Stock Talk: Why Apple's textbook announcement matters

Stock Talk: Why Apple's textbook announcement matters

"If Apple relies on the existing $500 iPad to hit the education market, I think they may just accelerate the ownership of their products to students who were already going to own them … kids in well-to-do families."

Yesterday Apple made one of those cool little announcements that probably won’t affect too many of us in the short term. But I think their initiative with iBooks 2 and iBooks Author offers significant long term benefits to the company and its shareholders.

I say that this won’t affect most of us in the short term because most of us are not students. So it doesn’t (yet) change our use case for the iPad. But many of us have kids. My own kids are in JK and Grade 2 respectively. They are at the perfect age to begin using tablet technology in school.

So while I’m not a student, I am a father and I expect this trend to affect my family within a few years. As an investor in Apple, that excites me.

What Apple is doing reminds me of one successful strategy Cisco Systems used to dominate the IP routing market. Specifically, they offered free training and huge discounts on equipment to non-profit schools (including high schools). This greatly improved the chances of any tech-inspired kid to graduate from high school knowing how to operate Cisco gear. When you carry this training throughout the educational process, it’s no wonder so many IT managers end up buying Cisco gear.

Apple has just applied a healthy dose of steroids to this same concept. This isn’t about making money from textbook publishing. That’s just the gravy.

This is about programming students to use the iPad and other Apple products right from the beginning of their education.

Apple's education announcements are about creating a psychological stickiness to Apple products much earlier than might otherwise be possible. If Apple can create an amazing reason for every school-aged child to have an iPad for school books, those kids will quickly start using the devices for everything else. Getting kids hooked on Apple is great for long term shareholders.

While I’m focused on the device-side stuff in terms of how it may grow Apple’s business, I also realize that book publishers may migrate to Apple products if they want to use the iBook Author application. That’s the Apple halo effect for you. Great for shareholders too, right?

The only REAL potential competitor that comes to mind here is Amazon. Their Kindle platform could do much of what Apple is doing, perhaps minus a lot of the interactivity within a textbook. But the interactive stuff seems secondary to me. Page flipping, multi-touch zooming and panning, and note taking are probably all we really need. Then if authors want to go overboard and include interactive tables, diagrams, or other in-book applications, so be it. But that stuff doesn’t make or break the business model.

The feedback from educators, published on iMore suggests many potential issues that Apple may need to resolve. Can only rich families / schools afford iPads? Will these things get stolen? Who will be responsible for lost or broken devices?

What if Apple can figure out a way to make iPads accessible even to lower income families and poorer schools?

As an investor, I realize this whole idea of digital textbooks may drive a deeper wedge between the rich and the poor. But what if Apple can figure out a way to make or sell less expensive iPads? Then everyone wins, right?

One way to do this is build a school version of the iPad. Think stripped down components, no camera and a beefier mechanical design. Then sell it at cost, or even below cost while recouping the loss with (pretty much guaranteed) textbook sales. It’s not a no-brainer, but it seems pretty close to me.

If Apple relies on the existing $500 iPad to hit the education market, I think they may just accelerate the ownership of their products to students who were already going to own them ... kids in well-to-do families. But if they get aggressive and create a business case that makes iPads a total no brainer for schools, then I think Apple will have just locked in its next leg of growth.

But be careful Apple ... Jeff Bezos is watching and he’s gotta want this market as badly as you do.

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Chris Umiastowski

Chris was a sell side financial analyst covering the tech sector for over 10 years. He left the industry to enjoy a change in lifestyle as an entrepreneur, consultant, and technology writer.

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Stock Talk: Why Apple's textbook announcement matters

12 Comments

Interesting. What is a well to do family exactly?? My kids have a lot of tech because I love tech and they sort of get my hand me downs! I'm not rich by any means. Our ends meet just right and we deliberately set aside what is necessary to keep me in a new iPhone and alternating iPad/computer upgrades for myself and my hubby every couple years come bonus time. This article made me think about how I see myself (financially speaking). I suppose what i think is a must have might be considered a waste of money for others. I am not above cutting out dining out for a couple months to set a side some cash for a new router or beats headphones. LOL!

I hear ya. Unfortunately, there are families living on incomes small enough that the price of just an iPhone represents a couple week's income. So yeah, it could be a problem for a good many students.

Great read, thank you. For some reason, the whole locking kids in thing reminds me of the Tobacco companies.
Anyway, I really wish we had this stuff when I was growing up. Just the simple pro of having a lighter backpack alone would have made it worthwhile. I hope Apple (or Amazon, or whomever) gets really aggressive with this because outdated, wrinkled, marked up, water stained textbooks with missing pages should have been a thing of the past "hace rato".
I too am looking forward to having my kids take advantage of this in a few years.

Agree with you 100%. However, I do want to point out that most of these school kids that will be assumed to drink up the Apple technology in school will be sorely disappointed in most work environments that do not and will not use Apple technology. I am in engineering and in the energy industry and I simply do not see IT allowing Apple products to be used or supported. In fact, I recently got told to cease and desist using my iPhone for company business. Sadly, Apple or even BYOD has yet to catch on in my industry and I'm afraid these kids will inevitably feel the same pain I do. I am encouraged by the inroads Apple has made in business, but not so much to get my hopes up yet.

I think the point is as these kids become the IT Managers, etc. they will begin changing those policies. It's not something that happens over night, rather it is very long term.

I think over the next 10 years (so, right when the kids that start these programs are getting out of college) that will change. Cost of devices are going to be an area that companies can drastically reduce by using the BYOD model. Also, with so many "critical apps" going to the cloud, Microsoft itself even abandoning many of the "must have Internet Explorer" technologies, the timing for the return of the "dumb terminal" is coming. Of course, these "dumb terminals" will now be what ever device the employee brings with them. Perhaps part of the on-boarding of new employees involves an allowance for hardware and software/licences.
I see this as a viable solution.

Maybe, but I used an Apple II and then Macintosh most of the way through school, beginning at age 6. It wasn't until my later high school years that my school got PCs to replace out dated Macs.

Left out the part how I now use Windows only after using Macs throughout childhood in school from 1991-2003.

It's hard to justify spending money that much on a iPad (or something similar) since most books are provided by the school. College students might make more sense. If I remember correctly, I spent an average of $400/semester. Guess it really depends on the price of soft copy downloads.

so true. I worked on an apple llc when I was in middle school. that was all I knew until my family chipped in to buy me my first computer--it was a dos pc. Apple was rather pricey by comparison.

Textbooks are content, and content should not be restricted to devices that are locked in to a particular vendor/platform. I dont care if that's a model that makes money for investors, let's think of the bigger picture!