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The iBooks Profitability Puzzle

By Erika Morphy MacNewsWorld ECT News Network
Jan 24, 2012 5:00 AM PT

Apple's iBooks textbook initiative, launched just last week, has clearly struck a chord in the market. Ditto its accompanying textbook authoring tool, iBooks Author. Both have taken off at a significant pace, according to a report by Global Equities Research.

The iBooks Profitability Puzzle

More than 350,000 textbooks have been downloaded via iBooks over the past three days. In addition, there have been more than 90,000 iBook Author downloads. iBook Author is a free authoring tool to create textbooks for Apple iBooks.

A Big Impact

The numbers seem to indicate many students and educators at least interested in seeing how Apple wants to break into the market. However, as the ramifications of the textbook store and authoring tool become clearer, some industry observers are having second thoughts as to whether this would be a good thing.

For starters, textbook publishers could find their margins squeezed, perhaps uncomfortably so. As Global Equities notes in its report, more than 50 percent of textbook industry revenues come from the sales of introductory books.

Then there is the lock-in for authors that use Apple's authoring tool. Migrating to other platforms is simply not an option, at least with this current platform.

Apple did not respond to our request for comment for this story

Global Equities Analysis

Global Equities' initial take on how publishers will fare in the system is that they will in fact make more money selling an iBook textbook priced at US$14.99 versus a traditional printed textbook priced at $125.

That is because 50 percent of the textbook industry consists of used books, which deliver zero revenues to publishers. Also, the textbook supply chain is a complicated one, consisting of distributor, wholesaler, retailer and finally student. At each step the markup is between 8 percent to 15 percent, for a total of between 33 percent to 35 percent -- excluding actual distribution costs.

Conversely, the cost of an iBook production is 80 percent less than a print product.

Global Equities declined to provide further details.

Some publishes of textbooks, though, disagree with Global Equities' assumptions, not to mention its math. Larry Beller, president of Amsco School Publications, told MacNewsWorld the firm has been offering its own e-books for roughly a year and a half. Pricing for the two products -- print and e-book -- must remain roughly the same in order to provide revenues for the authors, he said, which are compensated differently than authors of fiction or non-fiction books.

"With Apple's platform coming out we will have to rethink some of the numbers, but it won't be a significant difference. It can't be." He added that there is still an important print market for college students -- and especially elementary and high school students -- that won't go away even if this platform becomes popular.

An iOS-Only Tool

For others, the authoring tool is the one that raises the most concern. For instance, writers who use iBooks Author to write books they intend to sell may only distribute them through Apple's services.

"There is a lot about this tool that I don't think authors will realize at first," Brad Wheeler, a professor at Indiana University's Kelley School of Business and the university's vice president of IT, told MacNewsWorld.

"Apple is a very innovative and profitable company so you can bet what is most important to them with this program is how to make a profit," he said.

Keeping authors on the Apple platform is one way to do that. "Whether that sticks remains to be seen, but I think for the foreseeable future they will have a profitable run of this for a couple of years, until the market broadens," he explained.

Wheeler is appreciative of Apple's entrance in the market, however, along with other digital book initiatives in the education space to address the high cost of textbooks, including a digital book initiative at Indiana University.

"In my mind that is most important development: Finally after years of high prices, thanks to these emerging digital models, we are seeing progress."

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Which of these tech companies has the greatest *positive* impact on society?