The big news today out of Apple (AAPL) is the company's foray into the world of textbook publishing -- the first step being the creation of an app that lets authors easily create textbooks designed specifically for the iPad.
The key question for shareholders: will this materially impact Apple's earnings and share price?
The answer, of course, is that it depends. More specifically, the critical factor will be if Apple can identify the right customers who are appropriate for this product.
In terms of disruptive theory, a science pioneered by Clayton Christensen and Michael Raynor that helps entrepreneurs and investors identify innovations that will help companies break into new markets. From the perspective of disruptive theory, disruptions require enabling technologies -- technologies that add a new basis of competition that enable the entrant to defeat incumbents. In the case of Apple, its enabling technology is tablet computing; tablets make textbooks more portable, allow new forms of collaboration amongst students and teachers, and enable incorporation of rich media (audio and video). So, there is clearly the presence of enabling technologies that will allow Apple to disrupt incumbents in the textbook industry.
However, disruptive theory also posits that entrants with enabling technologies need to find customers who are different from the customers of the incumbents; only after finding new customers and developing a business model that works with these new customers can the disruptive entrant truly transform the entire industry and become an incumbent. From this perspective, I think Apple may struggle: I think the right customers may be those in home schools, who need textbooks, are more inclined to already have apps, and are not beholden to the politics of schools and textbooks. However, Apple does not seem to be pursuing this strategy at this time; media coverage seems to focus on the role of Apple textbooks in traditional school environments. From this perspective, I think Apple will have trouble getting schools to adopt its textbooks and tablets. Home schools, as well as initiatives to build computer-centric private schools, are better targets for Apple and for those looking to disrupt the textbook industry using tablets and e-books as enabling technologies. I think a company focused on this opportunity and using Android as a base -- in much the way Amazon (AMZN) has forked Android to create its own media device and ecosystem -- is much better positioned.
Of course, Apple is still looking very good for shareholders. In spite of its continued price appreciation, Apple is still trading at a P/E of under 16. Moreover, I think Apple's television set, rumored for some time and slated for a 2012 release, is a true disruptive opportunity that has the potential to increase earnings significantly. Add to this the backdrop of inflationary monetary policy -- MZM has risen by more than 10% in the past 12 months -- and I think the future is still bright for Apple's stock, particularly if there are sell-offs that push the P/E ratio down near 10.