Who Will Conquer The Digital Textbook Frontier: Amazon Or Apple?

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Includes: AAPL, AMZN
by: Walter Gault

I'm taking a look inside Amazon's e-Textbook market and Apple's Multi-Touch textbook platform to see how they might effect teachers, students, and the textbook marketplace. Combined with my own recent academic experiences, I hope to provide some insight into this new frontier of education and how it is a potential cash cow waiting to be milked.

Let's start with some differences between the two markets. First, the most easily recognizable advantage Amazon (NASDAQ:AMZN) currently has over Apple (NASDAQ:AAPL) is the sheer number of textbooks available, thousands compared to Apple's meager eight. Amazon has textbooks in Accounting, Architecture, Art History, Business, Computer Science, Communication, Economics, Engineering, History, Law, Mathematics, Medicine, Nursing, Philosophy, Psychology, Science, and Religion with at least 2000 results in each subject and as many as 45,000. Amazon's e-Textbooks are available up to 60% off the print price, and rentals, up to 80% off the print price.

Furthermore, with a free Kindle app, the Amazon e-Textbooks can be read on any PC, Mac, Android or iPad-no Kindle device is required. Apple's closed new software system requires an Apple product (they're meant to be used on an iPad). Compared to the Kindle Fire's low price tag of $199, the iPad seems outrageously high at $499.

If you're a school or a parent, which product makes more sense? For most, a $300 difference is probably enough to induce a lean towards the Kindle.

However, Apple is using their closed system to their advantage. Nearly a month ago, they introduced three new pieces of software focused on education: iBooks 2, a new version of its electronic bookstore, where students can now download textbooks to their iPads; iBooks Author, a Mac program for creating textbooks and other books; and iTunes U, an app for instructors to create digital curriculums and share course materials with students.

The dynamic duo of iBooks Author and iTunes U promotes the creation of Multi-Touch books for the iPad and easy design and distribution of complete courses featuring audio, video, and books. Stanford, Yale, Oxford, and UC Berkeley already have school course pages on iTunes U.

Now, despite Amazon's sweetly affordable Kindle and its massive textbook store, Apple's presence in U.S. school systems, especially colleges, and the iBooks Author gives it an advantage. Allow me to break it down.

Textbooks vs. Teachers

As recent college graduate, I'd like to share what role textbooks and teachers played in my college education and how factors outside those two resources contributed to it or made it easier.

I attended Santa Rosa Junior College for three years and then transferred to University of California, Santa Barbara, to finish the final two years of my education. I majored in Business Economics and minored in Professional Writing with a focus on editing.

For those investors and readers out there who might be far removed from the education scene, my experiences might provide some insight into where digital textbooks are heading.

To buy or not to buy, that was the question. Textbooks were one of the most frustrating purchases I was "required" to make. Why, you ask? Isn't a textbook essential to learning?

In my experience, teachers tend to have their own ideas they'd rather share. Sometimes, textbooks are mentioned only as an official formality; they appear on the syllabus that's distributed on the first day of class and are never mentioned again. My time was better spent on the in-class notes, example problems from the teacher, and perhaps a reader (a booklet published by the school, usually 30-200 pages, consisting of reading material from outside sources that the teacher considers relevant to the class). This is especially the case in a class taught by a seasoned professor, who tends to shoot (teach) from the hip. Younger less-experienced teachers tend to go by the book.

Yet, on the quarter system, with two mid-terms and a final, there were normally a couple questions on the test where the book would help. I could go into teaching-to-the-test versus genuine learning, but that is a whole other tangent. However, it does bring out cost benefit analysis. How many dollars am I spending for the potential ability to find the right answers? Many students, including myself, feel the books aren't worth their price tags.

Often to avoid paying for a brand-new $200+ textbook (because publishers seem to come out with a new edition every year that only changes the cover's picture-they've got to make money right?), I would commit myself to attending every class, use the teacher's notes/slides provided online, get the required reader, and look for the book last. The library usually had a copy or two at the reserve desk, but the maximum loan was 2 hours, and I wasn't the only one avoiding purchasing a new textbook.

As an econ major, a lot of my upper division classes consisted of micro and macro theory, and looking back, I can't honestly say the books were entirely necessary. My professor provided theory notes for lecture, and my T.A. covered potential test problems in section.

My college roommate was a Biology major, and I expected him to get significantly more use out of a textbook, but he said he valued the teacher's notes as much as the book. In addition, we both used online material to supplement our class notes. We found that YouTube and Wikipedia are great places to learn concepts, and they do a better job than a number of textbooks.

Will this digital textbook movement really get that big if teachers are the main source of information, instead of the textbook? Yes. Here's why.

Build Your Own Textbook

Students like having plenty of options on how they study. Some prefer hardcopy books, while others, tired of lugging books, would prefer the digital version stored on their laptop or iPad. The more options students have, the happier they will be. As long as Amazon can keep expanding its digital book selection, it will continue to be an excellent resource for students. Amazon, however, does not have a way to organize the multiple information outlets outside the textbook that students so often use.

Apple's iBook Author and iTunes U are the diamonds in the rough. And having an established link in education (educators love Macs), Apple could dominate this market rather quickly (and a smaller/cheaper iPad on the way might facilitate that faster).

Think about it. With all the budget cuts schools are facing nationwide, rising tuition costs, and general frustration over paying premiums for books students only open a couple times, education is ripe for a customized textbook that teachers can create themselves. There is so much vital class information used by students, provided by the teachers, and absent from textbooks. Current research or trends in the subject of study will keep the textbook on the shelf, or more like the floor of a college apartment

Knowing Apple, the templates they provide in their book-making software are probably straightforward and easy to use, much like the rest of their software. Additionally, students can construct their textbooks from information in class, and professors can make their information accessible to students at other institutions. Students could even share and sell their notes to new students with the same teacher. Furthermore, digital copy is a breeze to update-and it can be done for a fraction of the hardcover cost.

This would be a more fiscally efficient education system that gets to the point of learning by bringing the student and teacher closer together and eliminating the textbook, the distant middleman in this story.

I imagine book publishers aren't going down without a fight, and copyright will rear its head before too long. Apple apparently has deals with its initial publishing partners, including Pearson (NYSE:PSO), McGraw-Hill (MHP), and Houghton Mifflin Harcourt, to bring the cost of high school textbooks to $15 or less.

The high school textbook market is Apple's first target, but I predict college courses will soon start to thrive on this software because both the teacher and the student win.

While both Amazon and Apple are working with publishers, Apple is also subtly encouraging academia to bypass publishers and create their own customized learning platforms and textbooks by using its software. Once teachers discover this software, education is the next business frontier that Apple will come to dominate. While it may be behind Amazon right now, Apple's software infrastructure supports long-term evolution of the textbook, and it will eventually become the leader.

*These views are entirely my own and are the result of my attendance at SRJC and UCSB. If other recent grads have had different experiences, or received an education that has already started incorporating "e-Textbooks," I'd like to hear your perspective.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.