-you-can-read access to some 850,000 titles — textbooks, fiction and other literature that students are assigned as coursework at universities and other higher-learning institutions. That catalogue, the startup says, makes Perlego the largest online textbook subscription service in the world.
Mediahuis Ventures, the VC arm of European media group Mediahuis, led the round, with participation also from Raine Ventures, the VC arm of Raine Group (the investment bank that’s overseeing the sale of Chelsea FC), and Evli Growth Partners. This round, a Series B, also had angel investors, such as the two co-founders of Kahoot, Jamie Brooker and Johan Brand, by way of their We Are Human fund; as well as backing from “strategic” publishers.
Perlego doesn’t disclose which strategics those might be from the long list of its current partners. Perlego (Latin for “I read”) works with 5,000 education publishers, including Cengage, Routledge, Cambridge University Press, Elsevier and Harvard University Press.
Gauthier Van Malderen and Matthew Davis founded the company in 2017, when, as newly minted university grads, they were inspired to build a platform to address what they felt was an acute financial issue for students: the very high cost of textbooks.
“This was a pain point of mine,” Van Malderen said, recalling how he would typically pay £200-£300 for a single book, only to “read one assigned chapter and then never use it again.” It was not unlike how you might want to hear a few songs but not a full album by a recording artist. “So I thought, surely a subscription model would work here.”
The high cost of textbooks is something that many a student of higher learning will know all too well. A survey from the Public Interest Research Group in the U.S. found that in 2020 some 65% of college students reported that they held off buying school textbooks because of the prices, despite knowing that it would likely impact how well they did in the courses. Van Malderen also cited a stat (but didn’t give me the source) that some 23% of students drop classes because of the cost of the books required to take them.
“The market for educational content has lagged other types of content, which have successfully digitized and offered new models of consumption to users. We believe that adoption of an online subscription model in this category is inevitable, and that Perlego’s platform and business model will lead the education industry in this digital shift,” said Elizabeth Brillman, VC partner at Raine Ventures, in a statement. “We are excited to partner with Gauthier and the entire Perlego team in this journey.”
Initially, he said, publishers were a little slower, but not uninterested, in engaging with the startup to see what might come of the relationship. As Van Malderen described it, while publishers have had a pretty firm grip on publishing books for a predictable market space — those in education — the situation had some significant cracks in it from their perspective.
“A big issue for publishers is that they price textbooks high in part to offset piracy,” he said. (And he didn’t add this, but the more limited publishing runs and specialized nature of the titles clearly also play a role.) But he added what hurts them more is not illegal but equally disruptive and something publishers were keen to combat: the second-hand book market. Those two forces have actually been on a collision course for some time. Perlego claims that in 2021, it intercepted 2.1 million searches online for “free” pirated textbooks.
“A model like ours not only prevents piracy, but it reduces the need for second-hand books,” he said.
Instead, the business model has been built around the idea of making the book subscription not free but at least considerably more affordable for students, or even institutions that might want to partner with Perlego to give their students access to the service as part of their offering to them. The company currently has a two-week free trial before users have to either pay monthly (£12 in the U.K./$18 in the U.S.) or annually (which works out to £8/$12 per month). But it does not have a freemium tier à la Spotify, as it’s still considering how that might look.
“Personally, I am against ads,” he said. “We want to create a clean space without the stress of advertising. We are not keen to have advertising in the loop.” He said that potentially one idea might be to create tiers of books instead, where some are free to use, and others require premium subscriptions. In terms of publishers, it works on a revenue share model, where 65% of its subscription revenues are in turn distributed to publishers it works with, with an additional commission paid based on consumption of work and the value of the book. Over time, he said thety are also considering how they might work with publishers also to sell actual hard copies of books that people might like to own for life.
As with other companies that have built businesses around e-books, Perlego isn’t just extolling the virtues of lower pricing, but also highlights (pun intended) the advantages of the digital interface for other reasons: Van Malderen says that the books become part of a “private digital library” that is more dynamic (and easier to carry around) than the analogue version, and where (in tech terms) that library becomes a kind of platform in itself: you have the ability to save your own annotations, and for people to share annotations with each other, as well as add other documents, and other kind of media, beyond Perlego books to those libraries.
“Our vision is to be an ecosystem to find all your course material, including videos or PDFs,” he said. “We believe that could also be a place for instructors to carry out your work assignments and grading, too, streamlining for everyone.” It is also not the only one looking at how to leverage digital platforms to disrupt the textbook industry. Chegg has also built out a rental/purchasing portal for online textbooks; Open Library and Libre Texts are two others; but none of these are as extensive in terms of catalogues and functionality as Perlego — not yet at least.
The model is one that seems to be finding some interesting traction with the three sides of Perlego’s marketplace all growing especially in the last two years, at time when online learning has taken a hold of the world in the wake of the COVID-19 pandemic. It now has linked up with 6,000 institutions to fulfill class and course syllabi across 172 countries. Some 40% of the students that use Perlego are in the U.S. In 2021, Perlego saw 450% subscriber growth, and publishers have also warmed to it: its book catalogue has gone up 166% in the last year, and has grown by more than 500,000 since 2019, when it was at a mere 300,000 titles.
“Perlego is changing the equation for university students, helping them access course resources, while also enabling publishers to move online and harness new revenue opportunities. We’ve watched the company soar since our first investment, and are excited to double down on our commitment to the company in their Series B. Making independent information accessible to society is at the heart of what we do. Mediahuis is pleased to extend its mission further into higher education.” said Paul Verwilt, COO at Mediahuis, in a statement.
Comment