CourseSmart

Apple textbook domination? Not so fast.

January 20, 2012: 3:33 PM ET

A look at the math behind yesterday's iBooks announcement.

By John Patrick Pullen, contributor

FORTUNE -- At yesterday's Apple event in New York City's Guggenheim Museum, senior vice president of worldwide marketing Phil Schiller was quick to point out how education has been at the core of the company since the beginning. But announcing a revamped iBooks program (as well as the launch of the iBooks Author and iTunes U apps) will do more than just affect how students learn arithmetic. It has the potential to change the math for all of educational publishing.

A detail overlooked by most, yesterday's event centered on K-12 books, a category that reported $5.51 billion in net sales in 2010, according to data provided by the Association of American Publishers. Because of the way electronic titles are bundled with other course materials, it's not possible to calculate how heavily e-books weigh into K-12 sales. But by comparison, net revenue for higher education publishing for 2010 was $4.55 billion, with $570 million coming from digital sales, a 70% increase over 2008 during which print saw only a 16% lift.

While it would seem safe to assume that the K-12 textbook market experienced a similar digital adoption rate, there is a fundamental difference between the two schooling systems as it applies to book sales: In higher education, students buy material (and computers) for themselves, while at the lower grade levels, publishers sell courseware packages direct to school districts, which also purchase computers for their classrooms.

In other words, yesterday's iBooks announcement only applies to schools that have iPads -- or are about to get them. Selling iPads to schools, not e-books, was Apple's (AAPL) big play of the day. Like in the 1980s, when they tried to control the PC market by getting kids hooked to Print Shop running on a school's Apple IIe computers, Apple is again trying to lock in young users by cornering the educational e-publishing market. The difference this time, however, is that Macs, iPods, and iPhones are ubiquitous outside the classroom, where last time Microsoft (MSFT) dominated the home and office, fencing Apple into the schoolyard and out of the larger world.

iPads aside, there is still a great deal of cash for Apple to reap by embracing the textbook industry. Assuming they are using the same 70/30 revenue split that they successfully pushed on the music industry and app developers with iTunes and their App Store, the company stands to add quite a bit to their coffers as the program matures. Most industries scoff at Apple's proposal and scuffle for more points. But the publishing industry is wise to take the split, because the costs associated with physically producing a book (printing, binding, warehousing, and shipping) roughly equal the share that Apple is taking for itself. More

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