Top Reasons Why Apple Could Trump Amazon in Digital Textbooks

Apple, Inc. (NASDAQ:AAPL) is expected to announce a digital textbook creation toolkit at its Jan. 19 event in New York City. The move could spell trouble for Amazon.com, Inc. (NASDAQ:AMZN).

The idea of digitizing textbooks was said to be already in the mind of the late Steve Jobs, who described textbooks as an $8 billion a year industry ripe for digital destruction, in conversations with his biographer, Walter Isaacson.

The potential entry of the technology giant to the textbook market, which is estimated to be $9 billion and growing at 3 percent per annum, is considered as the next big thing in the e-book industry. In addition, the digital textbooks would kill the resale market.

The U.S. textbook market includes K-12, Higher Education, Reference and Special Teaching Books and Introductory Course Books, which accounts for 50 percent of the textbook market.

Apple is expected to unveil textbooks optimized for the iPad and featuring ways to interact with the content, as well as partnerships with publishers and, according to Ars Technica, the toolkit will be called GarageBand for eBooks.

Just as GarageBand makes constructing multi-part audio tracks easy, the new textbook tool will supposedly support video, 3D graphics, interaction with charts and timelines, audio and other content, Ars Technica added.

Meanwhile, Apple is expected to capture a lion's share of digital textbook market.

Our research indicates that Apple has a very strong following with Authors, Publishers, Faculty and Students and may capture 95% of Digital Textbook Market, while Amazon.com may only participate in the 5% of the market, Global Equities Research analyst Trip Chowdhry wrote in a note to clients.

Over the next 5 years, Chowdhry expects Digital Textbooks may contribute $4.9 Billion to iTunes revenues and $5.14 to Apple's earnings per share.

The analyst said the first books that will come to Apple's iBookStore will be the Introductory Course Books, as these books have mass appeal. Most probably, the iBookStore will be first launched in the U.S and then in the rest of the world.

Meanwhile, the revenue split on Apple iBookStore will be same as on iTunes, i.e. Apple keeps 30 percent of the revenues.

On the other hand, Amazon.com (NASDAQ:AMZN) will struggle to gain traction with digital textbooks and may participate in only 5 percent of the Digital Textbook market as only 2 percent to 3 percent of 17 or younger age group use Kindle. Amazon already publishes many university-level textbooks via its Kindle eBook format.

Amazon Digital Books uses its proprietary format called MOBI (also called Kindle format), while Apple uses an open format called ePub, which Chowdhry says is functionally more complete and richer than MOBI.

Amazon has also failed to connect with the younger demographics with Kindle, while Apple has a very strong following with the younger demographics.