Apple and Amazon’s New Battleground: Textbooks

In a recent article (“Amazon: ‘Primed’ to disrupt Apple's textbook plans?”), my fellow tech journalist Jason Perlow called into question the economics of Apple’s new iBooks Author program.

Apple has in mind changes in the creation and distribution of textbooks that may prove to be as disruptive as the ones it wrought in the music industry. The McGraw-Hills and Barnes & Nobles stand to be disintermediated in the 2010s in the way that record studios and stores were in the 1990s.

Jason’s point, and it was an interesting one worthy of further examination, was that even $15 textbooks are uneconomical when you factor in $500 iPads. And indeed, we have to look at the price of iPads specifically, and not tablets in general, because it looks like Apple’s DRM scheme cum business model locks textbook authors and their creations into Apple’s own world of online stores and devices. As Jason’s title suggests, he thinks this strategy leaves an opening for less onerous DRM and less expensive devices, and he quite naturally thinks of Amazon as an alternative in each regard.

But is there such a gap? Are the economics of iTextbooks so unfavorable?

First, there’s the matter of the $500. Jason says,

And before you tell me that Apple is going to drop the prices on basic iPads to under $300 because the company is feeling particularly philanthropical [sic] towards our poor children so they can read these wonderful rich content textbooks, stop dreaming.

I agree—let’s not look for a gentler and more philanthropic Apple anytime soon. But it will take some time for authors to create their works and for schools to adopt them. All signs point to significantly cheaper iPads by then: Whether you look at the pricing of Apple’s other devices as your guide, or just rely on Moore’s Law plus the generally competitive tablet market, we can count on entry level iPads being at most $300, and probably as low as $200, in a few short years.

Just look at the iPhone. AAPLinvestors has the numbers in a handy table: The original 4 gigabyte iPhone 1 was $499 back in June 2007; two years later you could buy a new 16 GB iPhone 3GS for $199.

At $200 for the device, the difference between $15 textbooks and $75 textbooks gets eaten up pretty quickly. And yes, $75 paper textbooks are what iTextbooks will be competing with. For example, the Temecula Valley (Calif.) Unified School District happens to have its middle school textbooks listed by title and price. The 14 different math, social studies, English, and science books range in price from $66 to $99. In addition, each is paired with one or two workbooks or handbooks, generally in the range of $10 apiece (though one language arts handbook is $83).

Of course, to complete a economic comparison of digital and paper textbooks, we need to also know how long schools hang onto their paper textbooks.

(It’s also important to be sure that a $15 iTextbook can be transferred from one student to another. Otherwise, 5 years of $15 book-students will equal the cost of a $75 textbook and even a $200 iPad will be a fiscal boat anchor sending the iBook business model to the bottom of the Sea of Samuelson. But let’s not worry about this for now—surely, at the very least, an entire iPad, loaded up with a students’ entire school year’s digital texts, could be handed over to a new Nth-grader and its former user moves to grade N+1—just the way printed books are today.)

As far as I can tell, nowadays schools are encouraged to change textbooks every 4 or 5 years, though generally books are sturdy enough—and schools are reluctant enough to buy new books—that I’m sure they’re generally kept longer. Six to eight years might be more realistic.

If so, the financial argument would still weigh in favor of printed textbooks—$75 per subject, divided by 7 years, say, is less than $11, or $44 for four subjects. Even at a mere 5 years, that's $60. The four iTextbooks also cost $60, and to that we need to add at least $50, assuming the iPad lasts 4 years (which may be optimistic).

There is, though, the question of waste—schools don’t always buy books efficiently. A particularly horrific citywide example of such waste was documented by the Rochester, N.Y. Democrat & Chronicle a few years ago. The paper found:

Nearly 20,000 new or gently used textbooks valued at more than $445,000—equivalent to about a sixth of the $2.7 million the district spent on books last year—sat in the depository as teachers waited for them.

About 70,000 books, some unused and still relevant to classroom instruction, were deemed obsolete and discarded by the district this year.

Nearly 57,000 secondary school textbooks—valued at more than $1.4 million—were discovered over the last two years to have been lost by city schools and students.

Presumably these things are less likely in the digital realm. Book orders don’t need long lead times, and there are no physical books to store in warehouses. Not every school district is as inefficient as Rochester’s; but the waste inherent in paper shouldn’t be discounted.

These considerations only start the comparison between pages and screens. For example, many K-12 textbooks today have optional digital counterparts that give students and parents electronic access to texts from home. (Here’s how parents and students log on to their books at McKnight Elementary School in Pittsburgh, Pa.) iTextbooks might obviate the need for that entirely, or make such access trivial and cheaper.

To the economic questions we have to add the several benefits of electronic books. As the father of a daughter whose back muscles weren’t the strongest, foremost among them is carrying a single iPad instead of 10 kilograms of paper—or risk sitting in class without one’s book. More importantly, iTextbooks will presumably be multimedia by design, and the addition of audio, video, and interactive graphs and tables ought to promote learning— Students could watch Romeo and Juliet as well as read it, and math equations will come alive, as can historical narratives and natural science. The search for more information on the Internet would be seamless.

To return to Perlow’s original question, there probably is a gap in the market for Amazon. Even if Apple’s textbooks become cheaper, overall, than physical textbooks, there will always be a demand on the part of school districts strapped for cash for lowering their textbook expenses—and every public school in the U.S. is strapped for cash.

Amazon will need to make 10-inch tablets with fast processors and screens rich in color, because that’s what’s required in a learning context. Can they do so at prices that still beat Apple’s? Can they do it quickly, before Apple gets a firm grip on the market? Even though its songs are more expensive, iTunes still outsells Amazon almost 6 to 1 when it comes to digital music. Are school districts likely to be more nimble than the pop-music-buying public?

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