Apple Inc. is leveraging its massive success in the mobile device market to disrupt the slow-moving but hugely lucrative textbook industry.
The world's most valuable technology company announced Thursday a new version of its electronic book software, iBooks 2 for the iPad. The software comes with a new textbooks section, for which Apple has partnered with some of the biggest educational publishers in North America, including Houghton Mifflin Harcourt, McGraw-Hill Cos. and Pearson.
Using iBooks 2, students will be able to purchase electronic, interactive versions of various academic textbooks for – in most cases – less than $15 (U.S.). In addition, Apple is releasing a free application that lets anyone with a Mac computer design their own textbooks, cookbooks or similar content.
Apple's move comes at a time when the traditional textbook industry, although massive, is caught in a period of deep uncertainty. According to the Association of American Publishers, the textbook industry in the United States is worth about $10-billion. However, within the industry, fortunes have been deeply mixed. The Kindergarten to Grade 12 (K-12) category in particular has been hit hard. Between 2008 and 2010, net sales in the category dropped about 6.2 per cent, according to the AAP. McGraw-Hill, one of the largest educational publishers in the country, saw its third-quarter profit drop almost 4 per cent in October, largely owing to a slump in its education segment.
Much of the decline can be traced back to smaller state and federal education budgets. As a result of budget cuts, schools have been looking for ways to spend less on textbooks, presenting companies such as Apple with an opportunity to shake up the industry with cheaper digital textbooks.
In Apple's view, the education market is ripe for disruption. The company is framing its new offering as a solution to the problem of static, bulky, expensive textbooks. But there are multiple reasons Apple stands to profit from replacing traditional textbooks with interactive versions designed specifically for the iPad.
For one thing, the new lower price point of Apple's digital textbooks is likely to be offset by the boost in iPad sales, should schools buy into Apple's ecosystem and adopt digital teaching materials on a large scale. In addition, a small number of publishers are responsible for a huge portion of the overall textbook market in North America, limiting the number of deals Apple needs to sign in order to reach a critical mass of content. Among them, the three big-name publishers with which Apple announced deals on Thursday produce about 90 per cent of textbooks sold in the United States.
"What Apple has announced today, it's innovation," said Robert Hayashi, chief executive officer of eBound Canada, a firm that helps independent Canadian publishers establish digital footprints. "And that's always good for an industry."
Coupled with Apple's new iTunes U app – which lets educators manage entire courses and gives users access to free educational material from universities such as Harvard and Oxford – the iBooks software marks the company's most potentially lucrative foray into the classroom since it began selling Macs to American schools more than 30 years ago. This time, however, Apple is leveraging the success of its tablet rather than its desktop computer. According to the company, there are already 1.5 million iPads in use at educational institutions.
"The vast majority of digital textbooks are not very innovative; they're essentially print replicas with digital extensions like highlighting, search, and annotation," noted Sarah Rotman Epps, a senior analyst with Forrester Research. "The iPad – which now outsells Macs in schools, according to Apple – is capable of much more than what has previously been produced, and Apple hasn't been satisfied with the status quo."
Rumours had spread for weeks that Apple would soon announce a product aimed at the educational market. Since the launch of the iPad, the company has repeatedly bragged about the tablet's suitability for and adoption in classrooms. At the same time, traditional textbook publishers have been slow to transition to the mobile world at a time when publishers of other printed content – such as comic books and children's books – have seized the opportunity to publish digital, interactive titles.
"I question why it's taken so long to happen," said Colin Harris, the curriculum consultant for the York Region District School Board. "But if anyone could open the gates and speed up the conversation with publishers, it's Apple. People sit up and pay attention when such an influential company throws their weight behind this."
But it remains to be seen whether all publishers and school systems are going to opt for cheaper digital books and – perhaps more important for Apple – agree to have much of their educational materials reside within Apple's exclusive ecosystem.
"I'm sure there will be quite a few calls from our teachers who can't wait to try it out and we'll certainly experiment in small ways," Mr. Harris said.
"But of course, there are some questions about cost, like do I need a device? If the cost of the textbook is $14.99 – which is way cheaper [than a standard printed textbook]– but then I need to also buy a $500 device, then I don't know if it's cheaper over all. School boards will need to have a very interesting conversation about that."