Why Apple Really Wanted iBooks – An Alternate Theory (And Why Everyone is Wrong)
That’s a very pretty idea, and it’s backed up by testimony, Judge Cote’s ruling, and pretty much every blog post on this topic. Here’s Slate, just to give one example:
The iBookstore was Apple’s effort to do to Amazon what it had so long done to the rest of the tech industry: Beat it over the head with a combination of better software, hardware, and content. With the iPad, Apple hoped to create a device that would make Amazon’s Kindle obsolete, and give it the same dominance over books that the iPod had given it over music.
Unfortunately that belief is not supported by Apple’s financial reports. In fact, Apple’s quarterly reports reveal that Apple is making hardly any money from content sales. Instead Apple is making most of their money from iPhone and iPad sales (Example: Q4 2012).
Let me lay out an alternate theory for why Apple launched iBooks.
IMO iBooks was never about the content for its own sake; it was always about the hardware that the content was sold on. I have been saying that for some time now (most recently in late May 2013) but until today I had not backed up my statements with actual data (see above link).
I believe that the initial launch of the iBookstore was merely a stepping stone towards the launch of iBooks 2.0, Apple’s digital textbook platform which launched in January 2012. And that launch was not about content either; I believe it was part of Apple’s plan to get more iPads into classrooms.
This was what Apple was working towards with the launch of iBooks:
I know this is contrary to what everyone is saying (including Apple execs), but if you look at where Apple is actually making money then you’ll see why my theory makes more sense than the idea that Apple was selling content for the sake of content.
BTW, if Apple is in content for its own sake then they sure are passing up opportunities to sell it. There is no iBooks app for Android or Windows, and it took Apple over 3 years to announce a version of iBooks for OSX (due out until later this year).
In Q4 2012, Apple made $17.1 billion on the iPhone, $7.5 billion on the iPad, and a mere $2.3 billion on "sales from the iTunes Store, App Store and iBookstore in addition to sales of iPod services and Apple-branded and third-party iPod accessories". And if you click that link you’ll also see data from Q3 2012 and Q4 2011, both of which also show that Apple was making more money from hardware than from content.
Unfortunately for me Apple doesn’t offer more specific data than that, so I don’t really know how much Apple is making from content. But I don’t think it matters.
In Q4 2012 Apple made $24.6 billion off the iPad and iPhone and only $2.3 billion off the content consumed on those devices. Do you really think Apple gives a toss about the content for its own sake?
I don’t. Content was merely a means to an end, not Apple’s goal.
That quarterly report shows us a trend that has been growing since at least Q4 2009. That was the quarter that Apple saw iPhone revenues nearly triple that of Q4 2008, while revenue from content sales had increased by a decent 25% YoY.
I’m sorry, but if Apple is in content for its own sake then their efforts have been an embarrassing failure. On the other hand, if their goal was to use content to support hardware sales then Apple has been quite successful, making them one of the richest tech companies in the world.
I said earlier in the post that iBooks was a precursor to iBooks 2.0, and that later launch was part of Apple’s long term plan to get more iPads into classrooms.
From what I can tell that plan seems to be working. There are numerous huge iPad programs being launched all over the US. For example, in May 2012 San Diego announced plans to switch their 1:1 program to support 27,000 iPads.
But as impressive as that figure may be it is just the tip of the iceberg. Apple announced in February 2013 that they had 8 million iPads in schools.
Tell me what Apple valued more, the sale of a $500 iPad or the sale of the $100 worth of content on that iPad (or rather the $30 Apple earned from the content)?
I’d say it is the former, but you don’t have to take my word for it. Instead you can take Steve Jobs at his own word, as quoted in the Isaacson biography:
In fact Jobs had his sights set on textbooks as the next business he wanted to transform. He believed it was an $8 billion a year industry ripe for digital destruction. He was also struck by the fact that many schools, for security reasons, don’t have lockers, so kids have to lug a heavy backpack around. “The iPad would solve that,” he said. His idea was to hire great textbook writers to create digital versions, and make them a feature of the iPad. In addition, he held meetings with the major publishers, such as Pearson Education, about partnering with Apple. “The process by which states certify textbooks is corrupt,” he said. “But if we can make the textbooks free, and they come with the iPad, then they don’t have to be certified. The crappy economy at the state level will last for a decade, and we can give them an opportunity to circumvent that whole process and save money.”
I could go on and offer more evidence, including details like the limited selection in iBooks at launch, but I don’t think that is necessary.
I think the financial statements, even though they lack specific details, give us a good idea what Apple’s goals were. It was always about the hardware.