Why universities should hate the iPad by Megan Barnett @FortuneMagazine May 17, 2010, 7:42 AM EDT E-mail Tweet Facebook Google Plus Linkedin Share icons by John Patrick Pullen, contributor If students embrace textbooks on the iPad, college bookstores may lose their shirts. It may be the season for graduation parties and commencement speeches, but colleges and universities are already prepping for next year, even in the bookstore. Next fall, during opening weekend, students will once again file into university bookstores to purchase course materials, school supplies, and a college sweatshirt or two. While the university licensed gear may seem like a throw-in, it’s big business for colleges and their coffers. But as the higher education industry plans for a future involving digital content delivery to devices like Apple’s iPad, these college-branded impulse purchases — and perhaps even college bookstores — may quickly become a thing of the past. Despite the large size and robust performance of the higher education book market, college stores are wary of the effect digital textbooks will have on their future. According to research conducted by the Oberlin, Ohio-based National Association of College Stores (NACS), campus booksellers netted $10.2 billion in total sales last year. Of that, $5.8 billion came from the sale of course materials, with the remaining $4.4 billion taking the form of soft goods. The Association of American Publishers notes that sales of higher education titles actually saw a 12.9% lift in sales from 2008 to 2009, but that doesn’t mean that colleges saw any more money. That’s because independent online booksellers continue to eat away at campus booksellers’ market share. Last year, according to a study performed by NACS, 51% of students bought their course materials at brick-and-mortar college bookstores, and 18% purchased books online through school-approved websites. The remaining 31% either bought no materials or purchased them off-campus. E-books, meanwhile, are slowly gaining traction with students and presenting problems for the stores. According to NACS, electronic titles currently account for just 2%-3% of college bookstore sales, but by 2012 are projected to reach 10%-15%. Meanwhile, publishers like Columbus, Ohio-based McGraw-Hill MHP are keen to make content available on every possible platform. McGraw-Hill, like many publishers, produces physical textbooks and e-books, has its own online learning portals, has developed apps for mobile devices like Apple’s iPhone, and is partnering with New York City-based ScrollMotion to bring content to the iPad later this year. “Quite frankly, we’ll let the students drive the distribution channel,” says Rik Kranenburg, president of McGraw-Hill Higher Education. “Universities are bound to want to be in the middle of this effort, but students, as they do now, will choose.” Currently, McGraw-Hill’s varied content options all come bundled with the physical book. Kranenburg anticipates that in the future these products will be sold separately, but at the moment the company’s emphasis is on market research. So, rather than sell digital products separately for incremental revenue, they are using the opportunity to develop future content strategies. But at this stage it’s unclear how content will even get into students’ hands — or on their devices — in the future. Should the iPad follow a normal adoption trajectory, says Dr. Mark Nelson, a digital content strategist for NACS, 60%-75% of college students will have an iPad or a comparable device in four years. Bypassing the bookstore NACS says bookstores are preparing for a future with digital products. In July 2008 the association launched NACS Media Solutions, a device-agnostic service that works as a conduit between publishers and stores, helping to distribute content to a variety of stores and websites, on a range of devices. But should students demand content on the iPad, bookstores will be locked out. Apple’s AAPL current App Store and iBookstore sales models give publishers the lion’s share of a 70-30 revenue split, and cut out the schools entirely. Meanwhile, in bookstores’ current distribution model, colleges pocket, on average, 6.3 cents of every dollar spent on a new book.* “What’s going to be the most attractive [sales channel] to us as a publisher,” says Kranenburg, “is the one that’s the most successful at getting subsequent semesters of students to use the products.” It’s inevitable that college stores’ book sales revenue will decline. “Our stores have adapted, they are trying to adapt, and we like to think they have been successful,” says Charles Schmidt, director of public relations for NACS. “But it is an undeniable fact that the nature of the college bookstore will change.” As a part of that change, bookstores will be forced to diversify their businesses. Schmidt cites the University of California San Diego Bookstore as a promising example. It stocks textbooks and collegiate gear, runs a green grocer, offers a convenient store, and even sells and repairs computers. Ironically, they currently have every model of the iPad in stock. *An earlier version of this story incorrectly stated that colleges pocket 33% of the price of new books. Colleges pocket 6.3 cents on each dollar, or 6.3%, of the price of new books.