Apple sees big textbook sales

One analyst group says the company may have seen 350,000 textbooks downloaded over the weekend.

By Benzinga Jan 23, 2012 5:41PM

Image: High school students with arms raised in classroom (© Image Source/Getty Images)By Louis Bedigian, Benzinga Staff Writer


Apple (AAPL) broke yet another record over the weekend, selling what some analysts think is more than $5 million worth of a hot new item.


Textbooks.


That's according to Global Equities Research, which reports that the Mac maker has sold more than 350,000 of the high-school textbooks currently offered from the iBooks Store. The research group estimates that Apple's free authoring tool released last week, iBook Author, has been downloaded more than 90,000 times.


"Apple's decision to launch with introductory textbooks is a good decision, as more than 50% of textbook industry revenues comes from the sales of introductory books," said Global Equities, which released a new report after speaking to two publishers and five iOS developers.


Learn more about Apple's digital textbook initiative in the following video.


Post continues below.

Critics have questioned the viability of Apple's latest venture. Even those who think Apple will thrive in the industry are concerned about the pushback from book publishers, particularly those in the college sector. But based on its discussions with publishers and developers, Global Equities believes that publishers will make more money selling iBook textbooks at $14.99 than they do selling printed textbooks at $125.


Publishers get no revenue from the used book market, which makes up between 35% and 50% of the textbook industry, Global Equities wrote. And the iBook sales model removes some of the middle men in the traditional business, such as wholesalers and distributors, many of whom add a markup of between 8% to 15% at each step.


Further, Global Equities said that the cost of iBook production is 80% less than a print publication, and at $14.99, the textbook unit consumption market is 40% to 60% more than that for textbooks at $125.


A few other points from Global Equities:

  • "Developers tell us that iBook 2 textbooks [are] very slow on iPad 1, but performance is fine on iPad 2."
  • "Developers feel that as interactive content on textbooks increase, iPad 2 may be slow too."
  • "Developers feel that iBook 2 will force Apple to upgrade the A5 chipset on the next generation of iPad from current dual-core to quad-core to facilitate [an] even….richer textbook experience."
  • "Developers indicate that if the minimum configuration on new iPad 3 is 16 GB vs. 8 GB as is currently [available] on [the] iPad 2, it may indicate that Apple is expecting significant textbook attach rate on iPads – maybe 8 -10 active textbooks per iPad. Investors need to pay close attention to this configuration to gauge textbook traction on iPads."

Guaranteed Success?


When Apple sells a large number of something in a very short period, the assumption is that the product -- whatever it may be -- is an enormous success. Based on Apple's track record, this definitely seems to be the case. Just look at the initial downloads for Mac OS X Lion or iOS 5, or the first weekend sales of the iPhone 4S. Consider the original iPad, which sold less than analysts initially expected and still became one of the hottest selling products of 2010.


However, even if Global Equities' sales figure is accurate, Apple's textbook venture could still fail to be a success on the level in which it is being hyped. From the onset of this announcement, it was clear that Apple came to the education industry to sell iPads. If successful, Apple could theoretically sell several hundred million iPads to students, parents, and schools worldwide.


But as I pointed out last week, Apple has a number of hurdles to overcome before it can reinvent the textbook industry. Why, for example, can't students view all of their Apple textbooks on all of their Apple devices? The iPad exclusivity is absurd. And teachers agree.


"I have trouble seeing why students can't access much of the same multimedia and text content on their home computers, which are much more widely available to students and their families than iPads are," educator Stephen Warner wrote on The Verge forums. "As the current marketplace stands then, iBooks are only for those families (or much less likely) the schools that can afford to purchase iPads for their students. Most schools in our country can barely afford twenty outdated and obsolete computers for a computer lab, let alone 2,000 new iPads for every student!"


The Verge's own writers are also having a difficult time supporting the notion that Apple has reinvented the industry. And they aren't the only ones expressing a few concerns.


Beyond the technical limitations (such as battery life), the physical limitations (if you drop your iPad down the stairs, it's less likely to survive the fall than a good-old-fashioned book), and the introductory expenses (most experts say that buying overpriced books will still be cheaper for schools than buying an iPad for every student), there is still the issue of long-term cost.


Global Equities brought up an interesting (if not horrifying) point: As textbooks become more interactive, the iPad 2 may not be able to keep up. As it stands now, iPad 1 users reportedly need to upgrade in order to experience the iBook textbooks in proper form. If iPad 2 users are forced to upgrade to take full advantage of the next-gen iBook textbooks, then Apple will place an even greater financial burden on students than before.


Apple, of course, does not care about the burden. It only cares about sales. And it may not really care if most students, parents and schools cannot afford an iPad so long as some can. Some is enough to ensure that the Apple ecosystem goes on forever. The mere fact that Apple may have already sold 350,000 textbooks proves that this venture will be very profitable.


Let's examine what will happen if Apple only manages to sell textbooks to students who already have access to an iPad. While exact figures have not been released for each quarter, there are probably about 30 to 40 million iPads in America (first- and second-generation sales combined). Let's suppose that a quarter of those owners are students or have a student in their household. That means that Apple has somewhere around 7.5 million to 10 million customers who may be interested in buying digital textbooks. That would be huge for Apple. The iPad 3 will surely increase the company's user base if it launches as expected year, and the iPad 4 will likely do the same in 2013 or 2014.


Thus, even if Apple fails to revolutionize the industry, the company still wins. All things likely, that was the Mac maker's real goal last week -- not to force a broad shift, but to convince a few million iPad-toting students that they must switch to digital.


The focus right now is on high school students. How much will college textbooks cost, if and when they are released? Most people realize that the $14.99 pricing model is out of the question. (For those who hadn't realized this, then let me be clear: there is no way you are ever going to be able to buy a $300 college textbook from Apple for $15.)


Rumors suggest that Apple will charge $75 for the equivalent of a $200 textbook. Under that belief, one can imagine that students will pay somewhere around $100 for a $300 textbook. The $200 savings is great, but it does not offer the cost benefit currently provided by the high school pricing model.


A more realistic model would price the college textbooks at $40 to $60 at launch. Every other semester, the price would increase by a small amount. Apple would attempt to justify the increase by pointing to the interactive features, among other exclusive elements. But with or without an excuse, most students would not complain about a $5 increase every six months.


And that is likely what Apple is hoping for.


More from Benzinga:

7Comments
Jan 23, 2012 9:41PM
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This is very exciting, I never thought Apple would make something like textbooks obsolete. Thank god I only have to take my iPad to class instead of 5 heavy textbooks!
Jan 24, 2012 5:29PM
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Do the ebooks have a print button?
Jan 24, 2012 10:45AM
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Every time I think AAPL has reached its market cap, I'm surprised again. Still, I think now is the time to sell for me. They can't continue to be successful by diversifying themselves even more. At some point, they'll have such a decentralized business plan that it won't matter what they're trying to sell. 
Jan 24, 2012 9:13AM
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I'm not planning on going back to school anytime soon, but I still think it's a great feature. I can't wait to play with a few. 

@Brett why not? In it's current form, print is; incredibly wasteful, dated as soon as it is produced, and so expensive it's business models are forced to advertise on all available space. Show me a print pub that doesn't have thinly veiled adds posing as articles and I'll happily admit it is the rare exception to the rule.

Will people still use paper? Probably, maybe we'll make it more personal again somehow.
Jan 24, 2012 8:55AM
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Good! I got ripped off in college!
Jan 24, 2012 7:46AM
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I don't see anybody ever making print obsolete completely, but the possibilities here are very exciting.
Jan 23, 2012 9:40PM
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Thing about textbooks is that overall, I think the market is shrinking (i.e. pie slices are getting smaller because the pie is getting smaller). Why would Apple enter a shrinking market to begin with? I would see the company making an expansion into a faster growing market space than textbooks...
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